Law:

Section:

SECTION 36(1)(vii ) OF THE INCOME-TAX ACT, 1961 - BAD DEBT - ASSESSEE-BANK GOT AMALGAMATED WITH ANOTHER BANK L ON 13-10-1965 UNDER THE BANKING REGULATION ACT AND ITS ASSETS AND LIABILITIES ALSO BECAME ASSETS AND LIABILITIES OF L - HOWEVER, DURING ASSESSMENT YEAR 1971-72, ASSESSEE CLAIMED DEDUCTION OF CERTAIN AMOUNT AS BAD DEBT - WHETHER ASSESSEE MUST BE TREATED AS HAVING DISCONTINUED ITS BUSINESS ON AMALGAMATION ON 13-10-1965 AND, THEREFORE, IT WAS NOT ENTITLED TO DEDUCTION OF IMPUGNED BAD DEBT - HELD, ON FACTS, YES Facts Under the Banking Regulation Act, 1949, the assessee-bank was amalgamated on 13-10-1965 with another bank, L. All the assets and liabilities of the assessee-bank became the assets and liabilities of L. However, during the assessment year 1971-72, corresponding to the previous year ended on 31-12-1970, the assessee-bank claimed certain amounts as bad debts which were due to it from a party prior to its amalgamation. The ITO accepted the assessee's claim and made the assessment accordingly. On the basis of an audit note, however, the assessment was reopened on the ground that inasmuch as the assessee-bank had discontinued its business since 1965, the assessee was not eligible for the deduction. The ITO made a reassessment after rejecting the assessee's contentions. The AAC, however, allowed the assessee's appeal. On the revenue's appeal, the Tribunal reversed the AAC's orders on the ground that since the assessee ceased to carry on business since the date of amalgamation, it was not eligible for the deduction while computing the assessable income. On reference, the assessee did concede that after the amalgamation, the assessee-bank was not carrying on the banking business as defined in section 5( b) of the Banking Regulation Act. However, according to the assessee, the assessee-bank, with reference to the 'advances considered not readily realisable and/or bad or doubtful of recovery' must be held to be carrying on the banking business as envisaged under section 6(1) of the Banking Regulation Act. Held It could not be disputed that realisation of debts 'and turning them to account' is business within the meaning of section 6(1) of the Banking…

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