ALAGANANDA MUDALIAR Vs. COMMISSIONER OF INCOME TAX, MADRAS

JUDGEMENT

(1.) The assessee was a creditor of C.K.N. & Son, a firm which carried on a very large business in groundnuts in Madras. In February 1929 C.K.N. & Sons were adjudicated insolvents. The insolvency was one of the biggest insolvencies of recent as in Madras. The firm was indebted to the assessee in the sum of Rs. 26,330 which he wrote off as a bad debt in the year of account 1935-36. The Income-tax Officer considered that he should have written off the debt to the extent of at least 14 annas in the rupee at the time of the adjudication and therefore only allowed a deduction of Rs. 3,291. The Commissioner of Income-tax, Madras, has, as the result of direction by this Court under Section 66 (3) of the Indian Income-tax Act, stated a case and referred the following question of decision :- Was there material before the Income-tax Officer to justify his refusal to allow the assessee to write off Rs. 23,039 in the year of account ?

(2.) C.K.N. & Sons had large assets but the schedule showed that their liabilities were larger. The adjudication of the firm was followed any much litigation. The Mercantile Bank of India, Limited, and the Central Bank of India, Limited claimed to be secured creditors for large amounts. In the course of the argument it has been stated that the amounts claimed by the bank were in the region of Rs. 20,00,000. The Official Assignee refused to accept the contention of the banks that they were entitled to rank as secured editors and the case was carried to the Privy Council. The Official Asinine won before the trial Court but the judgment was overused on appeal. The Privy Council confirmed the appellate decision on the 15th October, 1934. (Official Assignee of Madras V/s. Mercantile Bank of India, Limited, 58 Mad. 181). The Port Trust was also a creditor for a very large amount and claimed priority under Section 49 (1) of the Presidency Towns Insolvency Act. This question came before the Judge sitting in Insolvency (Mockett, J.) on the 11 October 1935. The learned Judge decided that the port Trust was entitled to priority and his decision was confirmed on appeal on the 1 May 1936 (The Official Assignee of Madras V/s. The Trustees of the Port Trust, Madras 1937 Mad. 178).

(3.) On the 15 January 1936 the assessee wrote to the Official Assignee a letter in the following terms :-