TMI Blog1974 (1) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 25,000 was accepted by the assessee-firm in full settlement of the above said debt. The balance of Rs. 15,100 was written off as irrecoverable. The assessee-firm, therefore, claimed deduction of the said amount. The Income-tax Officer disallowed this claim on the ground that the debt was due originally to the predecessor-firm, that there was no reason to take over the loan by the assessee-firm and that it was not proved that the debtor was in such a bad position as not to pay the debt. The Appellate Assistant Commissioner, on appeal, held that the business taken over by the assessee-firm continued uninterrupted. Change of ownership was not a bar to the allowance of bad debts. It was further found that since the assessee-firm had paid income-tax on the interest of Rs. 11,349, the assessee's bona fides are proved. The write-off, therefore, was justifiable. The Appellate Assistant Commissioner, therefore, allowed the claim. There was a claim for deduction of a sum of Rs. 6,880, which the assessee-firm had incurred by way of legal expenses in connection with an appeal filed in the Supreme Court to recover some amounts from the Central Government. In this claim also, the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decessor firm. Now section 36(2)(i) reads : " In making any deduction for a bad debt or part thereof, the following provisions shall apply : (i) No such deduction shall be allowed unless such debt or part thereof-- (a) has been taken into account in computing the income of the assessee of that previous year, or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or moneylending which is carried on by the assessee, and (b) has been written off as irrecoverable in the accounts of the assessee for that previous year." A close and analytical reading of that provision shall reveal that until and unless the two essential requirements enumerated in clauses (a) and (b) separately are satisfied, a bad debt or part thereof shall not be allowed to be deducted. In clause (a) two situations have been mentioned. Firstly, the bad debt must have been taken into account in computing the income of the assessee of that previous year or of an earlier previous year. Secondly, such a bad debt represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee. The disjunctive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral and sometimes inexact reference to other provisions in the same Act. But such referential words ordinarily are " hereinbefore ", " hereafter " and " hereinbefore provided ", etc. Such words clutter the statute but not the definite article " the ". It is seldom taken as a backward looking referential word. We do not, therefore, agree that the article " the" in clause (b) refers back to the assessee mentioned in clause (a). If the legislature wanted that the asscssee should be one and the same for both clauses, nothing could have been easier than to say so expressly. In clause (b) the draftsman could have easily used some determinant referential word to particularise the assessee to be the same in both the clauses and for the purposes mentioned therein. The draftsman could have very easily used the ordinary referential words in clause (b) such as the assessee " hereinbefore " referred to or similar terms. The very fact that they have not expressly said so can only mean that the legislature did not specifically require the two assessees mentioned in clauses (a) and (b) to be the one and the same person. To make any such intention clear, if there was an occasion, then such a refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely because the article " the is used in clause (b) it would not necessarily mean that the two assessees for the purposes of clauses (a) and (b) must be one and the same assessee. We find it almost impossible to hold that the 1922 Act in this respect is in any manner different from the Act of 1961. We cannot find any indication anywhere in the relevant provisions which would produce that result. It could not be doubted that under section 10(2)(xi) and section 25(4) of the 1922 Act, it was well established that where a partnership is dissolved and one partner took over and continued the business of partnership, it is a case of succession to the business. There is in such a case continuity in regard to the assets and liabilities of the firm and, therefore, the successor-assessee is entitled to write off the debts which have become irrecoverable even though such debts originally belonged to the firm. See C. J. Seth v. Commissioner of Income-tax. The same principle is applied to a case where in the partition of a Hindu undivided family, the family business is allotted to some of the members and is taken over and continued by them. See Mettur Sandal wood Oil Co. v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. We are unable to understand as to how these provisions make out that the successor cannot write off a bad debt relating to the business of the predecessor which business is taken over by the successor. The question of writing off bad debt has to be, therefore, decided keeping in view the language of section 36(2)(i) only. We are of the view that section 36(2)(i) does not prohibit such a writing off. In our judgment, therefore, the new Act does not in any manner change the position of the law as it was under the old Act. Section 10(2)(xi) and sec tion 25(4) in so far as this aspect is concerned are not in any way different from section 36(2)(i) of the new Act even if that provision is read along with sections 170 and 188 of the new Act. It would, therefore, be not correct to argue that the original creditor alone can claim the relief for bad debts under the new Act which was not necessary under the old Act. In our judgment, the abovesaid decisions rendered under the old Act, even at present, are valid and effective in spite of some change in the form and language of the provisions we have considered. We feel it unnecessary to consider whether the successor to a business can cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems to have drawn his inspiration from Nopram Ramgopal v. Commissioner of Income-tax , wherein it is decided that " under section 25(4) of the Indian Income-tax Act, 1922, it is the business which was in existence in 1918 and had been assessed to income-tax under the Income-tax Act, 1918, and not the person, irrespective of the nature of the business he was conducting in 1918, that is entitled to the relief ". These observations ought to be read in the context of the facts of that case and in particular the argument advanced and which was being considered. If that is borne in mind, then there will be no occasion to take the view as the learned author has taken that " unlike-the relief which was granted under section 25(4) of the pre-1961 Act to a business which had been succeeded to after April 1, 1969, being a business which had been taxed under the Act of 1918, the present relief for bad debt is to the person that carried on a business, and not to the business itself". Kanga and Palkhivala in their work on Income Tax, in volume I, page 397, after expressing a somewhat similar opinion that the position of the 1922 Act is no more valid in this respect under the new Act inasmu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
