Law:

Section:

Section 36(1)(vii) , read with section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xi), read with section 10(1), of the Indian Income-tax Act, 1922] - Bad debts - Assessment year 1956-57 - Assessee-company took fully paid-up shares of 'SPL' in full satisfaction of amount due to it in respect of loan originally given to 'SPL' - It also took certain shares in 'K' which was appointed managing agents of 'SPL' - By hawala entries assessee debited entire sum in its accounts - Later, with 'SPL' having been wound up, assessee-company wrote off entire sum and claimed deduction of said amount against its business income - Tribunal disallowed claim on ground that assessee converted loan into a capital investment by taking shares in two companies, that assessee did not carry on any share business at time when debt was written off and that said shares were held as a capital investment and not as a trade investment - Whether after assessee acquired shares, there was no debt outstanding and as such no question of writing it off as a bad or doubtful debt could arise so as to attract provisions of section 10(2)(xi) of 1922 Act - Held, yes - Whether shares in question were acquired by assessee as and by way of capital investment and not in course of its business or trade and, therefore, assessee-company was not entitled to deduction of said amount against business income - Held, yes FACTS The assessee-company carrying on business as a money lender, advanced loan to SP owned by one 'S' which was later converted into a public limited company 'SPL'. The assessee took certain fully paid up shares of 'SPL' in full satisfaction of the amount due to it in respect of the aforesaid loan. It also took some shares in 'K' which was appointed managing agents of 'SPL. By two hawala entries, the assessee made necessary debits in its accounts. The court ordered 'SPL' to be wound up. Subsequently, for the assessment year 1956-57, the assessee wrote off the entire sum is SPL (Shares) account and claimed deduction against its business income under section 10(1) and/or section 10(2)(xi). The Tribunal negatived the claim on the ground that the assessee converted the loan a…

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