Patna High Court
Commissioner Of Income-Tax vs Hanumandas Himatsinhka on 25 November, 1970
Equivalent citations: [1971]82ITR356(PATNA)
JUDGMENT Sarwar Ali, J.
1. This is a reference under Section 66(2) of the Income-tax Act at the instance of the Commissioner of Income-tax, Bihar and Orissa. The question which has to be answered in this reference is :
"Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,06,834 could legally be allowed as bad debt ?"
2. The claim of bad debt in question relates to the accounting period June 29, 1957, to June 18, 1958, the assessment year being 1959-60.
3. The relevant facts relating to this reference may be briefly stated.
4. The assessee-opposite-party is an individual carrying on business in cloth on commission basis. He is also carrying on business in money-lending. During the relevant accounting period, the assessee had cash dealings as also regular business dealings in cloth with M/s. Bihar Agents Private Ltd. The assessee's separated son was one of the directors of this company. At the relevant time, M/s. Bihar Agents Private Ltd. owed a large sum of money to the assessee. The assessee held shares worth Rs. 10,000 in Bihar Glass Factory, Colgong. The assessee's separated son was one of the directors of this company. At the instance of the aforesaid two companies the assessee debited a sum of Rs. 2,25,000 to the Bihar Glass Factory and gave credit for the same amounts to M/s. Bihar Agents Private Ltd. The assessee did not credit any interest in his account books to the account standing in the name of Bihar Glass Factory on the said loans due to him. During the relevant year of account, the assessee was able to recover a part of this sum of Rs. 2,25,000. Bihar Glass Factory failed to pay the balance, which resulted in the company going into voluntary liquidation on April 22, 1958. The outstanding amount of Rs. 1,10,054 was written off by the assessee in his books of account. The assessee claimed the said bad debt as deduction permissible under the Income-tax Act.
5. The Income-tax Officer disallowed this amount holding, for the reasons given in his order, that the debt in question was not a trade debt or a loan in the course of the money-lending business. On appeal the order of the Income-tax Officer was affirmed. The conclusion of the appellate authority was that the loan was not given in the course of the money-lending business nor was the same for business considerations. The Tribunal, however, took a different view of the facts and held that the assessee was carrying on money-lending business and the cash advances made to Bihar Agents Private Ltd. were in the course of money-lending business. It further held that the book debt of Rs. 2,25,000 taken over by the assessee in satisfaction of his money-lending loan outstanding from Bihar Agents Private Ltd. was a part of the assessee's money-lending assets, and the "bad debt arising in the course of the money-lending business". The claim of the assessee was, therefore, allowed to the extent of Rs. 1,06,834, the Tribunal having rejected his claim in respect of a sum of Rs. 3,219. The petitioner being aggrieved against this order filed an application for reference to the High Court, which was refused by the Tribunal by its order dated February 26, 1964. The petitioner, therefore, moved this court and by an order dated August 17, 1965, the Tribunal was directed to state a case and refer the question of law already enunciated for the opinion of this court. The case was taken up for hearing before a Bench consisting of R. L. Narasimham C. J. and A. B. N. Sinha J. After some argument the Bench directed the Income-tax Tribunal to submit a supplementary statement of this case on the following questions :
"(1) Whether the debt due to the Bihar Agents Private Ltd. from the Bihar Glass Factory which in June, 1952, stood at Rs 2,25,000 was a debt made in the ordinary course of money-lending business of the Bihar Agents Private Ltd.?
(2) Whether the entire sum of Rs. 2,46,510 which was due to the assessee from the Bihar Agents Private Ltd. in June, 1952, was in respect of the loans advanced in the ordinary course of money-lending business by the assessee to Bihar Agents Private Ltd. or else whether some portion of it was cash advance otherwise than in the course of money-lending business and the amount which was advanced otherwise ?"
6. By a supplementary statement of the case the Tribunal, after consideration of materials on the record, answered the second question as follows:
"(i) that, at the end of Ratha Jatra 2009-2010, Rs. 2,48,119 (item 'C') in paragraph (10) was due to the assessee from Bihar Agents Private Ltd. and the entire sum represented money-lending advances by the assessee to the debtor,
(ii) that to the extent of Rs. 2,25,000 Bihar Agents Private Ltd. assigned the book debt valued at Rs. 2,25,000 (due from Bihar Glass Factory), and that the same was accepted by the assessee in part satisfaction of the moneys due from the debtor, and
(iii) that, at the end of the year, the money-lending loan due from Bihar Agents Private Ltd, became reduced to Rs. 21,481."
