c AMARCHAND SOBHACHAND v. COMMISSIONER OF. INCOME TAX, MADRAS July 29, 1969, April 7, 1970 & Januarv 21, 1971 [J, C. SHAH, C.J., K. S. HEGDE AND A. N. GROVER, JJ.] Inoo111e-lllx Act. 1922, s. 10(2)(vi), s. 66(1)-Bad debt-May relate 10 nioney [ending business of assessee or olher business–Question referred by tribunal to Higlz Court n111st corer both businesses u·hen the .c/aini can be related to either-Staten1ent of cuse 1nust contain Tribunal's findings on the facts of the case-Must not be 111ere resume of facts and arg111nents. Supre111e Court Practice-Appeal hy special leai:e against High Court's judg1nent in l11co111e~tax Refere11ce-S11pren1e Court lvi/I not interfere 1''ith finding of /"ct given by Tribunal 011 the evidence recorded in the case. The appellants were a registered partnership firm engaged
in money- Jending business as '.well as business in certain chemical goods and silk yarn. Another firm had a current account v:ith the appellants between the samvat years 2003 and 2008.
At the end of the latter year the said account had a debit balance of Rs. 268385-1-3. In the return of income for the assess- ment year 1953-54 the appellants claimed allowance for the said sum of Rs. 268385 as a bad debt \\'fitten off as irrecoverable.
The clain1 \\'as <lis- allo\ved bv the authorities under the Jncome-tax Act, 1922. The Tribunal referred to the High Court under s. 66(2) of the Income-tax Act, the question \.rhether on the iacts and circumstances of the case the Tribu- nal's finding that the sum in question did not relate to the appellants mooey- Iending business was correct. The High Court answered the question in the affirmative against the appellants.
This Court in appeal by special leave re-framed the question to be ans\\'ered by the T ribunaI so as to cover not only the money-lending business of the nppellants but also the business in chemicals etc. The Court directed the Tribunal to suhmit a suppl~men tary statement of case.
The. supplementary statement of case suhinitted by the Tribunal was ho\\·ever found unsatisfactory in as much as . it con- tained a summary of arguments on both sides but no findings on the facts of the case.
Hence supplementary statement on fact. was called for. The findings given by the Tribunal were against the appellants. On the con· tention that the conclusion reached by the Tribunal was not supported by proper discussion of the materials before it,
HELD : The finding• reached by the Tribunal were findings of fact and those findings were supported hy the evidence on record. The Tribunal had. found that the loans w.erc not made in the course of money-lending business of the assessee nor 1n respect of anv other husiness of the assessce. This finding covered the entire amount so'ught to he deducted. In vic\Y
of this finding \\.:hich was bintlinJ? on this Court, the .lllS\\·tr to the ques- tion re-framed had lo be in favour of the department. j-12.1 BJ Also held : (i) The Tribunal in submilling its slalcmcnl of case must give not only the facts of the case or the arguments of p;,1rties hut also its own findings on the facts and evidence. j-110 DJ
(ii) When the assessee had money-lending as well as other business. its claim for a bad debt under s. IO(!)(xi) of the Act must be considered in relation 10 both the busine.,.cs and the question
submitted by the Tribunal must cover the cfoim in both its aspects. [418 F-419 Al CIVIL APPELLATE JURISDICTION : Civil Appeal No. 949 of 1966. Appeal by special leave from the ju~gment and order dated
September 11, 1964 of the Madras High Court in Tax Case No. 181 of 1962. M. C. Chag/a and B. R. Aganvala, for the appellant. S. T. Desai, R. N. Sachihey and B. D. Sharma, for the respon- dent.
[The appeal was originally heard by J. C. Shah, Ag. C.J., V. Ran;iaswami and A. N. Grover, JJ. The case was twice re- manded to the Tribunal. The first Order of the Court remanding
the case to the Tribuinal was delivered by] Shah, Ag. C. J. M/s Amarchand Sobhachand a firm re- gistered under the Indian Income-tax- Act, 1922, carried. on busi- ness at Madras in drugs, chemicals, mercury, camphor and silk yarn and as money lenders. There were two partners of the firm -Mohanlal Sagmal and Seshmal Sobhachand, and Ramniklal
and Lakshmichand minors were admitted to the benefits of the partnership, each with 7 /32 share in the profits. The appellants had for a long time business relations with a firm styled "Bhojaji Sobhachand" carrying on business at Bombay as
importers of yarn and also as agents and adathias. Sobhachand, one of the partners of Bhojaji Sobhachand with 16% share in the profit and E loss is the father of Seshmal, Ramniklal and Lakshmichand, part- ners of the appellants.
