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 1944-45 - Assessee was carrying on business as shroffs, bankers, merchants and commission agents - One 'R' used to carry on speculation business in cotton through assessee and a sum was due to assessee from 'R' on 22-10-1930 - For a period of 10 years, assessee realised nothing from R - However, later on, during relevant previous year, assessee sold certain ornaments transferred by R earlier and realised Rs. 10,000 and balance was written off as bad debts in relevant previous year - ITO rejected claim of bad debts in question holding that debt had become bad towards end of Samvat year 1997 and should have been claimed in relevant assessment year 1931-32 - Tribunal upheld finding of ITO - Whether on facts, there was sufficient material on which Tribunal could hold that debt due from 'R' had become bad and irrecoverable long prior to relevant assessment year 1944-45 - Held, yes Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of Indian Income-tax Act, 1922] - Business expenditure - Year in which deductible - Assessment year 1944-45 - Assessee claimed certain sum as legal expenses incurred in opposing an insolvency petition in which he was adjudged insolvent in year 1938 - Expenses were incurred in period 1938 to 1941 - Income-tax authorities and Tribunal treated claim to be belated one - It was found that solicitors of assessee claimed a sum of Rs. 50,000 which was not admitted by assessee and ultimately amount was settled at Rs. 24,000, only during relevant previous year - Whether on facts, it could be held that liability of assessee in regard to amount in question accrued only during year of assessment, hence, claim of expenses in question could not deemed to be a belated one - Held, yes FACTS The assessee-HUF was carrying on business as shroffs, bankers, merchants and commission agents at various places in India. One R used to carry on speculation business in cotton through the assessee and continued doing so till Samvat year corresponding to 1929-30 A.D. whereafter, he did not carry…

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