TMI Blog1965 (11) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... aheera Khatoon is the proprietrix of Rahat Silk Mills and Rahat Dyeing and Printing Works, Bombay, which business she started as early as 1948. She also acquired the business of Tower Trading Company, Bangalore, in the year 1954 B.A. Basith is the proprietor of Desai Soap Works, Bombay. The assesse was giving his surplus moneys off and on to his daughter and son-in-law for their business. These moneys, in the first instance, were debited to the account of the son-in-law, Basith, in the assessee's books. The account was coming even before the year 1948-49, the opening debit balance of that year being ₹ 363. Further advances were made during the years 1948-49, 1950-51 and 1954-55, and the total amount due to the assessee by the end of 1954-55 was ₹ 1,31,290. No interest was debited to this account in any of the years. On September 30, 1955, the last day of the previous year relevant for the assessment year 1956-57, the assessee opened a separate account for his daughter, Zaheera Khatoon, debited it with a sum of ₹ 89,140-10-2, and credited same to her husband's account and wrote off that amount on the same date as irrecoverable , and contended that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. That finding was given by the Appellate Tribunal against the order of the Income-tax Officer, and the Appellate Assistant Commissioner, on appeal, by which the claim of the assessee for the assessment year 1954-55 claiming that loans due from Tajammul Hussain and Abdul Khadir became bad debts was disallowed. In view of that finding of the Appellate Tribunal, the Appellate Assistant Commissioner held that the assessee was a money-lender and that the loans which he advanced to his daughter were genuine and were for her business needs. As regards the contention whether the amount of bad debts was written off by the assessee after making necessary attempts for recovery of the same, the Appellate Assistant Commissioner referred to the opinion given by the assessee's legal adviser based on a note signed by the daughter and the chartered accountant, showing the financial position of her business. The advocate opined that it was practically useless to take any proceedings against the daughter as her liabilities exceeded her assets. The Appellate Assistant Commissioner found that before writing off the debt, the assessee made all the investigations regarding the possibilities of reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by whom the moneys were required, were not preserved by the assessee as the necessity for such preservation was not foreseen then, and, as such, this additional evidence was not available. Obviously, this statement of mine does not amount to an admission as understood by the Tribunal. This mistake on the part of the Tribunal was pointed out at the earliest opportunity in the statement of facts filed along with the reference application under section 66(1). It is unfortunate that once again the Tribunal repeated the same remarks in its order on the reference application. I state that I did not make any such admission as was set out by the Tribunal. Sri Krishna Reddy, the learned counsel for the assessee, made the following submissions before us: (1) The admission attributed to Sri Narasimha Iyengar is the result of the misunderstanding of his submission as is borne out by his affidavit, and the submission made by him has not the effect attributed to it by the Tribunal. (2) Since the Tribunal has rested its decision on the sole ground that the daughter was not the debtor of the assessee on that mistaken impression, that finding has to be set aside, and all the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1965] 2 W.L.R. 751, 756; [1965] Ch. 694. Lord Denning M.R. summed up the position thus: The question then is distinctly raised: Is a client bound by an admission made by counsel in the course of interlocutory proceedings? Pennycuick J. held that the client was bound. He was much influenced by a passage in Halsbury's Laws of England, 3rd edition, volume 3, page 52, paragraph 76, under the title 'Barristers' where it is said: 'The statements of counsel, if made on the trial of an action or in the course of any interlocutory proceedings in the presence of the client or his solicitor or someone authorised to represent the solicitor, and not repudiated at the time, bind the client, and may be used as evidence against him.' It is said that these were interlocutory proceedings. The new solicitor's clerk was there at the time counsel made the admission. It was not repudiated at the time. Therefore the defendant is bound. That passage in Halsbury's Laws of England appears to be based on a dictum of Burrough J. in Colledge v. Horn [1825] 3 Bing. 119, 122. In my opinion, it is stated too widely. An admission made by counsel in the course of proceedings can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case prepared by the Appellate Tribunal, under the Rules framed under the Income-tax Act, is prepared with the knowledge of the parties concerned, and they have a full opportunity to apply for any addition or deletion from that statement, and if the parties approved of that statement, that