(1) The question of law that has been referred by the Income Tax Appellate Tribunal, Hyderabad Bench, in compliance with the requisition of this Court under Section 66(2) of the Indian Income tax Act, 1922 is in the following terms:-

"Whether on the facts and in the circumstances of the case the department was not justified in disallowing the claim of bad debt of Rs. 89,140/-?"

The facts leading to this reference are as follows:-

(2) The assessee, Abdul Hameed Khan, partner of M/s. F.D. Khan and Co. Hyderabad seeks to deduct the sum of Rs. 89,140/- in the computation of his profits for the assessment year 1956-57, for which the accounting period is the year ended 30-9-1955. One Zaheera Khatoon is the daughter of the assessee, and B.A. Basith is her husband. Zaheera Khatoon is the proprietrix of Raht Silk Mills and Rahat Dyeing & Printing Works, Bombay, which business she started as early as 1948. She also acquired the business of Tower Trading Company, Bangalore, in the year 1954. B. A. Basith is the proprietor of Desai Soap Works Bombay. The assessee was giving his surplus moneys off and on to his daughter and son-in-law for their business. Those moneys, in the first instance, were debited to the account of the son-in-law, Basith, in the assessee's books. The account was coming even before the year 1948-49, the opening debit balance of that year being Rs. 363/-. Further advances were made during the years 1948-49, 1950-51 and 1954-55, and the total amount due to the assessee by the end of 1954-55 the last day of the "previous year" relevant for the assessment year 1956-57, the assessee opened a separate account for his daughter, Zaheera Khatoon, debited it with a sum of Rs. 89,140-10-2, and credited the same to her husband's account and wrote off that amount on the same date as 'irrecoverable', and contended that the profits or gains shall be computed after making an allowance for that sum.

(3) The Income Tax Officer held that the assessee did not carry on money-lending business, that he had no licence to carry on the same, and that he gave surplus cash to his friends and relatives as loans, and gave a list of the loans due too him at the end of the year. According to him, the loss claimed by the assessee was a capital one, and could not be allowed as a bad debt. He also held that even assuming that the investment of surplus cash on loans was money-lending business, the bad debt could not be allowed, because it appears to have been written off, not on business considerations, but on considerations of assessee's love and affection for his daughter, to whom he did not charge interest during all those years, though a large sum of money was due from her.

(4) Against that order, an appeal was preferred to the Appellate Assistant Commissioner of Income Tax, B. Range, Hyderabad. The assessee reinforced his contentions raised by him before the Income Tax Officer, and adduced evidence to show that the amount was advanced to his daughter on which interest was charged. Though no interest was paid or accounted for in the assessee's books in the books of the daughter, interest was credited to the assessee's books in the books of the daughter, interest was credited to the assessee's account from year to year. Statements made by the daughter in the course of her assessment proceedings before the Income Tax Officer, 'C' Ward, Bombay, were produced. From those statement sit appears that the amounts were borrowed by her from her father agreeing to repay with interest at 6 percent., as she was in need of finances for her two businesses. The assessee also produced copy of the licence dated 14-7-1954, and another licence dated 17-11-1955, from the Bangalore Municipal Corporation to show that this daughter was carrying on business within the limits of that Corporation. Copies of the assessee's accounts in the books of his daughter and in the books of Desai Soap Works, Bombay were also filed. The assessee also produced copies of the statement of the daughter dated 26-10-1950, and another statement, un-dated, given in continuation of the above statement. The Appellate Assistant Commissioner referred to the order of the Appellate Tribunal for the assessment year 1954-55, by which it was held that the assessee was carrying on money-lending business. That finding was given by the Appellate Tribunal against the order of the Income Tax Officer, and the Appellate Assistant Commissioner, on appeal, by which the claim of the assessee for the assessment year 1954-55 claiming that the loans due from Tajammul Hussain and Abdul Khadir became bad debts was disallowed.

In view of that finding of the Appellate Tribunal the Appellate Assistant Commissioner held that the assessee was a money-lender and that the loans which he advanced to his daughter were genuine, and were for her business needs. As regards the contention whether the amount of bad debts was written off by the assessee after making the necessary attempts for recovery of the same, the Appellate Assistant Commissioner referred to the opinion given by the Assessee's legal adviser based on a note signed by the daughter and the Chartered Accountant, showing the financial position of her business. The Advocate opined that it was practically useless to take any proceedings against the daughter as her liabilities exceeded her assets. The Appellate Assistant Commissioner found that before writing off the debt, the assessee made all the investigations regarding the possibilities of recovering the same, as any other business man would have done, and concluded that the amount was written off only after making sure that it was beyond the scope of recovery. He accordingly held that the assessee's claim satisfied the requirements of Sec. 10(2)(xi) of the Income Tax Act.

(5) Aggrieved by that order, the Department preferred appeal to the Appellate Tribunal, contending: (1) that the sum sought to be deducted as bad debt was not advanced by the assessee during the course of money-lending business: (2) that the Appellate Assistant Commissioner erred in holding that the debt became bad in 1955 and (3) that the Appellate Assistant Commissioner was not right in holding that the debt was written off on business considerations.

