Law:

Section:

Section 36(1)(vii), read with section 256 of the Income-tax Act, 1961 [Corresponding to section 10(2)(xi), read with section 66 of the Indian Income-tax Act, 1922] - Bad debts - Assessment year 1950-51 - Whether a question whether a debt is a bad debt is one of fact and if there is some evidence to justify conclusion, it is not open to High Court in a reference to re-appreciate evidence - Held, yes - Whether where debt had become bad in year 1947, by its mere subsequent amalgamation unilaterally made by creditor with a debt which was recoverable, it did not cease to be bad in that year and hence, it could not be allowed in assessment year 1950-51 - Held, yes FACTS For the assessment year 1950-51, the assessee company claimed that certain amount due in the account of 'N' having been actually written off as irrecoverable in the year of account 1949, they were entitled in the assessment of the profits of that year to be allowed the amount as a bad and doubtful debt under section 10(2)(xi). The amount in question consisted of three items viz., certain amount due from 'N', certain amount originally due from 'B' and another originally due from 'F'. For the amounts due under the accounts styled 'B' and 'F' there was no security. The two accounts of 'B' and 'F' were transferred by the assessees on 3-12-1947, to the account of 'N' and amalgamated with that account. The ITO disallowed the claim of the assessees holding that the entire amount had become irrecoverable in 1947 and not in the year of account 1949. The AAC held that the amount originally due in the account of 'N' had not become irrecoverable in 1949 but had become irrecoverable in the year of account 1950, and that the amount due in the other two accounts had become irrecoverable in the year 1947, and the assessee were not entitled to treat the entire amount as a bad debt in the year of account in 1949. The Tribunal accepted the findings of the AAC that the amounts due from 'B' and 'F' had become irrecoverable in the year of account 1947 and could not be allowed as bad or doubtful debts in the assessment of profits for the year of account 1949. On reference, the High Court held that the conclusion whether a…

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