Commissioner of Income Tax vs Rukmani Mills Limited

Ramanujam, J.—The assessee is a textile mill and it wrote off a sum of Rs. 11,33,190 as bad debt in the year ending March 31, 1974. Both

the ITO and the appellate authority did not accept that claim, holding that the claim of the assessee was premature and the said debt became bad

only in the assessment year 1975-76 and it could not be claimed as a deduction in the year 1974-75. When the matter was taken to the Income

Tax Appellate Tribunal, the Tribunal took the view that admittedly the four mills, from which the trade debts of Rs. 11,33,190 were due to the

assessee, were nationalised with effect from April 1, 1974. But the liabilities of the four debtor-mills had exceed their assets and there was no

possibility of any recovery from the four mills as on April 1,1974. Therefore, as on the previous date, namely, March 31, 1974, these debts should

be treated to have become bad and doubtful and, therefore, the assessee was justified in writing had been questioned by the Revenue by seeking a

reference on the following question :

Whether the Appellate Tribunal had not misdirected itself in law in holding that the amount of Rs. 11,33,190 representing trade debts due from

four sick mills had become an irrecoverable debt on March 31, 1974, when there is no evidence to support it ?

It is the admitted case of both parties that the debts due to the assessee from four sick mills, namely, Parvathi Mills Ltd., Vijaya Mohini Mills

Ltd., Sri Sarada Mills Ltd. and Kerala Lakshmi Mills Ltd., became bad and irrecoverable. The question is when the said debts became bad and

doubtful, whether it is in the assessment year 1974-75 or in the assessment year 1975-76. Even during the year 1974-75, the management of the

fourth mills have been taken over by the State Government under the Sick Textile Undertakings (Taking Over of Management) Act, 1972.

Subsequently, the Sick Textile Undertakings Nationalisation Act of 1974 came into force and the four mills have been nationalised on and from

April 1,1974. The Revenue had not disputed the fact that the debts due to the assessee have become irrecoverable after the Nationalisation Act

which came into force on April 1,1974. If the debts due to the assessee from the four mills have become irrecoverable as on April 1,1974, then it

can easily be assumed that the debt became bad irrecoverable even on March 31, 1974. So long as the Department does not dispute the factum

of irrecoverability of the debt as on April 1,1974, the assessee is entitled to treat the debt as having become bad and irrecoverable on the previous

day, namely, March 31, 1974, and to write off the debt in the assessment year 1974-75. Therefore, on the facts found by the Tribunal, the

conclusion of the Tribunal appears to be right and there is no justification for directing a reference in this case. Hence, this tax case petition is

dismissed. No costs.