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 1948-49 - Assessee advanced loan to a film producer on demand promissory notes - Film produced by debtor was ready in August 1947 and was yet to be exploited when assessee wrote off same as bad debt on 12-11-1947 i.e., on last date of year of account - It was pointed out by AAC that assessee advanced these large amounts without any security because he expected to be repaid out of exploitation of said film - Whether while debtor had such a valuable asset with him which had not yet been exploited it could not be said by assessee that loan advanced by him to debtor had become irrecoverable - Held, yes - Whether, therefore, loan had not become irrecoverable in year under consideration - Held, yes FACTS Assessee advanced loan of Rs. 70,000 by driblets to a film producer on demand promissory notes. The last of these advances was made on 6-6-1946. The debt was written off on 12-11-1947, which was the last date of the year of account of the assessee relevant to the assessment year 1948-49. The Department took the view that the debt had not become irrecoverable in the year of account and the Tribunal agreed with the view of the Department. On reference: HELD The question was whether there was evidence on the record for the finding of the Tribunal that the loan had not become irrecoverable in the year of account ; and it could not be said that there was no evidence to this effect. The most important piece of evidence was that the debtor had produced a film which was ready either in August, 1947, or in October-November, 1947. It was ready a short time before this loan was written off. It was difficult to take the view that, while the debtor had such a valuable asset with him which had not yet been exploited it could be said by the assessee that the loan advanced by him to the debtor had become irrecoverable. It was pointed out by the AAC that the assessee advanced these large amounts without any security because he expected to be repaid out of the exploitation of this film ; and what the assessee did was to write off this…

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