Law:

Section:

Section 36(1)(vii), read with section 36(2), of the income-tax act, 1961-Bad debt-Assessee was partner in a firm which advanced certain sum to a company against mortgage of assets-On demanding payment, assets were handed over to firm in 1953, which took no action to realise them-In 1960 firm sold assets resulting in shortfall year of rs. 37,440 which was claimed as bad debt-Whether debt had become bad in assessment year 1960-61-Held, no-Whether, in view of the fact that no action-was taken to realise assets and claim shortfall, debt was liquidated in 1953 on taking over assets and no debt was outstanding thereafter-Held, yes Facts The assessee was a partner in a firm which advanced a sum of Rs. 37,500 to a company. The debit balance at the end of the year relevant to the assessment year 1952-53 was Rs. 84,190.14. On 5-7-1952, the company executed a mortgage on its assets, and on 29-12-1952 after the firm issued a notice calling for the advance and the interest due thereon, and in 1953, the company handed over the absolute charge and possession of the assets to the firm. In the assessment year 1959-60, the assets were sold and the sale proceeds credited to the account of the company leaving a balance of Rs. 37,440.87 still due, which was written off as a bad debt on 31-3-1960. The ITO disallowed the assessee's claim for bad debt in the assessment year 1960-61 on the following grounds: (a) the bad debt, if any, had become bad on 15-12-1954, relevant tothe assessment year 1955-56, or earlier, (b) the firm had become owner on taking over the mortgaged assets and hence there was no loss in the assets, (c) the assessee was a partner in the firm which had purchased the assets and the assessee having himself purchased the assets in partnership, there was no real, sale. On appeal, the AAC allowed the assessee's claim but the Tribunal restored the ITO's order holding that (i) the sale of the mortgaged property was not evidenced by any notice and no public notice had been given to show that the mortgaged value had been realised and, (ii ) there was no evidence to show that any attempt had been made to realise the shortfall in accordance with the provisions of mortgage…

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