Law:

Section:

Section 36(1)(vii) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xi) of the Indian Income-tax Act, 1922] - Bad debts - Assessment year 1956-57 - Assessee-firm dealt in gur and shakkar and was successor of original firm - Assessee wrote off an amount of debit balance in capital account of retired partner and claimed that amount as revenue loss - Whether firm was also assessed from year to year, on amounts of interest debited to account of retiring partner but firm could not claim amount of interest debited to account at end of relevant accounting year as bad debt under section 10(2)(xi) of 1922 Act - Held, yes - Whether since firm used to carry on business in arhat as well as in gur and shakkar, amount in question could not be regarded as a trading debt - Held - Whether since assessee-firm, which was a successor to the original firm, took over the business with all its assets and liabilities which constituted the consideration for such take over, amount in question, which was an asset in hands of succeeding firm, could not be held to be a trading loss - Held, yes FACTS The assessee was a registered firm carrying on business as commission agents. It also deals in gur and shakkar on its own account. Previously, the firm consisted of nine partners including 'J' who was a working partner. At the close of the Samvat year 2009-2010, 'J' retired from the firm. At the time of retirement there was a debit balance in the capital account of 'J' which stood at Rs. 94,544 at the end of Samvat year 2011-2012. The amount consisted of the following two items: (i) Rs. 55,242, on account of excess drawings and losses during the period Samvat 2000 to Samvat 2012; and (ii) Rs. 39,302, on account of interest charged during the said period. At the end of the relevant previous year the assessee wrote off the entire sum of Rs. 94,544 and in the assessment for the assessment year under reference, it claimed the amount as a revenue loss. The ITO disallowed the claim holding that it was a loss of capital and not of revenue and his decision was upheld by the AAC as well as by the Tribunal. On reference : HELD There was no dispute that the firm used to charge interest on the…

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