Law: Income Tax Act, 1922

Section: 10(2)(xi)

Income-tax Act (XI of 1922)-----S.10(2)(xi)--Bad debt--Assessee, a private limited company made advances for promotion of two other companies--Government, however, did not grant permission to said companies to commence business and as such assessee was not able to recover the advances so made--Advances having been made during the course of carrying out the business of the assessee company, Income-tax Appellate Tribunal, held, was justified in directing the Income-tax Officer to allow the amount advanced by company as bad debt under S.10(2)(xi) of the Act. JUDGMENT SAEEDUZZAMAN SIDDIQUI, J.--The following questions have been referred to us for decision under section 136(2) of the Income-tax Ordinance, 1979:-- "(1) Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was justified in directing the Income-tax Office to allow a sum of Rs. 13,90,230 as bad debts under section 10(2) (xi) of the Income-tax Act? (2) Whether, on the facts and in the circumstances of the case, the assessee company is an investment company? (3) Whether, on the facts and in the circumstances of the case, the advances to M/s. National Steel Mills and M/s. Motor Corporation of Pakistan were made during the course of carrying out the assessee's business within the meaning of section 10 of the Income-tax Act? (4) Whether, on the facts and in the circumstances of the case, the advances made to M/s. National Steel Mills and M/s. Motor Corporation of Pakistan were a revenue expenditure?" The facts as stated in the reference are as follows:-- The respondent/assessee a primate limited company, during the year 1973-74 claimed a sum of Rs. 20,17,543 under the head "bad debts". On scrutiny of the accounts the Assessing Officer found that out of the above stated amount a sum of Rs. 5;07,000 was advanced to M/s. National Steel Mills of Pakistan, while another sum of Rs. 8,20,230 was advanced to M/s. Motor Corporation of Pakistan Ltd. The Government, however, did not grant permission to the aforementioned two firms to commence business and as such the assessee was not able to recover the advances made to them. The Assessing Officer disallowed the claim for bad…

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