Commissioner of Income Tax vs Byramjee Jeejeebhoy (P) Ltd.

T.D. Sugla J.

The only question of law raised in this reference is :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income amounting to Rs. 2,85,495 taxed in accrual basis and subsequently written off as bad debt is an admissible deduction under the head ''Income from other sources'' ? "

The assessee is a company. Proceedings relate to the assessment year 1970-71. The assessee wrote off a sum of Rs. 2,85,495 representing interest accrued on an amount paid in advance to New Swastik Land Development Corporation (for short "the Corporation") as bad debt during the previous year. The amount was not received in the year of accrual and the assessee was taxed on it on accrual basis. The amount having not been received for a number of years, the assessee filed Suit No. 650 of 1968 against the Corporation in this court. Consequent upon the order of this court, the amount of Rs. 2,85,495 was no longer receivable for which reason the assessee-company wrote it off during the previous year.

The assessee claimed this amount as deduction against its business income. The claim was disallowed by the Income Tax Officer observing that the aforesaid income by way of interest from the Corporation is income from "other sources" assessed on accrual basis and there being no provision in sections 56 to 59 allowance of "bad debt" as such, the claim had to be disallowed. For this very reason, the Appellate Assistant Commissioner confirmed the disallowance. On further appeal by the assessee, the Tribunal held that the claim was allowable as interest income was taxed as business income in the year of accrual. The Tribunal also held that having regard to its decision in the assessee''s own case for the assessment year 1956-57, the claim would also be allowable even if the said income was held to be income from other sources.

The submission of Dr. Balasubramanian, learned counsel for the Department, is that in view of the finding that the income by way of interest was assessed as income from other sources, deduction could be allowed, if at all, only u/s 57(iii) of the Income Tax Act. As non-recovery of interest was certainly not an expenditure which would fall within the meaning of section 57(iii), Dr. Balasubramanian argued that the Tribunal was not justified in accepting the assessee''s claim for deduction.

We were taken through the orders of the Income Tax Officer the Appellate Assistant Commissioner and Tribunal. The Tribunal has certainly not recorded any finding that the assessee was assessed in respect of interest income during the year of accrual as "income from other sources". The Tribunal, as is evident from its order, allowed the claim of bad debt on the footing that the amount in question was taxed as business income. It, of course, also held that the claim would be admissible even if the interest income was taxed as income from other sources. Both the Appellate Assistant Commissioner and the Income Tax Officer, on the other hand, have observed that Interest income is taxable as income from other sources but have not stated that it was so taxed in the year of accrual. Unless there is a finding by the Tribunal or even by the departmental authorities, accepted by the Tribunal, it is not possible in reference proceedings to assume that the amount of interest must have been taxed as income from other sources. Dr. Balasubramanian fairly conceded that if the amount of interest could not be found to have been taxed as income from other sources, the assessee''s claim would have to be allowed.

Having regard to the above discussion, we are in agreement with the Tribunal that the deduction claimed by the assessee must be allowed. Accordingly, the question is answered in the affirmative and in favour of the assessee.

No order as to costs.