Commissioner of Income Tax vs Rukmani Mills Ltd.

G. 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 31-3-1974. 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 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 nationalized

with effect from 1-4-1974. But the liabilities of the four debtor-mills had exceeded their assets and there was no possibility of any recovery from

the four mills as on 1-4-1974. Therefore, as on the previous date, namely 31-3-1974, these debts should be treated to have become bad and

doubtful and, therefore, the assessee was justified in writing off the debt in the assessment year 1974-75. The said view of the Tribunal has 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 31-3-1974, 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

four 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 Nationalization Act, 1974 came into force and the four mills have been nationalized on and from 1-4-

1974. The revenue has not disputed the fact that the debts due to the assessee have become irrecoverable after the Nationalization Act, which

came into force on 1-4-1974. If the debts due to the assessee from the four mills have become irrecoverable as on 1-4-1974, then it can easily be

assumed that the debt became bad and irrecoverable even on 31-3-1974. So long as the department does not dispute the factum of

irrecoverability of the debt as on 1-4-1974, the assessee is entitled to treat the debt as haying become bad and irrecoverable on the previous day,

namely, 31-3-1974, 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 jurisdiction for directing a reference in this case. Hence, this tax case petition is dismissed. No costs.