is the agreed statement of facts by the parties on which the High Court has to pronounce its judgment. The High Court would be committing an error if it takes the arguments of counsel for the assessee as if they were facts and bases its conclusion on those arguments. In New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax [1959] 37 I.T.R. 11; [1960] 1. S.C.R. 249. the Supreme Court held that it is the facts admitted or found by the Appellate Tribunal that would form the basis on which the statement of case would be drawn and reference of the question of law made by the Tribunal to the High Court and that facts which are not found in the order of the Tribunal or in the record before it cannot be the foundation for the raising of any question of law either in the abstract or otherwise. It was also held that the scope and subject-matter of the reference under section 66(2) is co-exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven, the discussion savours of an appellate approach but it is not so. The High Court noticed that the Tribunal had picked up only one reason from the order of the Income-tax Officer and held that the assessee-firm had 'purchased losses' from Damji Laxmidas but said nothing about the other reasons which had influenced the Income-tax Officer. The High Court, however, examined all the reasons given by the Income-tax Officer and reached the conclusion that there was no evidence to justify the finding which had been given in the case... The solitary ground for rejecting the claim is too indefinite to warrant this conclusion. It is contended that we should take into account also the reasons by the Income-tax Officer which were before the Income-tax Tribunal and which have also been mentioned in the statement of the case. The High Court did so and we allowed those reasons to be brought before us.... The question, then, is whether there was evidence to justify the Tribunal's finding that the transactions with Damji Laxmidas were not the transactions of the assessee-firm. In such an enquiry the court looks not to the sufficiency of the evidence but whether any evidence e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead all their evidence at the stage when the matter is in charge of the Income-tax Officer. Opportunity is, however, given for additional evidence by section 31(2) and rule 29, but if further evidence is allowed to be taken under the directions of the High Court under section 66(4), it is likely that tax proceedings may be prolonged interminably, and that could not be the object of the Act as is evidenced by the relevant provisions to which we have already referred. These mainly are the grounds on which the earlier decisions of this court in the New Jehangir Mills case* and the Petlad Co. Ltd. Case***, substantially rest. Their Lordships finally concluded: Having carefully weighed the pros and cons of the controversy which have been pressed before us on the present occasion, we are not satisfied that a case has been made out to review and revise our decisions in the case of the New Jehangir Mills [1959] 37 I.T.R. 11; [1960] 1 S.C.R. 249 and the case of the Petlad Co. Ltd. [1963] 48 I.T.R. (S.C.). 92 On an examination of the above decisions, the following principles can be deduced: (1) The Appellate Tribunal, as a fact-finding body, must base its conclusions on eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifest that no allowance can be claimed unless the debts are in respect of and incidental to the business, profession or vocation, or unless the loans are made in the ordinary course of banking or money-lending business. In other words, if the debt due to the assessee is not incidental to the business, or if the loan was advanced by him out of the motives of business relationship or expediency, no allowance can be claimed in respect of such debt, and the loss must be treated as capital loss. The first argument on behalf of the department is that there was no money-lending business during the accounting year. This contention cannot prevail. The Income-tax Officer was of the view that the assessee was not carrying on money-lending business on the ground that he had no licence. He could not have said that there was no money-lending business at all, because his order refers to the several debts or loans due to the assessee, including the debt in question. For the immediately preceding year, the Appellate Tribunal had examined the question as to whether or not the assessee carried on money-lending business and had found that the assessee was carrying on money-lending business, and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledger folio 105. It discloses that moneys were lent from time to time from 1948, and that on September 30, 1955, a sum of ₹ 1,31,290-10-2 was due. The entries in the right hand column show that that sum was made up of three items: (1) ₹ 6,000 being the amount gifted to Zaheera Khatoon, (2) ₹ 36,150 being the adjustment of loan given to B.A. Basith in his individual capacity as proprietor of D.S. Works (evidently meaning Desai Soap Works), and (3) ₹ 89,140-10-2 being the adjustment of loan given to Z.K. (Zaheera Khatoon) by first debiting it to B.A. Basith, and then transferring to Mrs. Zaheera