Patna High Court
Commissioner Of Income-Tax, Bihar And ... vs Pandit Lakshmi Kanta Jha And Others. on 17 February, 1966
Equivalent citations: [1967]66ITR492(PATNA)
JUDGMENT
This reference relates to the assessment year 1957-58, the previous year being the period from October, 1955, to the end of March, 1957, as the assessee changed his accounting year to the financial year. The facts of the case appear from the statement made by the Income-tax Appellate Tribunal under section 66(1) of the Indian Income-tax Act at the instance of the Commissioner of Income-tax, Bihar and Orissa. The only question that arises for consideration is :
"Whether, on the facts and circumstances of the case, the sum of Rs. 10,55,025 due from Kunwar Ganesh Singh was allowable as a bad debt under section 10(2)(xi) of the Income-tax Act ?"
It is not now disputed that the assessee succeeded to the money-lending business of his father within the meaning of section 26(2) of the Income-tax Act after the death of his father who was carrying on an extensive money-lending business. That question was settled by the decision of the Privy Counsel in Maharajadhiraj of Darbhanga v. Commissioner of Income-tax. The Maharajadhiraj of Darbhanga entered into an agreement with Kunwar Ganesh Singh for the opening a business under the name of "Sadhashiva Vishawanath" at Calcutta mainly to carry on forward transactions in gunnies, hessians, linseed, jute, etc., and also dealing in stocks and shares. It was intended to be a partnership business in which Ganesh Singh was to have 0-3-0 share and the rest belonged to the Maharajadhiraj, father of the assessee. On account of failure on the part of Ganesh Singh, that arrangement came to an end in April, 1925. On the 30th of that month, Ganesh Singh executed a registered document on favour of the assessees father Maharajadhiraj of Darbhanga, admitting his indebtedness to him to the extent of Rs. 38,09,571-8-0; and in part satisfaction of that debt, he transferred to him some assets valued at Rs. 20,74,973. He had already, before that date, executed two pronotes in his favour for Rs. 25,000, each. On that day, he also executed a promissory note for the balance of Rs. 16,84,596-1-5, which was to carry an interest at the rate of 9% per annum. A suit was levied on that promissory note, and a decree was obtained against Ganesh Singh in the Calcutta High Court. It was also put in execution, but soon after that Ganesh Sigh died. A decree against his son was obtained in 1953 in respect of the said debt, and that was put in execution. In 1956, it was found that not more than Rs. 10,000 could be realised out of assets of Ganesh Singh left in the hands of his son. The assessee treated the rest of the loan as a bad debt and claimed that under section 10(2)(xi). The Income-tax Officer disallowed that; so did the Appellate Assistant Commissioner of Income-tax. The Appellate Tribunal treated a part of it, namely, Rs. 10,55,025, as a bad debt and allowed deduction in favour of the assessee. On that, the Commissioner of Income-tax asked for reference and obtained the statement of facts from the Tribunal.
One of the questions raised in the order of the Appellate Assistant Commissioner which came up before the Tribunal was that the assessee had discontinued his business of money-lending and bad debt in question was not in relation to a business in his hands. It appears from the order of the Appellate Tribunal that a statement in regard to the advances in money-lending by the assessee, during the previous twelve years was filed before it, and from that it appeared, which the Tribunal believed, that rupees five to six lakhs had been advanced during that time by the assessee in the course of his money-lending business. Considering the change of relationship between the assessee and Ganesh Singh on and from 30th April, 1925, when the registered instrument was executed by Ganesh Singh in favour of the assessee, the Tribunal came to the conclusion that "the whole of the sum of Rs. 32,00,000 represented money-lending advances which had been made by the appellants father". It also came to the conclusion that there was no discontinuance of money-lending business at any time and that the assessee was also carrying on the same business in the previous year connected with the assessment order. On that basis, the Tribunal held that the debt was correctly written off by the assessee as having become bad in the previous year; and on the basis of the court cases and particularly from the course of litigation that preceded the previous year, it was found that the assessee could not have reasonably lost hopes of recovery of the debt at any time previously.
Learned counsel appearing for the department contended that the finding of the Tribunal that the entire sum of Rs. 32,00,000 represented money-lending advances which had been made by the assessees father was not correct, because originally this was made to carry on a business in partnership with Ganesh Singh. Whatever the reason and purpose at the initial stage might have been, the Tribunal was right to look to nature of this advance with reference to the registered instrument that came into existence on the 30th April, 1925, between Kunwar Ganesh Singh and the assessees father. It is well-known that the relationship of a different nature can be changed into the relationship of creditor and debtor if the parties agree to that. Money due from one to another on any other account may be converted into a loan advanced by one to the other. The Tribunal has referred to some decisions in this respect, and the view taken by it, in our opinion, was correct. In regard to the question whether the assessee, after he inherited the money-lending business from his father, carried on the business till the previous year, the Tribunal was right on the materials before it to conclude that there was no discontinuance of the business till the year in question. Learned counsel was not able to show that the statement evidencing money-lending advances of rupees five to six lakhs during the period preceding the assessment year was not fit to be relied upon by the Tribunal. In any case, that was an evidence, and the Tribunal depended upon it to come to its conclusion. Learned counsel took us through the order of the Appellate Assistant Commissioner. We were surprised to see no reference in that order to these money-lending advances as revealed in the account books and/or by the statement in that respect, filed by him before the Tribunal. Learned counsel contended that the assessee did not file any such statement before the Appellate Assistant Commissioner or the Income-tax Officer. If they embarded upon an enquiry about the continuance or discontinuance of the money-lending business, it was the most relevant question that ought to have been gone into by them, but they failed to do so; and we find that, for the first time, the Tribunal went into the matter and discovered that there were money-lending advances to the tune of rupees five to six lakhs during the period preceding the previous year and that was the main thing depended upon, to come to its conclusion about the continuance of the money-lending business in the hands of the assessee. As to whether it had already become a bad debt much earlier than the previous year, learned counsel urged that mere continuance of litigation in courts is not proof of the fact that the debt had not become unrealisable already. Nobody would indulge in expensive litigations or under take the harassment of execution proceedings and transferring execution proceedings from one court to another in pursuit of realisation of ones debts if there was really no chance of recovery of anything. In the present case, even the amount of Rs. 10,000 was found to be realisable in 1956. Therefore, it cannot be said that this debt to the extent of Rs. 10,55,025 had already been discovered by the assessee to have lost any change of recovery before the previous year. In that view, the Tribunals opinion that the debt had not become bad before the previous year cannot be assailed.
All the questions that we have referred to above were questions of fact, and the Tribunal came to its own findings on those facts. It was not, as it could not be, urged before us that those findings were not based upon materials or evidence on record. In that view of the matter, they must be conclusive and cannot be reopened.
For the reasons given above, the answer to the question framed shall be in the affirmative. The reference is accordingly, disposed of. The assessee will be entitled to a sum of Rs. 250 (Rupees two hundred and fifty) only as costs of this reference from the department.
Question answered in the affirmative.