Law: Income Tax Act, 1961

Section: 256

Income-tax-----Business loss---Year in which allowable---Manufacture and sale of miniature bulbs---Proposal for expansion of business for manufacture of fluoresce cent tubes---Amount paid for procuring manufacturing licence and permit for release of foreign exchange---Failure to procure permit for foreign exchange within time stipulated---All Falling within same accounting period---Loss allowable in that year---Writing off of loss in later year---Has no effect. The appellant, a firm which carried on the business of manufacture and sale of miniature bulbs, pursuant to a proposal to expand its business, advances between July 1961, and April, 1962, a sum of Rs.60,000 to M. whose assistance it sought for procuring a manufacturing licence for the manufacture fluorescent tubes as well as. a permit for the release of foreign exchange for importing machinery, plant and equipment for the manufacture of fluorescent tubes. M. had undertaken to refund the amount in the event of delay or failure to obtain the licence and permit. M. could procure only the manufacturing licence in December, 1961; he could not procure the permit for foreign exchange; and since the appellant could not import the machinery, the manufacturing licence was revoked. The appellant filed a suit for recovery of the sum of Rs.60,000 in 1964, the suit was decreed ex parte but no steps were taken to execute the decree. The appellant wrote off the amount in its accounts for the accounting period ending April 30, 1963, and claimed deduction thereof as a bad debt for the assessment year 1964-65. The claim was rejected by the Income-tax Officer. The Appellate Tribunal, however, allowed deduction of the amount as a business loss. On a reference, the High Court held that if the amount was a trading loss, it was not allowable for the assessment year 1964-65 as the loss occurred during the accounting period relevant to the assessment year 1963-64 because the payment of the amount as well as the default by M had all occurred during the accounting period ending 30th April, 1962. The High Court also rejected the argument that the contract became impossible of performance only in the year ending 30th April, 1963,…

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