TMI Blog1963 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... dvanced to Tehrani the sum of ₹ 5,57,022-10-1 in pursuance of the two agreements aforesaid. The picture, after release, proved to be a flop and the expectations of the assessee to make profit out of the financing agreements failed. The assessee was, however, able to realise by collections from exhibitions and by sale of distribution rights, in all a sum of ₹ 4,91,071-12-3. There remained a balance of ₹ 65,950-13-10 due and payable by Tehrani to the assessee. It appears that this Tehrani was not a person of large means. He had a house in the city of Madras, purchased in the name of his wife. He held 100 shares in Newtone Studios Ltd., of the face value of ₹ 10,000. Notwithstanding the indebtedness of Tehrani to the assessee and possibly to several others, his resourcefulness and enthusiasm to produce pictures did not come to an end. The assessee entered into an arrangement with Tehrani on 1st April, 1957, by which Tehrani pledged his shares in Newtone Studios as security for a sum of ₹ 10,000, on condition of the assessee waiving the balance of ₹ 55,950-13-10. As stated already, Tehrani's total liability to the assessee on that date was ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his income-tax returns. The Tribunal took into account the fact that, even as late as 1961, the debtor's account was credited by the assessee with the sum of ₹ 5,000 and odd, being the sale proceeds of an impression of the film Raja Rani. The Tribunal, therefore, affirmed the view taken by the department and held that the claim of the assessee to write off could not be sustained in law. The assessee's applications under section 66(1) of the Act for reference of questions of law to this court failed before the Tribunal and hence these applications have been preferred. The question sought to be referred is this : Whether, on the facts and in the circumstances of the case, the sum of ₹ 55,951 is allowable as a deduction from its profits under sections 10(2)(xi) or section 10(2)(xv) of the Act. Learned counsel for the assessee did not very properly submit that the deduction would fall under section 10(2)(xv). The only short question which arises for consideration is whether the assessee's claim to write off this sum of ₹ 55,950-13-10 on 12th April, 1957, is well founded. If the debt due by Tehrani to the assessee had become a bad and doubtful deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d permissible in the circumstances of the case is undoubtedly upon the assessee, the department cannot insist on demonstrative proof which is quite infallible. What then is the present position and what are the facts proved or admitted ? The debtor is still active in the pursuit of his business, profession or vocation. The assessee himself did not treat the debtor as one financially broken as even during the year 1957, six months after writing off of the present debt, he thought him creditworthy for being lent a further sum of ₹ 25,000. Admittedly, the debtor owns immovable properties both in Madras and in Ootacamund. He is holding shares in a film producing concern. To the outside world the debtor is certainly not a person without credit verging on insolvency. His indebtedness to others under decrees of court is only one side of the picture. It is impossible to assume that the assessee, in these circumstances, could have honestly thought that the sum of ₹ 55,950-13-10 became a bad debt on 12th April, 1957. Mr. Swaminathan, learned counsel for the assessee, strenuously contends, basing himself on the decision of this court in Kamakshi Chettiar v. Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights and obligations in accordance with the terms of that Act. The deficiency of the sum of ₹ 6,125 that was caused in the matter of realisation of the debt was certainly not the direct result of the agreement between the parties, but was only because of the operation of the statute. We do not think that the learned judges meant to lay down as a proposition of law that wherever and whenever a creditor chooses to receive from the debtor not the full amount of the debt, but only a portion thereof, the portion waived and not realised should be available to the creditor as being treated as a bad and doubtful debt. It would always be open to a creditor to show concessions to the debtor, due to various reasons and one cannot say that a creditor would not give up any portion of the recoverable dues unless the debtor was not in a position to pay. There are cases in which, having regard to the mutual relationship between the parties, or in view of future business transactions between them, the creditor and debtor might adjust a particular debt in a particular manner. We are not inclined to accept the observations quoted above as laying down an inflexible rule of law that a waiver by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n uncertain future to be judged as to its soundness as an estimate upon the then facts and probabilities. It is not overthrown as an estimate in 1923 and 1924 by coming to the conclusion, as the Commissioners have done, that in 1930, it had not been proved that the debts were to any extent bad. The principle of this decision is that if a debt is written off as bad and is treated as such for tax purposes, the account for the previous period cannot be reopened for the purpose of bringing in the debt as a trading receipt merely because in a subsequent accounting period it is found to be a good debt. It is true that what all is required is an honest judgment on the part of the assessee at the time when he makes the write-off in the light of events up to that stage and not in the light of later happenings. But it cannot be said that in order to determine the question whether the assessee could have believed that the debt was made on a particular date his subsequent conduct, treating the debtor as solvent and sound, would be irrelevant or inadmissible. In our opinion, the principle of the decision in Anderton and Halstead Ltd. v. Birrell ([1931] 16 Tax Cas. 200) and the observati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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