Patna High Court
Bansidar Podda vs Commissioner Of Income Tax on 11 October, 1933
Equivalent citations: AIR 1934 PATNA 46
JUDGMENT Courtney-Terrell, C.J.
1. This is the Statement of a case under Section 66, Sub-section (3), Income Tax Act, by the Commissioner regarding the assessment upon the assessee. The facts which have given rise to the assessment and the history of the procedure may be stated thus. The assessee who appears to carry on a considerable business, keeps his account in the mercantile system and therefore his income in the year and the allowable deductions from that income are of a notional character and depend upon the state of affairs' as properly shown by his books. The period under assessment is the Sambat year 1985-86 and the petitioner claimed as a deduction from his income the sum of Rs. 30,580 as a debt which he said had become bad in that year. A considerable time ago the assessee had advanced a sum of money to one Janki Das and by the Sambat year 1985-86 this had accumulated to the said sum of Rs. 30,580. From the year 1979-80 until the year 1982-83 there were acknowledgements by the debtor Janki Das in the books of the assessee and in each of those four successive years the total amount of the debt up to that date was stated together. with interest for that year. The interest 'was compound interest and therefore there was a continuance of the transactions during those years, the amount of interest continually increasing and inasmuch as the interest, was of a compound character, the amount of the principal debt continued to increase. After the year 1982-83 no further interest was charged but a special demand charge was entered up in the books. Now/inasmuch as the last acknowledgement by the debtor was in 1982-83, the period of limitation for the recovery of the debt expired in 1985-86. The Income-tax Officer, before whom the matter first came, in his report to the Assistant Commissioner, stated this fact and made the following statement:
The Civil law on the matter is that' the assessee could not Extend the limitation by book debit of interest, nor even by a stamped endorsement if the loan itself had become barred for realization. In fact the loan has become barred long ago and the 'assessee cannot put in a claim for deduction of this too old a bad; debt (sic) in the accounts of 19.85-86. The item is therefore disallowed.
2. The matter then came before the Assistant Commissioner and he took the same point of view as that adopted by the -Income-tax Officer. There was then a petition under Sections 33 and 66, Sub-section (2), to the Commissioner and the Commissioner refused to state a case before the High Court, but 'dealt' with the matter upon the same basis as that adopted by the Income-tax Officer and by the Assistant Commissioner. He said moreover in paragraph 8 of his order in the revision case that the proper way to deal with the question of whether the debt had become bad was to see whether it was incapable of realization, and when it became incapable of realization, and that he came to the conclusion, in agreement with the Income-tax Officer and the Assistant Commissioner that the debt had become barred by limitation in the year 1982-83 and not 1985-86. The assessee then came to this Court with a petition praying for an order on the Commissioner to state a case. In the order of this Court the Commissioner was asked to state a case upon three points mentioned by the petitioner in his petition. The points were:
(1) When does a debt become a bad debt ? Has the assessee the option of declaring debts bad when he finds that from the circumstances of the debtors he is unable to recover them? Can the Income-tax authorities deprive him of this option ? (2) Whether the debt due from Messrs.' Janki Das Ganpat Rai became barred in the year 1981-82 or ,1985-86 Sambat having regard to the fact that the said debtors acknowledged their liability to pay and admitted the correctness of the balance brought forward in petitioner's account books in the year 1982-83 Sambat ? (3), If the debt became legally barred in 1985-86 is the assessee entitled to claim deduction of the said amount of Rs. 30,580 from the income for the year 1985-86 Sambat ?
3. After the receipt of that order the Commissioner proceeded to. the statement of the case and he stated-that he was of opinion that the date by which the debt became irrecoverable by means of, limitation was three years from the date of the last acknowledgement, that is to say, in the year 1985-86; but he correctly 'appreciated the law which had since the date of the order of this Court, become manifest in the decision of the Privy-Council in ,the case of Commissioner of Income-tax,. Central Provinces v. Chitnavis. He saw that the question for determination as a matter of fact would have been on what-date the debt became bad and not the date on which it became barred by limitation, As pointed out by their Lordships a debt on the one hand may be -barred by limitation, but, owing to the honesty of the debtor and possibly his means, hope need not have been abandoned of recovering the debt. On the other hand notwithstanding the debt may not have been barred by limitation, the circumstances of the debtor may have made the debt quite irrecoverable. He therefore proceeded upon what he has described as a further inquiry by himself and the results of that inquiry are set forth in the last paragraph of his statement of the case.
4. Now it is clear that it has been the practice of the Income-tax Officer, and one cannot say that it is an unreasonable practice, to regard a debt as bad prima facie when it is barred by limitation and no longer recoverable and that appears as being the guide in the matter. The presumption is, however, rebuttable by evidence according to the circumstances of the case. The Commissioner when stating the case departed from the presumption laid down by his own predecessor and as I have said he purported to make an Inquiry to see if the debt, whether barred or not barred by limitation could be considered as bad in the year 1985-86. As I have said the presumption was that inasmuch as it would become barred by limitation in 1985-86 as stated by the Commissioner himself, the question was whether that presumption could be displaced. The finding of the Commissioner is of a peculiar character. As stated by himself he seems to have started with the conclusion that the debt was still recoverable because he refers to the considerable means of the debtor but in the end he does not seem to be determined in his mind whether the debt was still recoverable or whether it had become bad and irrecoverable at a period anterior to the period under discussion. He therefore is reduced to stating that the assessee had not succeeded in showing him that the debt became bad in the particular period which was being considered, forgetting that having regard to the general practice, the irrecoverability of the debt in the absence of other evidence would be assumed to be when it became barred by limitation. The supposed finding of. fact is therefore No. proper finding at all. Moreover, the assessee has been able to point out, and indeed it is admitted by the Department, that for the years during which the acknowledgment by the debtor was given and interest accordingly charged in the books of the assessee, the Department actually taxed the assesses in respect of such interest and they therefore themselves treated the debt as being still alive and the income as having been notionally received.
5. The present decision with which we are dealing that the debt became irrecoverable and had ceased to exist as notional liability before the period 1985-86 cannot be justified on any ground of consistency. The procedure adopted by the Commissioner in starting an inquiry after the order of the High Court directing him to state a case is to my mind to be deprecated in this particular case, because it is clearly a hurried inquiry undertaken in order to bring the case within the law as stated by the Privy Council. The assessee was all along under the impression, as was indeed the Court, that the matter to be dealt with was the state of facts which led up to. the appellate order and the materials upon which the appellate order founded the decision. At the last minute to conduct a sudden inquiry, even if that were a legal inquiry, is hardly a procedure in accordance with the principle of fairness to the assessee; nor has the inquiry, such as it is, resulted in any further finding of fact which is of assistance in determining the points before us. The first of the questions which are set forth in the statement of the case is answered correctly by the Commissioner himself. The question as to whether the debt became barred in 1981-82 or 1985-86 has already been answered correctly by the Commissioner himself. It is clear that it did not become barred until, three years after the last acknowledgment in 1982-83 ; and as to the third question, having regard to the facts with which we have to deal as stated by the Commissioner, that is to say, that the debt had become barred in 1985-86 and there being no other finding of fact before us to show when the debt became bad and irrecoverable other than the finding that the debt became bad by reason of the fact that it was barred, it is clear that the assessee is entitled to deduct the amount of Rs. 30,580 from the income of the year 1985-86 Sambat, This expression of opinion covers all "the questions which we have been asked to decide. The assessee has succeeded and he will be entitled to receive back Rs. 100 which he deposited with the petition and receive five gold mohurs as hearing-fee in addition to the printing cost.
Kulwant Sahay, J.
6. I agree.