Law:

Section:

Section 36(1)(vii), read with section 36(2), of the Income-tax Act, 1961 - Bad debts - Assessment year 1998-99 - Assessee, a sharebroker, claimed deduction by way of bad debts under section 36(1)(vii), read with section 36(2), in respect of amount which could not be recovered by him from his clients in respect of transactions effected by him on behalf of his clients - Amount was claimed as a deduction after having been written off as irrecoverable in books of account - Assessing Officer disallowed assessee's claim - However, Commissioner (Appeals) as well as Tribunal allowed assessee's claim - On instant appeal, revenue submitted that assessee had credited only amount of brokerage to profit and loss account and thus, amount of bad debts claimed was not taken into account in computing total income of relevant previous year or of any earlier previous year - Hence, according to revenue, condition stipulated in section 36(2)(i) was not satisfied and assessee was not entitled to claim a deduction in respect of bad debts under section 36(1)(vii), read with section 36(2) - Whether requirement which has been imposed by Parliament in section 36(2)(i) is that a deduction on account of a bad debt can be allowed only where such debt or part thereof has been taken into account in computing income of assessee of previous year in which amount of debt is written off - Held, yes - Whether debt of assessee comprised, inter alia, of value of shares transacted and brokerage payable by client on whose behalf transaction took place - Held, yes - Whether, brokerage having been credited to profit and loss account of assessee, it was evident that a part of debt was taken into account in computing income of assessee for previous year - Held yes - Whether, therefore, requirements of section 36(2)(i) were fulfilled - Held, yes - Whether, therefore assessee was entitled to deduction claimed under section 36(1)(vii), read with section 36(2) - Held, yes [In favour of assessee] FACTS The assessee was a sharebroker. He claimed a deduction of a sum representing an amount due to him by his clients on account of transactions of shares effected by the assessee on their behalf. The assessee claimed…

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