Law: Income Tax Act, 1922

Section: 66(2),10(2)(xi)

JUDGMENT S. Ramachandra Iyer, CJ.-This reference arises out of the assessment for the year 1953-54 of Messrs. Amarchand Sobhachand, a partnership concern carying on business at Madras as chemists and druggists. They did business in camphor, mercury and other products and in making forward contracts in artificial silk yarn. Another branch of the firm's activity was in money-lending. The accounts of the business were kept on the mercantile basis. For the assessment year 1953-54, the year of account was the previous Samwat year 2008, which ended on October 18, 1952. During that year, the assessee wrote off a sum of Rs. 2,68,385 as bad debt in its money-lending business. This sum represented the entire balance due in respect of its dealings with another firm at Bombay, Bojaji Sobhachand. The assessee claimed a deduction in respect of the amount aforesaid in the course of the assessment for the year referred to above. To appreciate the justification for the claim a few more facts have to be mentioned. The assessee-firm, at the material time, consisted of two major partners and two minors, who had been admitted to the benefits of the partnership. One of the major partners and the two minors are the sons of one S. Amirchand, and all of them put together have a 11/16 share in the assessee-firm. S. Amarchand was a partner in Messrs. Bojaji Sobhachand, to be referred hereafter as the Bombay firm ; his share in that firm was 16 per cent. The Bombay firm was acting as the adatia for the assessee for a considerable time. They cleared the goods indented by the assessee from foreign parts. They also ordered for goods on behalf of the assessee and paid for them. They represented the assessee in the speculative transactions entered into by them in their forward dealings in art silk yarn. Moneys were sent by the assessee to the Bombay firm for the purposes aforesaid ; there were also advances to the firm. There were occasions when the Bombay firm had advenced sums of money to the assessee. The account between them was a single running account, where the balance shifted in favour of one party or the other. The manner of keeping the accounts does indicate that there must have been…

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