Khatoon. The statement of the assessee also contains Mrs. Zaheera Khatoon's account which is as follows: Rs. As. Ps. Rs. As. Ps. quot;To 30-9-1955. Amount transferred from B.A. Basith a/c. 89,140 10 2 By amount written off 89,140 10 2 89,140 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that he had not received any interest, and his accounts are maintained on cash basis. The copies of statements of account submitted by the daughter before the Income-tax Officer, C Ward, Bombay, reveal that, on account of her two businesses, she borrowed the moneys from her father, promising to repay with interest at 6 per cent. That she was carrying on business was proved by the licences which she obtained from the Municipal Corporation of Bangalore and the Chief Inspector of Factories, the agreement under which she acquired the business of Tower Trading Company and the orders of assessment passed by the Income-tax Officer, Bangalore, in respect of her returns and this documentary evidence reveals that the assessee lent moneys to his daughter in the course of money- lending business. The statement of the case adverts to all these facts, and their correctness was not disputed by the department. We cannot, therefore, go beyond that statement and accede to the argument of Sri Kondaiah, that the moneys were lent on account of considerations of love and affection, but not as money-lending transactions. There is evidence on record, referred to in the statement of the case, which jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt or the loan or part of it in his books. The assessee must satisfy the Income-tax Officer that in fact the debt or loan became irrecoverable in the year of account. A loan becomes irrecoverable or a debt becomes a bad debt when the creditor has no reasonable expectations of recovering it from the debtor, or when there is no ray of hope at all on which the creditor can rely for recovering the amount from his debtor. Whether a debt has become a bad debt, and when it has become bad are questions of fact. Where the assessee claimed that a certain loan had become irrecoverable in an accounting year, it is not sufficient for the Tribunal in order to deprive the assessee of his claim to deduction under section 10(2)(xi), to hold that it was practically irrecoverable at a time prior to the accounting year. The Supreme Court in Commissioner of Income-tax v. Abdullabhai AbdulKadar [1961] 41 I.T.R. 545; [1961] 2 S.C.R. 949, cited the Privy Council decision in Commissioner of Income-tax v. Chitnavis A.I.R. 1932 P.C. 178 with approval and held that, in order that a loss might be deductible, it must be a loss in the business of the assessee, and not a payment relating to the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and that it would be throwing good money after bad to take legal proceedings for the recovery of ₹ 89,141. Since the proprietrix of the mills (Zaheera Khatoon) is not possessed of any properties, movable or immovable, and earns a little as a commission agent, her agency may be cancelled as soon as any legal proceedings are taken against her and that it was wiser to write off the debt than to sue her and incur a loss. Regarding the amount due from Basith, the advocate opined that it could be recovered, though with a little difficulty. These two documents establish that the assessee made the necessary enquiries, and also took legal opinion, and was convinced that there was absolutely no reasonable expectation of recovering that amount from his daughter. It is only thereafter that the assessee concluded that it was a bad debt and was irrecoverable and wrote it off. On this material, the Appellate Assistant Commissioner was satisfied that it is not a case where the assessee, out of his own whim or fancy, had written off the debt, but did so only after making the necessary enquiries and investigations and held that the requirements of section 10(2)(xi) were satisfied. In r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cannot, therefore, be interfered with. Sri Kondaiah placed reliance on the decision in R.B. Champalal Ramsarup v. Commissioner of Income-tax [1964] 52 I.T.R. 194, where the facts cannot be said to be similar to those in the instant case. The observation of the learned judges that the assessee had not discharged its burden of proving that the debts were good at the commencement of the relevant accounting year, and had become bad during the year cannot, in the light of the decisions referred to above, be understood as an authority for the position that the assessee had not only to prove that the debt became bad in the course of the accounting year, but also that it was a good debt at the commencement of the year. The argument on behalf of the department that no registered notices were issued, nor legal proceedings were taken and, hence, the debt could not be written off has no substance in view of the evidence already referred to. At any rate, we cannot say that the finding of the Appellate Assistant Commissioner in this regard is not based on evidence, and warranting interference by this court. For all these reasons, we hold that the assessee is entitled to the allowance of ..... 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