Law:

Section:

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 - Assessee had advanced loan to debtor twice on a simple mortgage of fifteen villages - Debtor failed to pay amount due under two mortgages - Assessee filed suit for recovery of outstanding amount against debtor - Suit was decreed in terms of compromise - Debtor failed to execute sale deed in favour of assessee in respect of eight villages as required by compromise decree - Assessee filed execution petition and Court executed sale deed of eight villages in favour of assessee - Provision for reconveyance once any time between five to twenty years was binding on every person in whose possession property could be found - There was direction in sale deed that remaining properties would be free from mortgage - Zamindari in State was abolished and eight villages vested in State - A part of debt was satisfied by way of receipt of compensation from State in respect villages acquired - Balance amount was written off as bad debt by assessee - Whether transaction envisaged by decree amounted to mortgage by conditional sale - Held, yes - Whether, therefore, it was possible to write off balance of debt as bad and doubtful debt -Held, yes FACTS The assessee-HUF carried on the business of money lending. On 17-2-1928. the assessee had advanced loan to the debtor on a simple mortgage of six zamindari villages for a period of five years. On 25-10-1931 another loan was advanced to the debtor against simple mortgage covering fifteen villages included in the first mortgage. The period of the second mortgage ended with the end of the first mortgage. The debtor failed to pay the amounts due under the two mortgages. The assessee filed a suit against the debtor to recover the amounts outstandings under the two loans. There was a compromise between the parties. The suit was decreed in terms of the compromise. The debtor failed to execute the sale deed in respect of the eight villages as required by the compromise decree. The assessee applied for the execution. The Court executed a deed in favour of the assessee on 24-2-1939. The deed was described as a…

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