In the books of account of the appellants which were main- tained according to the mercantile system there was a current sarafi account in respect of their transactions with the Bombay firm in which were credited the funds transmitted from Bombay in f
respect of their business transactions. Entries. relating to interest were posted till the end of Samvat Year 2006 in the account on the amount due at the foot of 'the account. The following is a tab!. showing the ~alances at the end of thJ Samvat years 2003 to 2008 and the interest charged thereon :
At the end bfihe Samvat Year 2003 Cr. 2004 D•. 2005 Cr. 2006 Cr. Amount 16,95! ·00 I.02,\88-4-5 27,815-0-0 \ l ,975-0-0 2007 Dr. 2,02,823-12-3 – Interest Dr. 2633-9-3 Dr. 483-\-9 Cr.
1008~ 7-3 . 2()08 Dr. 2,68,385-1-3 In the assessment for income-tllx of the appellants for the assessment year 1952-53 relevant to the account year Samvat AMARCHANDV. C.I.T. (Shah, Ag. C.J.)
2007 an item of Rs. 2,03,147-8-0 in the account of the Bombay firm was disallowed by the Income-tax Officer, but .in appeal the amount was allowed. In the return of income for the assessment year 1953-54 the appellants claimed allowance for Rs. 2,68,385/- due from the Bombay firm at the foot of their running account as a bad debt writtein off as ir{;Ceoverable.
The Income-tax Officer disallowed their claim holding that : "these ·transactions were mere accommodations which can have no bearing to the regular business carried on by the assessee."
The Appellate Assistant Commissioner agreed with the Income- tax Officer. He held that the debt did not arise in the course of the appellanls' business as chemists and druggists nor in the course of their money-lending business. The Income-tax Appel- late Tribunal accordingly confirmed the order of the Appellate Assistant Commissioner.
The assessee firm then applied to the Tribunal to refer the following question to the High Court of Madras : "Whether on the facts and in the circumstances of the case the disallowance of the bad debt of Rs. 2,68,385
is right in law ?" The Tribunal rejected the application, but pursuant to an order made by the High Court of Madras under s. 66(2) submitted a statement of the case on the following question :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the debt of Rs. 2,68,385/- was not one incurred in the course of money lending business of the assessee ?"
In the opinion of the High Court the debt of Rs. 2,68,385/- due to the appellants was not a b~d and doubtful debt in its money- lending business not a debt representing loss sustained in the other business. The question referred was therefore, answered in the affirmative and against the appellants.'
Section 10(2) (xi) of the Indian Income-tax Act, 1922 as in force at the relevant time provided : "(2) Such profits or gains shall be computed after making the following allowances, namely : –
·ff (xi) When the assessee's accounts in respect of any part of his business, profe~.sion or vocation are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in
13-L807SupCJ/7J [1971)3 S.C.R. respect of that part of his business, profession or vocation, and in the case of an assessee carrying on a· banking or money-lending business, such sum in respect of loans niade in the ordinary
course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceed- ing the amount actually written off as irrecover- able in the books of the assessee :
Provided Clause (xi) was in two parts. A bad and doubtful debt due to c the taxpayer, written off as irrecoverable in the books of account was ,properly allowable in computing the taxable profits from business, profession or vocation, whe.re accounts were not kept on the cash basis, 1f the debt was in respect of a loan made in the course of the taxpayer's business as a banker or money-lender, or when the taxpayer was carrying on any other business the debt was in respect of •:iat other business.
Before the Tribunal the appellants claimed allowance for the debt written off relying upon both the branches of s. 10 (2) (xi) and by the application under s. 66 (1) of the Income-tax Act a question covering both the
branches of the section was also sought to be raised. But the question on which the Tribunal was called upon to state the case was in form· imprecise and in im- port somewhat vague. . A bad and dout:ful debt due to an asses- see in respeet of banking or money-lending business is allowable under s. 10(2) (xi) if it. is in respect of loans made in the ordi- nary course of such business. A bad and doubtful' debt in respect of a business other than banking or money-lending is allowable even if it is not in respect .of loan : but a debt due in the course of the business of a money-lending is not allowable unless it is in respect of loans made in the ordinary course of his business. We are of the view that the question should have been referred in the form suggested by the appellants in their application under s. 66 ( 1 ) with appropriate variation~ In the interest of justice, we direct that the question be refrariied as follows :
"Whether on the facts and in the circumstances of the case the Tribunal erred in disallowing the debt of Rs. 2,68,385/- written off by the assessee in their books of account as irrecoverable."
The two branches of the question as reframed then are : ( 1 ) Whether the debt or any part thereof is in respect of loans made c AMARCHAND v. C.I.T. (Shah, Ag, C.J.) in the ordinary course of money-lending business of the appel- lants; and (2) whether the debt or any part thereof is in respect of the other business of the appellants.
