1965 (3) TMI 12 - HC - Income Tax

Tribunal was in error in limiting the accounting period to April 29 1944. Where an assessee has in respect of a particular source of income profits and gains once been assessed he cannot vary the previous year except with the consent of the ITO - U/s 3 of the Act the tax is to be charged in respect of the total income of the previous year

Summary

Issues:
1. Determination of the relevant accounting period for assessment year 1945-46.
2. Allowability of bad debt deduction under section 10(2)(xi) of the Indian Income-tax Act.

Analysis:

Issue 1:
The judgment pertains to the assessment year 1945-46, with the accounting period from October 1943 to October 1944. The dispute arose when the partners of a registered firm, engaged in the manufacture and sale of bidis, divided their territories for business purposes on April 29, 1944. The question at hand was whether the previous year for assessment should be considered as ending on April 29, 1944, as contended by the Tribunal, or extend until October 17, 1944. The Court held that the Tribunal erred in limiting the accounting period to April 29, 1944. It emphasized that under section 3 of the Income-tax Act, the tax is charged in respect of the total income of the previous year, which in this case extended until October 17, 1944. The Court noted that a mistake in filing the return for a different period did not deprive the assessee of the right to claim deductions for the actual previous year. Therefore, the Court ruled in favor of the assessee, concluding that the accounting year for assessment in 1945-46 did not end on April 29, 1944.

Issue 2:
Regarding the claim for a bad debt deduction of Rs. 22,389 under section 10(2)(xi) of the Income-tax Act, the Income-tax Officer initially disallowed the deduction, stating that the debt settlement occurred after the firm had dissolved on April 29, 1944. However, the Appellate Assistant Commissioner and subsequently the Income-tax Appellate Tribunal allowed the deduction, considering the settlement period within the relevant accounting period. The Tribunal's decision was based on the premise that the debt should have become doubtful or irrecoverable before April 29, 1944, to be claimed as a bad debt. The High Court disagreed with the Tribunal's reasoning, emphasizing that the actual accounting period extended until October 17, 1944. As the debt settlement occurred within this period, the Court held that the bad debt claimed by the assessee was permissible. Therefore, the Court answered both questions in the affirmative, allowing the bad debt deduction.

In conclusion, the High Court ruled in favor of the assessee, holding that the accounting period for assessment year 1945-46 extended until October 17, 1944, and allowed the bad debt deduction claimed by the assessee.