Law:

Section:

Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Assessment year 1962-63 - On nationalisation, assets and liabilities of assessee-company relating to its life insurance business vested in LIC with effect from 1-9-1956 - Assessee thereafter continued with its general insurance business only - Certain expenses allegedly relatable to life insurance business incurred prior to 1-9-1956 were claimed from LIC but LIC denied its liability - Assessees claim for recovery of said amount from LIC was rejected by life insurance Tribunal as well as High Court - Assessee, accordingly, wrote it off as bad debt and claimed deduction in relevant assessment year - Whether by making a wrong allocation of expenditure towards life insurance business and making an untenable claim from LIC, said expenditure could not change its colour and character and become a debt owing from LIC - Held, yes - Whether, however, once it was held that the amount was not due from LIC it meant that expenditure was incurred not with respect to life insurance business but with respect to the general insurance business carried on by assessee, in which case expenditure having been incurred in account year 1955, no relief could be claimed in respect of same during account year 1961 - Held, yes - Whether, therefore, amount in question was not allowable as deduction in relevant assessment year - Held, yes FACTS The assessee-company was carrying on both life insurance business as well as general insurance business when, on nationalisation of life insurance, its assets and liabilities relating to life department vested in LIC with effect from 1-9-1956. The assessee-company thereafter continued to carry on only the general insurance business. The common expenses incurred prior to nationalisation were allocated between the life insurance business and other parts of the business and the amount allocated to the life insurance business, having been incurred by the assessee-company in 1955, was claimed from the LIC. The LIC disputed the claim on the ground that if the account were properly taken, the LIC would be entitled to recover from the assessee certain amounts. The assessee-company's writ petition in…

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