Law:

Section:

Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Assessment year 2001-02 - Assessee was a member of Delhi Stock Exchange and was carrying on business of shares and stock broking along with allied activities, such as broker/sub-broker, underwriter to new issues of shares, debentures and securities, etc. - Assessee had purchased shares of 'M' Ltd. in year 1996 on behalf of its sub-broker - Total value of those shares purchased by assessee was Rs. 1.06 crores - Sub-broker made payment to extent of Rs. 64 lakhs only and since remaining amount of around Rs. 41 lakhs was not paid, assessee did not deliver those shares to sub-broker - However, in said year brokerage was shown as income which was assessed as well - Since balance payment was not made even in next years, assessee in its return for assessment year 2001-02 claimed deduction of Rs. 41 lakhs as 'bad debt' - This deduction was initially disallowed by assessing authority, but on second appeal, Tribunal allowed said deduction - Whether merely because shares were not delivered for want of full payment, which was to be made by sub-broker to assessee, it could not be said that there was no transaction between parties - Held, yes - Whether once there was a valid transaction between assessee and sub-broker and assessee had to make payment on behalf of sub-broker which it could not recover to extent of Rs. 41 lakhs, that sum had to be treated as ' bad debt' - Held, yes - Whether, however, since shares remained in possession of assessee, it could sell said shares in market for whatever consideration it could fetch and amount so realised was to be adjusted against amount of Rs. 41 lakhs payable by sub-broker to assessee, before arriving at actual figure of 'bad debt' - Held, yes Ms. Prem Lata Bansal and Paras Chaudhry for the Appellant. Salil Kapoor and Sanat Kapoor for the Respondent. ORDER 1. The admitted facts are that the assessee/respondent herein is a member of the Delhi Stock Exchange and is carrying on the business of shares and stock broking along with the allied activities such as broker/sub-broker, underwriters to new issues of shares, debentures and securities of all kinds, brokers and fixed…

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