TMI Blog1954 (8) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, jute, wine and textiles. Such bills amounting in all to about ₹ 5,90,000 were negotiated by the Calcutta and Bombay branches of the applicant bank. At the time of Japanese occupation of Hongkong some of the bills had been duly met by the debtors in full and on some others partial payments had been made leaving in all ₹ 4,23,271 outstanding on these bills. After the Allies' re-occupation of Hongkong the applicant bank on 12th November, 1945, enquired from their Hongkong office about the possibility of realisation of this debt at Hongkong and on 23rd November, 1945, had a cable from Hongkong that the outstanding bills were uncollectable at Hongkong. The debt seems to have been written off on 30th of November, 1945, the last day of the relevant previous year on the basis of this cable. It may be mentioned here that it was not the applicant's claim that prior to Japanese occupation of Hongkong there was any serious default by the debtor in meeting his liability. In fact, as late as 26th of March, 1945, in a letter to the Calcutta Officer, the Bombay Agent of the applicant bank mentioned that he would be prepared to accommodate the debtor to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his, in our opinion, raises the following question of law : Whether in the facts and circumstances of this case, the applicant bank was entitled to claim this debt as bad and doubtful under section 10(2)(xi) even without determining as to what part of the debt was really irrecoverable. S. Mitter, for the assessee. E. R. Mayer, and B. L. Pal, for the Commissioner. JUDGMENT CHAKRAVARTTI, C. J.- It has not been easy for us to follow the course which this matter has had, because no one seems to have known on what ground he was standing or stood long on the same ground. The assessees are the Hongkong Shanghai Banking Corporation. In their assessment for the assessment year 1946-47, they claimed a deduction of ₹ 4,23,271 which was the total of two debts of ₹ 2,90,458 and ₹ 1,32,813 due to them from a customer, named Messrs. C. M. Karanjia Co. The first of the debts was due to the Calcutta branch of the assessees and the second to their Bombay branch. The Income-tax Officer disallowed the claim on the ground that, in his view, the bank had been unable to substantiate that the debt had really become irrecov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient if the debt was a doubtful one. The department, on the other hand, contended that whether there was a bad or a doubtful debt, was wholly irrelevant in the present case, inasmuch as the assessees were a banking company and, therefore, they could claim a deduction only if the sum concerned was a loan made in the ordinary course of their banking business and if it was proved to the satisfaction of the Income-tax Officer to have become irrecoverable in the year of account. It is quite obvious that, according to the department, the assessees, being a banking company, came not under the first part of section 10(2)(xi), but under its second part. Having put forward that view of the legal position of the assessees, the department proceeded to rely upon the circumstances which, according to them, justified the finding of the Incometax Officer that the amount in question had not been proved to have become irrecoverable. It is really not necessary for the purposes of this reference to set out what those circumstances were, but in order that the question referred to this Court may be better understood, I may refer to some of them. It was pointed out that between the 25th and the 30th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al part of the loan did look doubtful of realisation. The contention of the assessees, it will be remembered, was that even a doubtful debt would suffice to sustain a claim of deduction, but the Tribunal do not appear to have considered it necessary to deal with that contention specifically. In their view, the assessees being a banking company, the second part of section 10(2)(xi) was applicable to them and, therefore, they could claim a deduction only if the sum in question was proved to have been irrecoverable to the satisfaction of the Incometax Officer. The question as to whether a deduction could be claimed under the first part of section 10(2)(xi) on the basis of the debt being doubtful as distinguished from bad was not, in the opinion of the Tribunal, relevant, since the first part of section 10(2)(xi), which spoke of bad and doubtful debts, was not applicable to the assessees. It must be clear by now that the basis on which the Tribunal disposed of the assessees' claim was that they were bankers, that they could claim a deduction under section 10(2)(xi) only in respect of loans and that the question of a debt being bad or doubtful did not arise in their case, inasmuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should come to be of the view that the amount had become really irrecoverable ? About the utility of asking such a question, I shall have to say something later, but I hope what I have said is sufficient to indicate the nature of the question asked. It appears that on the 3rd of January, 1951, the reference came up for hearing before Harries, C. J., and Banerjee, J., when they made an order under section 66(4) of the Act, directing the Tribunal to submit a further statement of case. The Judgment of the Court was delivered by Banerjee, J., with whom Harries, C. J., agreed. His Lordship observed that it could not be and had not been disputed that if the transaction amounted to a loan, then having regard to the finding of the Appellate Tribunal that the amount had not become irrecoverable on the 30th November, 1945, the assessees could not claim a deduction in respect of the amount. His Lordship, however, considered it necessary to find or have it found, whether the amount in question was really a loan or it could be said to be a debt. He pointed out that the taxing authorities had treated it as a loan, but observed that no facts had been stated in the statement of case in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, so far as he is concerned, that the debt or a part of the debt had become irrecoverable. What is important for taxing purposes is not an assessee's right to make a claim, but his right to have a claim allowed. It is, therefore, somewhat surprising that the question should be limited to only the initial stage of a claim of deduction, namely, the circumstances in which the assessee would be entitled to make a claim without, apparently, any reference to the conditions required to be fulfilled, if the claim is to be allowed. Unless a mere claim made by the assessee is final, there is no point in asking in what circumstances the assessee can make a claim. I do not think that even if one confines oneself solely to the first part of section 10(2)(xi), one can say that the assessee's claim that a particular debt is bad and doubtful is conclusive, so long as he himself bona fide thinks that it is so. In my view, however, there is a broader and far stronger reason to hold that the question referred in the present case is entirely pointless. The subject-matter of clause (xi) of section 10(2) of the Income-tax Act is one of the numerous allowances which that sub-section provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer may estimate to be irrecoverable and unless the latter phrase is taken to relate and refer back also to the earlier of the two sums the first of the two phrases would become wholly unconstruable, the word such , to use an expression I used in the course of the argument, hanging in the air. In my opinion, the meaning I have suggested makes both good sense and good grammar and is the only meaning possible. It appears that it has also the support of authority and the same view has been taken in at least two decided cases, R. B. Seth Ganga Sagar v. Income-tax Appellate Tribunal ((1947) 15 I. T. R. 16) and Tejpal Jamunadas v. Commissioner of Income-tax, U. P. V. P., Lucknow ((1953) 23 I. T. R. 123), though in the latter case the question does not appear to have been argued. It was strongly contended by Mr. Mitra that we should not sacrifice good sense to grammar and should not overlook that the two parts of clause (xi) contemplated liabilities of entirely different kinds and that to make the phrase as the Income-tax Officer may estimate to be irrecoverable govern both, would be not only to disregard the difference between the two classes of liabilities, but also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition as the Incometax Officer may estimate to be irrecoverable would not be inappropriate, but what he contended was that if that condition was superimposed on doubtful debts as well, the consequence would be to reduce all debts contemplated by the first part of clause (xi) to bad debts and to extinguish doubtful debts altogether or, to put it in another way, to convict the Legislature of having used the word doubtful although it really meant nothing different from bad, and thus committed an act of redundancy. I do not think that the basis upon which Mr. Mitra's argument proceeded is correct. It is to be noticed that the first part of clause (xi) does not speak of bad or doubtful debts, but it speaks of bad and doubtful debts. As far as I am aware, the two words bad and doubtful are always applied adjectively to the same class of debts, meaning debts of which the chance of recovery is nil or slender. Mr. Mitra sought to support his contention by reference to the rules under Schedule D of the English Act and to the decision in Bristow (H. M. Inspector of Taxes) v. William Dickinson Co. Ltd ((1946) 27 T. C. 157). I do not see that the decision ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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