7. Appearing for the petitioner the first question that has been raised by Mr. Ugra Singh is that the supplementary statement of the case does not comply with the directions of this court inasmuch as the Tribunal has not stated whether the advances in question were in the ordinary course of money-lending business by the assessee to the Bihar Agents Private Ltd. Shri Lal Narain Sinha the learned Advocate-General who appeared for the assessee urged that, on a fair reading of the supplementary statement of the case along with the order of the Tribunal dated July 24, 1963, it is clear that the Tribunal has come to the conclusion that the loan in question was advanced in the ordinary course of money-lending business. I am of the view that the contention put forth on behalf of the assessee is correct. At the very beginning of the supplementary statement of the case the directions of the High Court have been quoted, which directions clearly state that the Tribunal had to find out whether the loan advanced was in the ordinary course of money-lending business. It is in this context that the findings and conclusions of the Tribunal have to be read and appreciated. In the order of the Tribunal it has been stated that the assessee had a money-lending licence which permitted him to lend sums within the limit of rupees five lakhs. The Tribunal further found that various amounts have been received by the assessee by way of interest between the years 1955-56 to 1959-60. That, even from the Bihar Agents Private Ltd. the assessee had received interest in all those years. On these and other facts, it was held that the assessee was carrying on money-lending business and that his cash advances to Bihar Agents Private Ltd. were in the course of money-lending business. The supplementary statement of the case discloses that the Tribunal, having examined the accounts, found that cash advances had been made in various years by the assessee to Bihar Agents Private Ltd., and came to the final conclusion that at the end of Ratha Jatra 2009 2010, a sum of Rs. 2,48,119 was due to the assessee and the entire sum represented money-lending advances by the assessee to the debtor. It is thus clear that on a fair reading of the order of the Tribunal and the supplementary statement of the case there can be no doubt that the Tribunal has come to the conclusion that the amount due to the assessee from the Bihar Agents Private Ltd. was in respect of loan advances in the ordinary course of money-lending business. The mere omission of the expression "ordinary" in the findings recorded by the Tribunal in the supplementary statement of the case is, in the circumstances of this case, not of any consequence. It appears to me that the purpose of calling for the supplementary statement of the case was not to ascertain whether the loan advanced was in the ordinary course of money lending business but to find out which part of the entire sum of Rs. 2,46,510 was money-lending advance in the ordinary course of business and which part, if any, was cash advanced otherwise than in the course of money-lending business. The Tribunal found that no part of this amount was attributable to advances other than in the ordinary course of money-lending business. The contention of the petitioner, therefore, cannot, in my view, be accepted.
8. The second point raised on behalf of he petitioner was that the assesssee's failure to make any credit for the interest in his books in respect of the book debt of Rs. 2,25,000 taken over by him, leads to the conclusion that: (a) the system of accounting adopted by the assessee was not mercantile system of accounting; (b) the transaction in question was not in the ordinary course of money-lending business, but was with a view to, what the learned counsel described, salvaging the Bihar Glass Factory in which the assessee has interest. Mr. Singh further contended that the assignment in question was not for business consideration. None of these contentions appear to have any force. The mere fact that interest on the book debt of Rs. 2,25,000 has not been credited after the assignment in question does not lead to the conclusion that the mercantile system of accounting was not adopted. It was rightly pointed out by the learned Advocate-General that a person giving up interest may not show any credit in his books of account and that it would not affect the system of accounting. In any event, the question whether it was cash system of accounting or mercantile system of accounting is not relevant with reference to Section 10(2)(xi) so far as money-lending and banking business is concerned. The second part of the argument of Mr. Ugra Singh really attempts to attack the finding of the Tribunal and amounts to inviting this court to hold that the Tribunal should have come to a conclusion that the loan in question was not in the ordinary course of business. What has been urged in this court was accepted by the assessing officer as also the appellate authority and it was this very factual aspect of the case which was under the consideration of the Tribunal. The Tribunal came to a conclusion contrary to that arrived at by the two authorities aforesaid, after considering and rejecting the reasonings of the assessing and appellate authority, whose reasonings include the arguments advanced by Mr. Singh in this court. It is not legally permissible to go behind the findings of the Tribunal. The attempt of the petitioner, which, in my view, amounts to inviting us to take a different view of the question on facts must, therefore, fail.
