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 1949-50 - Assessee was doing money-lending business - Most of this business was being done through another firm 'B' - During year 1936-37, B suffered considerable financial set-back and was adjudged insolvent in 1938 on application by assessee - Insolvency proceedings went on from 1938 till 1950 - In 1941, a dividend was paid by official liquidator to creditors and in that connection assessee received a sum of over Rs. 13,000 - No further amount was received by assessee till 1950 when official liquidator paid Rs. 2195 to assessee - During relevant assessment year, assessee claimed that amount due from B had become irrecoverable and was entitled to be adjusted against income - ITO rejected claim holding that debt had become irrecoverable long before year 1948-49 and should have been written off immediately after debtor was adjudged insolvent in 1938 - Whether since ever in March 1949, official receiver was of view that it was not possible at that stage to say whether any more money would be recoverable from estate of insolvent, conclusion of Tribunal that disputed debt had become irrecoverable long before beginning of relevant accounting year was not justified by any material on record - Held, yes FACTS The assessee had been doing money-lending business on a large scale since long. Most of this business was being done through another firm B. The assessee was sending money to B and that firm advancing it to various debtors on behalf of the assessee. During the year 1936-37, B suffered considerable financial set-back and on assessee's application in 1938, B was adjudged insolvent. These insolvency proceedings through an official receiver went on from 1938 till 1950 at any rate. In 1941 a dividend was paid by the official receiver to the creditors and in that connection the assessee received a sum of over of Rs. 13,000. No further amount was received by the assessee from the official receiver till 1950, when, as a result of certain litigation, which had been pending for some time and which finally ended in favour of…

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