Law: Income Tax Act, 1922

Section: 10(2)(xi)

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 1952-53 - Assessee-company financed certain private company to promote textile mills in 1948 - It was stated that though an entry in its own books dated 31-12-1948 showed that amount as an advance for purchase of share of another company main intention was to assist and finance a company - A part of amount was received and balance remaining unpaid on failure of project of promoting textile mills was claimed as bad debt or alternatively as business expenditure - Said amount was written off on last day of previous year relevant to assessment year in question - Whether to be claimable as a bad or doubtful debt it must be shown as a proper debt - Held, yes - Whether a debt is an outstanding amount which, if recovered, would have swelled profits; it is not money handed order to someone for purchasing a thing which that firm has failed to return even through no purchase was made - Held, yes - Whether since assessee-company was neither banker nor money-lender, advance given by it to another to purchase shares could not be said to be incidental to trading activities of assessee - Held, yes - Whether since amount was more in nature of price paid in advance for shares, it could not be described as debt for purpose of section 10(2)(xi) and, therefore, assessee was not entitled to claim balance remaining unpaid as bad debt under section 10(2)(xi) - Held, yes Section 10(2)(xv) of the Indian Income-tax Act, 1922 - Business expenditure - Allowability of - Assessment year 1952-53 - Whether, since on facts stated under heading 'bad debts' assessee-company in making large payment intended to acquire capital asset for itself and could not be said to be incidental to its trading activities, same could not be allowed as business expenditure under section 10(2)(xv) - Held, yes FACTS The memorandum of association of the assessee-company authorized, inter alia, to be interested in, to promote and to undertake the formation and establishment of, other companies, to make investments and to assist any company financially or otherwise. At the…

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