We are of the view that before the question may be answered, · it is necessary to call for a supplementary statement of the case from the Tribunal. The Tribunal's order is very brief : it gives no reasons in support of the conclusions. The argument based on the first part of s. 10(2)(xi) that the debts were due in res- pect of the business of the appellants other than money-lending was not considered at all, and the Tribunal disposed of the second part of the case by lnerely observing that it w~s an "acco~oda tion" account to enabie the Bombay firm to tide over the finan- cial crisis" threatening it in Samvat Year 2007, and.that the trans- actions in the account were totally unconnected with the normal business of the appellants. An "accommodation" advaii.ce is a neutral expression : it may' be of the nature of a loan a~vanced in the ordinary course of business by a money lender; 1t may be an advance the money-lending or other business of the asses- see but not in the nature of a loan; or it may be wholly unrelated to ,the business of the tax-payer.
The statement submitted by the Tribunal is also inadequate. It contains only a summary of the business relations between the appellants and the Bombay firm, a statement as to the amounts. due at the end of each year at the foot of the account, the in- terest if any charged and a summary of the orders made by the Incom,e-tax Offic~, the Appellate Assistant Commissioner
and the Tribunal. The statement of the case does not analyse the evidence and throws no light upon the two branches of the argu- ment raised before the Tribunal and which, in our view, arose out of the question on which they ~ere required to submit a state- ment of the case.
Counsel for the Revenue, however, contended that there are three important circumstances which appear from the order of the Appellate Assistant Commissioner and the Income-tax Officer from which it may be inferred that the advances made by the appellants to the Bombay firm were not in respect of loans in the ordinary course of the business of the appellants, nor in res- pect of their other business. Counsel said that (I) Sobhagchand Amarchand partne!' of. the Bombay firm is the father of Seshmal one of the partners of the appellants and of the minors Ramniklal an.d Lakshmichand who are admitted to the benefits of partner- ship; (2) that large amounts of money were advanced shortly before the Bombay firm closed its business; and (3) that there was a consistant practice for paying or receiving interest on the [197!J3 S.C.R
amounts due at the foot of the account, but no interest was charged by· the appellants in respect of the dues at the foot of the account at the end of Samvat Years 2007 and 2008. But the Tribunal has not raised any inference from these circumstances and has merely observed that charging of interest cannot make it a money- lending account.
We, therefore, direct that the Income-tax Appellate Tribunal do submit a supplementary statement of the case on the question refraJl'ed, on both the branches of s. 10(2)(xi) of the Indian Income-tax Act, 1922.
The Tribunal will give opportunity to both the parties of being heard, but will restrict themselves to the evidence on the record. The supplementary statement to be sub- . c mitted within three months from the date the papers reach the Tribunal.
[After receipt of the supplementary statement of case from the Tribll\nal the appeal w«s heard by J. C. Shah, K. S. Hegde and A. N. Grover, JJ. The order of the Court was delivered by] Shah, J. By our order dated July 29, 1969 we called for
;a ~upplementary statement of case on the question reframed in the light of the two branches of s. 10(2) (xi) of the Indian In- come-tax Act, 1922. We have now received a statement of case from the Tribunal. The Tribunal has set out in great detail the arguments advanced before it by the assessee and by the Revenue but it has not set out the facts found by it from the evidence on the record in the light of the arguments advanced.
The state- ment of case is intended to be a finding on facts and not a cata- logue of the arguments advanced at the Bar. Since the Tribunal has not found the facts we are constrained to send back the case again to the Tribunal for submitting to this Court a supplementary F ·statement on facts found by the Tribunal. The Tribunal will sub- mit the statement within three months from the date on which the papers reach the Tribunal.
[After receipt of the second supplementary statement of case from the Tribunal the appeal was finally heard by J. C. Shah, C.J., K. S. Hegde and A. N. Grover, JJ. The Judgment oi the Court was delivered by]
Hegde, J. The appellant firm (which will hereinafter ~ referred to as the "assessee") carried on business in drugs, chem1- <:als, mercury, camphor and art silk yarn .as also in .mone~-lend- ing. over a number of years. The accountmg year with which _we are concerned in this appeal is Samvat year 2008 commencmg from '1ctober 31, 1951 and ending on Oct. 18, 1952. The firm AMARCHAND v. C.J.T. (Shah, Ag. C.!.)
