JUDGMENT
WORT, A.C.J. – This is a case stated by the Commissioner of Income-tax under the order of this Court, dated the 4th of February 1937. The question required to be stated was “Whether in fact in respect of this debt the assessee has been assessed to income-tax in respect of the accrual of interest on this debt it being not clear how the debt can be treated as having been wiped off in 1930 if interest is to be treated as having accrued since that date on the debt”. In my statement I am paraphrasing the question put by the Chief Justice and James, J.
The facts are that assessment was first of all made by the Income-tax Officer of a sum of Rs. 11,615 which was reduced by the Assistant Commissioner to Rs. 10,164. At all material times the assessee wished to deduct from the total assessable income a sum of Rs. 1,600 the debt owing by one Joharmal Bhagwandas. It appears for the facts stated by the commissioner that in the year 1930 the present assessee with a number of his other co-creditors seized the property of Joharmal and paid themselves to the extent of 8 annas in the rupee. According to the order of the Commissioner made on the 15th of February 1936, by which he rejected the assessees petition to state a case, this transaction under which the creditors paid themselves 8 annas in the rupee released the debtor from all further liability. This statement was repeated by the Commissioner on the 30th July 1937 in the case stated by him on that date, the case which we have before us in this application. There was further fact which must be mentioned for the purpose of noting the position of the matter. It is a finding by the Commissioner that the assessee prepares his account on the mercantile system. That being so, and there being no return of interest accruing on debts unpaid, the Income-tax authorities had assessed the assessee with regard to those items in a sum of Rs. 1,000. I repeat, because it seems to me to be conclusive of the matter, that the assessee himself made no return of interest on debts unpaid. It was on the assumption, that income-tax was being paid year by year on interest accruing on debts unpaid, and I presume on the assumption also that amongst those items of interest was an item of interest on this debt of Rs. 1,600 that this Court ordered the Commissioner on the 4th February last year to state a case. But the facts are, as I have regard to this Rs. 1,600. The question therefor strictly does not arise.
There seems to be two answers to the assessees argument with regard to this matter : the first is the finding of the Commissioner that by the taking over of the debts of Bhagwandas in 1930 the liability of that person (the debtor) was wiped out, and that the assessee had no further rights with regard thereto. If that correctly states the fact, then the question whether the debt became statute barred in the year of assessment does not arise. It ceased to be a liability in 1930 and became a bad debt from the point of view of the assessee in that year, and if the wished to take it into account in preparing his account for income-tax purposes, it should have been treated as a bad debt in that year. The second answer is that there was no return of interest with regard to the debt of Rs. 1,600. That being the state of affairs it cannot now be contended that the debt was alone between the year 1930 when this arrangement was made with Bhagwandas and the year of assessment. The Case not having been stated in the form of a question, it is necessary for this Court to state that the assessee is not entitled to treat the sum of Rs. 1,600 as a bad debt in the year of assessment.
The Crown is entitled to costs. Hearing fee five gold mohurs.
DHAVLE, J. – I agree. The fact stated by the Income-tax Commissioner at more places than one in the paper-book, that in 1930 the assessee in the interest of himself and the other co-creditors took over the assets of the debtor and released the debtor of all further liability, and the circumstance that the assessee did not in subsequent years include the debt in his returns (such as they were) which he made to the Income-tax authorities are in my opinion conclusive against the case that the assessee has endeavoured to make. Stress has been laid on the fact that the Income-tax authorities used to estimate a certain amount as interest omitted by the assessee by leaving the personal accounts adjusted. But it seems to me impossible to contend that this estimate included any specific debt and in particular this debt of Rs. 1,600 which it is claimed only became time-barred in the account in the year 1988 and 1990 Sambat.
Reference answered.
