Law:

Section:

Section 36(1)(vii) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xi) of Indian Income-tax Act, 1922] - Bad debts - Assessment year 1953-54 - Whether proviso to clause (xi) of section 10(2) does not provide for manner in which question whether a debt is bad or not has to be determined and does not precludes ITO from looking to any subsequent course of business or facts and events which have transpired after amount has been written off - Held, yes - Whether a creditor has to come to an honest at time of writing off of debt that it was a bad and irrecoverable debt but that does not mean that when court is called upon to determine whether as a reasonably prudent man he could have entertained that belief court can only look at true circumstances upto time he wrote off debt and that it cannot look at subsequent events or facts or his subsequent conduct - Held, yes - Whether while there may be a distinction between insolvency for purposes of business and insolvency as contemplated by Insolvency Act but in judging whether a debt is bad there cannot be two standards - Held, yes - Whether standard as has been laid down by authorities is that of a reasonably prudent businessman or director of a company coming to conclusion that debt advanced by him to a particular debtor is wholly irrecoverable and it is impossible in a given case to define what is standard of a reasonably prudent man, that will depend upon facts and circumstances of each case - Held, yes - Whether therefore concept of commercial insolvency cannot be imported into a consideration of question whether and under what circumstances a debt becomes bad - Held, yes - Directors of assessee-company and 'W' company being common, assessee used to finance that company, and transactions were in course of assessee's business - Assessee wrote off a certain amount out of indebtedness of 'W' company and ITO allowed it as a bad debt, on a ground that 'W' company had been suffering continuous losses on account of which available assets were insufficient to meet assessee's liability - Commissioner acting under section 33B, set aside ITO's order on ground that it could not be said that there was no reasonable…

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