A consisted of two partners, Mohanlal Bagmal and Sashrnal Sobha Chand. Two minors, Ramniklal Sobhachand and Lakshmichand Sobhachand were admitted to the benefits of the partnership. The assessee had dealings for several years with a firm known as '·Bhojaji Sobhachand" (to be hereinafter referred to as the Bombay c
firm). Sobhachand Amarchand, a partner of the Bombay firm, is the father of Seshmal, Ramaniklal and Lakshmichand and he was having sixteen percent share in the Bombay firm. That firm became insolvent in April 1952. The Bombay firm owed certain amount to the assessee. In the assessment of income-tax of the appellant for the assessment year 1952-531 relevant to the account year Samvat 2008, the assessee claimed a deduction of
Rs. 2,68,385/· as bad debt due from the Bombay firm, incurred by that firm in the course of business transaC'tions. The Income· tax Officer disallowed that claim .holding that "these transactions were mere accommodations which can have no bearing to the
regular business carried on by the assessee. In appeal the Appel- late Assistant Commissioner agreed with the Income-tax Officer. He held that the debt did not arise in the course of the assessee's business as Chemists and Druggists nor in the course of their money-lending business. On a further appeal taken by the asses- see to the Income-tax Appellate Tribunal, the tribunal confinned the order of the Appellate Assistant Commissioner. The assessee there'\fter applied to the tribunal under s. 66 ( 1) of the Indian . Income-tax Act, 1922 to submit a statement of the case with the question "whether on the facts and in the circumstances of the case the disallowance of the bad debt of Rs. 2,68,385/- is right in law" to the High Court of Madras for its opinion. The tribunal rejected that application but pursuant to an order of the High Court under s. 66 (2), the tribunal submitted a statement of the case on the following question :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holdin¥ that the debt of Rs. 2,68,385/- was not one incurred Ill the course of money-lending business of the assessee."
The High Court opined that the debt in question was not a bad and doubtful debt in the assessee's money lending business nor a debt representing loss sustained in the other business. The question referied was, therefore, answered in the affirmative and against the assessee. Thereafter the present appeal was brought after obtaining special leave from this Court. At the hearing of the appeal this Court found that the tribunal's order was very brief and that it gave no reasons in support of its conclusions. It also found that the statement submitted by the tribunal was in- adequate. This Court took the view that the question framed at [1971 ]3 S.C.R
th~ .instance of .the High Court ~id not bring out the real quesion A ansmg for dec1s1on. It accordingly reframed the question as follows : "Whether on the facts and in the circumstances of
the case the Appellate Tribunal erred in disallowing a sum of Rs. 2,68,385/- written off_ by the assessee in their books of accounts as irrecoverable ?" By its order dated July 29, 1969 this Court called upon the Tri- bunal to submit a supplementary statement of case on the refram- ed question. The tribunal accordingly submitted a fresh state- ment of the case on the question referred. But that statement c merely catalogued the arguments advanced at the bar. The tri- bunal did not give any findings.on the points arising for decision. Hence by its order dated April 7, 1970, this Court directed the tribunal co submit a further statement. The tribunal has accord- ingly submitted a further statement.
The facts found by the tribunal are found in paragraphs 11 and 12 of the statement. They read : "11. We have taken into consideration the available materials and the rival submissions. The only facts in
favour of _the assessee are thr.t incidental charges are debited to the Bombay firm in respect of some of the remittances and there is a flow of moneys to the Bombay firm up to 10-3-1952 when the last of the remittances
was sent to it before the firm collapsed in abou: April 1952. On the other hand, the narrations in the entries, as they stand, the failure to adjust interest in the account of the Bombay firm at the stage at which it be-
came a debtor in Samvat yea.r 2007, the m~er in which the partner of the appellant-firm tried to explain the position in March, 1954 and the stand of the firm itself at all earlier stages support the case of the Depart- ment."
"12. Having considered all the circumstances of the case, we are of the opinion that the sums in question were not sent to the Bombay firm as loans m_ade in the ordinary course of the money·-lending business of the
assessee nor in respect of any other business of the assessee. As this is the finding with regard to the whole of the amount of Rs. 2,68,385/- there is no question of :lllocating any portion thereof as between the business
of money lending or for any other purpose as preferred to para 7 above." c AMARCHAND v. C.l.T. (Shah, Ag. C.J.) It ts true as contended by the learned Counsel for the asstssee that the conclusions reached by the tribunal are not supported by proper discussion of the material before it. It is also true that the tribunal after catalogueing the arguments
advanced at the bar, has come to certain abrupt conclusions, but all the ~ame it cannot be denied that the findings reached by the tribunal are findings of fact and those findings are supported by the evidence on record. The tribunal has found that the monies sent by the assessee to the Bombay firm were not loans made in the ordinary course of its money-lending business, nor in respect of any other business of the. assessee. This finding covers the entire amount sought to be deducted. Jn view of this finding, which is binding on this Court, our answer to the question reframed has to be in the negative and in favour of the Department. The appeal fails and is dismissed. No costs.
G.C. Appeal dismissed.