TMI Blog1982 (2) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debt and claimed an allowance in the computation of its taxable income for the assessment year 1966-67. The ITO rejected the claim. The assessee reiterated the claim in the two subsequent assessment years 1967-68 and 1968-69. In support of the claim that the debt has become bad, the assessee represented that the immovable properties belonging to the debtor-company in Banaras and Ranchi bad been attached in execution of a decree. It was further represented that the LIC of India had a first mortgage in respect of the debtor's properties and bad filed a suit in the Patna High Court in enforcement of its claim against the debtor. It was also represented that the company had gone into liquidation. This was the position as ascertained in the year 1971. The ITO ascertained from one of his colleagues in Calcutta that as on February, 1971, the liquidation proceedings of the debtor-company had not yet been finalised. On an appraisal of these facts relating to the position of the debtor company, the ITO held that the debt owed by this company to the assessee-company was not proved to have become a bad debt in any of the account years relevant to the assessment years 1966-67, 1967-68 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 99,546.07 in none of the assessment years 1966-67, 1967-68 and 1968-69 ? " For deduction of a bad debt as an allowance in the computation of taxable profits under the head " Business ", s. 36(l )(vii) of the I.T. Act requires that the debt should have been established to have become a bad debt in the previous year concerned. Elaborate provision is made under s. 36(2) of the I.T. Act laying down the tests on the basis of which alone an allowance of bad debt may be granted to an assessee. Under s. 36(2)(iii) for instance, it is essential that the assessee should establish before the ITO that the debt had become a bad debt in the relevant year of account. More or less similar provisions were in existence under s. 10(2)(xi) of the Indian I.T. Act, 1922. Courts have uniformly held that the opinion or value-judgment of the assessee as to whether a debt had become bad and when precisely the debt had become bad is not decisive for enabling the assessee to claim an allowance under that head. Decisions have laid down that the ITO must he satisfied on evidence that the debt had actually become bad during the account year in order that the assessee may be eligible for the allowance. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal was right in holding that the assessee was not entitled to the deduction of the capital loss of rupees twelve and a half lakhs in none of the assessment years 1966-67, 1967-68 and 1968-69 ? " In the assessment year 1966-67, the assessee claimed a disallowance of capital loss of Rs. 12,50,000 in the following circumstances : The assessee held. 25,000 equity shares of the face value of Rs. 100 each in a private company called South India Corporation (Madras) Private Limited. In the money-lending business of the assessee, the holding of shares in South India Corporation (Madras) Private Limited had always been exhibited as one of its investments. It appears from the records that the South India Corporation (Madras) Private Limited went into liquidation on March 26, 1966. Within five days of the liquidation of that company, the assessee proceeded to revalue all its holding of 25,000 shares in that company. The revaluation was made as at March 31, 1966. The shares were revalued at Rs. 12,50,000. A difference of Rs. 12,50,000 was written off as a loss and the assessee claimed this loss on revaluation as an admissible deduction. It was in evidence that, in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be allowable under general principles of commercial trading as applicable to the computation of business profit or business loss of a money-lender. Since it is the case of the assessee that the South India Corporation's shares only represented its capital investment, the loss necessarily is on capital account. Allowance of capital loss is unknown in income-tax law as one of the components of the computation of taxable income. Before the ITO the assessee appears to have relied on the provisions of s. 2(47) read with section 46 of the I.T Act as being in support of its claim for allowance of this item of capital loss. We are, however, unable to see how the assessee's claim can find any support from this provision. Section 2(47) of the I.T. Act defines transfer of a capital asset as including a sale, exchange, relinquishment or extinguishment of a capital asset or the compulsory acquisition of a capital asset. Section 46(2) of the I.T. Act provides that where a shareholder receives any money or other assets from a company in liquidation the assessee shall be charged to income-tax under the head " Capital gains " in respect of the money so received or the market value of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal at the instance of the Department. As might be seen from the text of the question, it relates to the protective assessment made by the Department, since cancelled by the AAC and the Tribunal of Rs. 1,97,479 as capital gains following a return of the said sum by the assessee for the assessment year 1967-68. The question referred to us on this subject is as follows: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 1,97,479 was not assessable as capital gains in the assessment for the year 1967-68 ? " We have earlier discussed the proper treatment of this amount of Rs. 1,97,479 while we discussed the eligibility of the assessee's claim for deduction of the capital loss of Rs. 12,50,000 by way of revaluation of its investment with the South India Corporation. As we earlier remarked, the sum of Rs. 1,97,479 merely represents the difference between the amount written off in the earlier year and the value of the assets which the assessee had received from the liquidator of the South India Corporation in the subsequent year. We have also indicated that s. 46(2) cannot be fitted in with the protective assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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