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 years 1942-43 and 1943-44 - Assessee was a Zamindar and money lender - He received promissory notes and bonds from certain tenants on their failure to pay arrears of rent relating to agricultural lands - Those promissory notes and bonds were treated as his investments in money-lending business - Thus, interest accrued to assessee on those investments was brought to tax in preceding assessment years - During assessment years in question, certain amounts of such bonds and promissory notes were found to be unrealisable - Assessee's claim that those amount should be regarded as bad debts of his money-lending business was rejected by authorities below - Whether, on facts, investments in question were to be regarded as part of money-lending business of assessee and his claim to have a deduction for irrecoverable loans must be allowed - Held, yes FACTS Certain tenants of the assessee who was a Zamindar and a money-lender, failed to make payment of arrears of rent relating to agricultural lands. He took promissory notes and bonds from the defaulters in lieu of the arrear rents. Those bonds, etc. were treated as his investments in money-lending business by the department, and the assessee was actually taxed on accrued interest on these investments in the preceding assessment years. Certain amounts of such bonds and promissory notes were found to be unrealisable in the previous years relevant to assessment years 1942-43 and 1943-44. The assessee claimed that those amounts should be regarded as his bad debts of the money-lending business, and allowed as a set-off against his money-lending and other incomes, on the ground that after the execution of the bonds and promissory notes by the tenants the character of the debts changed and the transactions became a part of the assessee's money-lending business. The claim was not regarded as a valid claim either by the ITO or by the AAC. The claim met with no better fate before the Tribunal. The Tribunal came to the conclusion that as these loans did not have their origin in money-lending…

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