9. Lastly, it was contended that it is not every advance which is covered under Section 10(2)(xi) of the Act but it must be an advance in the ordinary course of business which may entitle the assessee to the relief envisaged under Section 10(2)(xi) of the Act. The learned counsel cited the following authorities in support of his contention, namely, V. Ramaswami Ayyangar v. Commissioner of Income-tax, [1950] 18 I.T.R. 150 (Mad.), Chinnubhai Madhavlal v. Commissioner of Income-tax, [1937] 5 I.T.R. 210 (Bom.), Commissioner of Income-tax v. Abdullabhai Abdulkhadar, [1961] 41 I.T.R. 545; (1961] 2 S.C.R. 949 (S.C.) and A. V. Thomas & Co. Ltd. v. Commissioner of Income-tax, [1963] 48 I.T.R. (S.C.) 67. Those authorities are not of any help to the petitioner. It is no doubt true that in the case of non-banking and non-money-lending business, what has to be established by the assessee is not only the factum of advance but also that the advance is incidental to the trading activities of the assessee. Similarly, in the case of banking or money-lending business every advance is not covered by Section 10(2)(xi) but it is only advances in the ordinary course of money-lending business which come within the purview of the section. It is, therefore, always a question of fact as to what was the true nature of the transaction in question. As I have already indicated the finding of the Tribunal is that the advances made were in the course of money-lending business. In that situation none of the cases cited above can be of any help to the petitioner.
10. Shri Lal Narain Sinha, the learned Advocate-General, very rightly brought to our notice the decision of the Allahabad High Court in the case of Bareilly Corporation Bank Ltd. v. Commissioner of Income-tax, [1953] 22 I.T.R. 528(All.). This case, although not identical to the facts in the present case, nevertheless is helpful in coming to the conclusion that, on the findings arrived at by the Tribunal, the amount of Rs 1,06,834 has been rightly allowed as bad debt under Section 10(2)(xi) of the Act. The head-note of the case, which is being quoted, brings out of the facts and the decision very clearly. It is as follows :
"The assessee, a banking company, had advanced a loan to an ice factory. The loan kept on mounting up and the ice factory transferred its interest in the shares and assets including lands and buildings of a match factory in discharge of the loan. The assessee subsequently sold this property in bits and realised a certain sum which exceeded the cost price of the property. The income-tax authorities held that the acquisition and sale of the property was a transaction entered into by the assessee in the course of its money-lending business and the profit from the transaction was, therefore, assessable to income-tax. The Appellate Tribunal on appeal agreed with this view. The Appellate Tribunal found that the loan was advanced by the assessee in the course of its business, that the property was not purchased by it is an investment, that the assessee had a rooted objection to investing in immovable properties, that" it was compelled to accept the property in discharge of the loan and that the property was acquired at a time when the value of such property was rising in the market :
Held, (1) that the High Court was only competent to examine whether the inference drawn by the Tribunal that the acquisition and sale of the property by the assessee was a transaction entered into by it in the course of its money-lending business could or could not have been drawn from the primary facts determined by the Tribunal ;
(2) that, in the circumstances of the case, the transaction of purchase of the match factory and the subsequent sale of those premises in different bits could legally be held to be a transaction entered into by the assessee in the course of its money-lending business ;
(3) that the sum received by the assessee in excess of the cost price was therefore income from business and was assessable to tax."
11. Here also the true effect of the finding of the Tribunal being that the sum of Rs. 2,25,000 was part of the debt due to the assessee from Bihar Agents Private Ltd., in respect of loans advanced in the ordinary course of money-lending business, and the debit of Rs. 2,25,000 to Bihar Glass Factory and the credit of the said amount to Bihar Agents Private Ltd., being a bona fide transaction entered into by the assessee in the ordinary course of money-lending business, it follows that the assessee was entitled in the circumstances and in view of the other findings, to the allowance of Rs. 1,06,834 as bad debt.
12. In the result, the question must be answered in the affirmative and in favour of the assessee.
13. The petitioner will pay the cost of this reference. Hearing fee Rs. 250.
G.N. Prasad, J.
14. I agree.