TMI Blog1984 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... the company at the end of the previous year relevant to the assessment year 1952-53 was Rs. 84,190-14-0. This balance was carried forward in subsequent years up to the financial year 1956-57. On November 6, 1957, a rent of Rs. 2,250 was debited and the total debit thus came to Rs. 86,440.87 which was the opening debit balance in the account on April 1, 1959. In the financial year 1959-60, the account was credited with a sum of Rs. 49,000 said to represent the proceeds of the sale of the foundry and machinery belonging to the company to M/s. National Engineering Works, Gwalior. The balance of Rs. 37,440.87 was written off as a bad debt on March 31, 1960. It may also be mentioned here that in the assessment year 1955-56, the assessee-Ganga Prasad Singhi had taken over the partnership concern of M/s. Mahadeo Ganga Prasad as his own individual concern. It is on account of this that the claim of bad debt in respect of Rs. 37,440.87 was made by the assessee in the present reference, Shri Ganga Prasad Singhi. 5. It is necessary now to set out certain transactions connected with the advance made by the firm to the company. As stated earlier, the advance to the company was made by the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment of G. P. Singhi for 1960-61, the Income-tax Officer disallowed the bad debt claim of Rs. 37,440. Before the Income-tax Officer, the assessee had explained the above circumstances relating to the write-off by his letter dated March 6, 1965. The Income-tax Officer found that National Engineering Works was a concern in which the assessee himself was a partner having 50% share. This firm was being assessed as an unregistered firm in B-Ward, Gwalior. The Income-tax Officer examined Ganeriwal, the other partner, on March 11, 1965, who affirmed that G.P. Singhi was a partner with him since April, 1959. The Income-tax Officer thereupon called upon the assessee to confirm or deny the above fact by his letter dated March 11, 1965. On March 22, 1965, the assessee replied stating that he was not a partner and that there was no partnership deed for National Engineering Works, but that Ganeriwal who bad signed in the assessee's books of account in token of the sale of the machinery had wrongly informed the Income-tax Officer that he was a partner. Thereupon, the Income-tax Officer gave the assessee an opportunity of confronting Ganeriwal about his statement that the assessee was a partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Assistant Commissioner for different reasons set out in para. 10 of the Tribunal's Order. The reasons given by the Tribunal for restoring the disallowance made by the Income-tax Officer were two in number: (1) The assessee had adduced no evidence that the properties mortgaged by the company had been sold after notice to the mortgagor company and public notice in accordance with law and that the assessee had realised the market values of the properties on the date of sale. (2) Assuming that the amount credited represented the real market value, the assessee had not led any evidence to show that any attempt had been made to realise the balance of the amount due to him in accordance with the provisions of clause 9 of the mortgage deed. The Tribunal, therefore, restored the disallowance of the Income-tax Officer. 11. Out of the aforesaid facts, the question of law that has been directed to be referred is : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in disallowing the claim of bad debt of a sum of Rs. 37,440 in respect of the assessment year 1960-61 ? 12. From the judgment of their Lordships dated November 26, 1973, it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a sum of Rs. 37,500 to M/s.Jai Hind Foundry Works Ltd. The debit balance owed by the company at the end of the year relevant to assessment year 1952-53 was Rs. 84,190-14-0. This balance was carried forward till the financial year 1956-57. There was a further debit of Rs. 2,250 in the assessment year 1958-59. In the next year, a sum of Rs. 49,000 was credited on account of sale of the foundry and machinery to M/s. National Engineering Works, Gwalior. The amount of Rs. 37,440.87 remaining in the account was written off as a bad debt on March 31, 1960. 1 This is the bad debt claimed by the assessee. According to the statement of the case, there were some other transactions relating to the advance. There was a mortgage to the extent of Rs. 1,00,000 on July 5, 1952, by the company though the advance at that time stood at Rs 84,190-14-0. The mortgagees were given a first charge over the unpaid share capital and debts due to the mortgagors according to the mortgage deed. On December 29,1952, the firm issued a notice to the company calling upon it to pay the advance amount together with interest. In furtherance of this notice, the company handed over the absolute charge and possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1960, there was a sale of the assets to M/s. National Engineering Works in which the assessee himself appears to be a partner. This does not seem to be a genuine effort to realise the bad debts. There is no evidence to show that the amount of Rs. 49,000 represented the real value of the assets. We fully agree with the view of the Income-tax Officer that in this case, the assessee was, according to his own case, the mortgagee of the property to M/s. Jai Hind Foundry Works Ltd. In furtherance of the notice for realising the mortgaged property, the property was handed over to the assessee and so he became the owner. In other words, the mortgage came to an end by the transfer of the property in favour of the mortgagee. The Appellate Assistant Commissioner was of the view that the claim was not barred by time even in 1960. What was omitted from consideration was the fact that no claim could be filed by the assessee against himself. If the interest of the mortgagor and the mortgagee happens to come to the same hands, then the mortgage comes to an end. In other words, there was no debtor-creditor relationship remaining after the mortgaged property came into the hands of the assessee. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me bad. It is very important to emphasise the fact that a debt can only become bad if there is a debt. Before the sale of the assets to M/s. National Engineering Works, the assessee could not have sustained any claim for recovery of any amount from M/s.Jai Hind Foundry Works as the entire mortgaged assets had come to his own hands. The normal method of realising money due on a mortgage is to get the property sold through court, but if the mortgagee takes the security for mortgage into his own hands, then the debt no longer subsists. No claim can be sustained in any court after such an event. In fact, no debt remains which can be enforced in court. More simply stated, what it means is that the facts in this case have led to the debtor and the creditor being one and the same. The money was owed to the assessee and he got the property in lieu thereof. This brought to an end the existence of the mortgage. There was no debt remaining after this debt. As all this happened in 1953, we fail to see how a non-existent debt could become bad several years later. So, there was no debt in 1960 or 1959, which could become bad, and clearly the Tribunal is right in holding that the deduction could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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