(6) The Appellate Tribunal, relying upon an alleged admission of Sri Narasimha Iyengar, the learned counsel for the assessee before the Tribunal that when the moneys were sent, he was not sure who was going to utilise those amounts, found that the question of the assessee lending moneys to his daughter did not arise and reversed the order of the Appellate Asst. Commissioner. It is against this order that reference was sought under Section 66(1) of the Act from the Tribunal, and, as it was refused the assessee obtained the reference under Section 66(2).

(7) It may be mentioned that Sri Narasimha Iyengar, even when he filed the application before the Tribunal under Section 66(1) denied the admission attributed to him. Nonetheless, the Tribunal in its order dated 14-10-1960, reiterated its earlier observation that Sri Narasimha Iyengar made such an admission.

(8) In this Court, Sri Narasimha Iyengar filed an affidavit dated 23rd March, 1961 and the relevant portion is in the following terms:

"In the course of the Appellate Order, the Tribunal stated as follows:-

"Mr. Narasimha Iyengar, the learned counsel for the assessee, frankly admitted before us that at the time when the monies were sent, the assessee himself was not sure as to who was going to utilise the amounts."

The above remarks were made by the Tribunal as a result of a complete misunderstanding of what I had stated and are not correct. What I stated before the Tribunal was that the letters which were written to the assessee by his daughter and son-in-law from time to time when the amounts were being advanced to them, which would have shown by whom the moneys were required were not preserved by the assessee as the necessity for such preservations was not foreseen then and as such, this additional evidence was not available. Obviously this statement of mine does not amount to an admission as understood by the Tribunal. This mistake on the part of the Tribunal was pointed out at the earliest opportunity in the statement of facts filed along with the reference application under Section 66(1). It is unfortunate that once again the Tribunal repeated the same remarks in its order on the reference application. I state that I did not make any such admission as was set out by the Tribunal."

Sri Krishna Reddy, the learned counsel for the assessee, made the following submissions before us:-

(1) The admission attributed to Sri Narasimha Iyengar is the result of a misunderstanding of his submission as is borne out by his affidavit, and the submission made by him has not the effect attributed to it by the Tribunal.

(2) Since the Tribunal has rested its decision on the sole ground that the daughter was not the debtor of the assessee on that mistaken impression, that finding has to be set aside, and all the contentions have to be gone into and decide by this Court now. In that regard, the learned counsel submitted: (I) that the assessee had money-lending business: (ii) that the loans were advanced to his daughter in the ordinary course of money-lending business and (iii) that the loans became irrecoverable in the relevant accounting year, and not prior or subsequent to that year.

(9) It was obvious from the affidavit of Sri Narasimha Iyengar, the relevant portion of which is extracted above, that he denied having made the admission attributed to him, both in his application under Section 66(1) as well as in the application under Section 66(2) in this Court. The contention on behalf of the assessee is not that the assessee did not know that his daughter was his debtor, but that he did not preserve letters which would show how much was sent at the request of the son-in-law, and how much at the request of the daughter. The learned counsel for the assessee also submitted that Sri Narasimha Iyengar, one of the senior counsel, and who was also counsel for the Department for a number of years, could not have made an admission which would completely destroy his client's claim under Section 10(2) (xi) of the Act. Sri Iyengar was fully aware of the fact that the statements of the daughter, the licences and other evidence was produced before the Appellate Assistant Commissioner, and was accepted by him, and that he found that the daughter was the debtor. Sri Krishna Reddi, therefore, argued that there could be no understandable reason why he should have made that admission. Having regard to the affidavit of the learned counsel, we have no reason to disbelieve his statement. The circumstances of the case also indicate that there was scope for the Tribunal not correctly understanding the submission made by Sri Narasimha Iyengar. At any rate, we are not prepared to hold that the counsel made an admission giving up his client's case even on a preliminary point, though the case was decided in his client's favour by the Appellate Assistant Commissioner.

(10) Since the learned counsel has denied having made such a statement, the assessee will not be in worse position than if his counsel withdrew such admission even if made. The effect of the admission of a counsel was the subject matter of a recent decision of the Court of appeal in H. Clark (Doncaster) Ltd. v. Wilkinson, (1965) 2 WLR 751 (756). Lord Denning, M.R., summed up the position thus:-

"The question then is distinctly raised: Is a client bound by an admission made by counsel in the course of interlocutory proceedings? Pennycuick J. held that the client was bound. He was much influenced by a passage in Halsbury's Laws of England, 3rd Edition Vol. 3, page 52, para 76, under the title 'Barristers' where it is said 'The statements of counsel, if made on the trial of an action or in the course of an interlocutory proceedings in the presence of the client or his solicitor or someone authorised to represent the solicitor, and not repudiated at the time, bind the client, and may be used as evidence against him.' It is said that these were interlocutory proceedings. The new solicitor's clerk was there at the time counsel made the admission. It was not repudiated at the time. Therefore the defendant is bound.

That passage in Halsbury's Laws of England appears to be based on a dictum of Burrough J. in Colledge v. Horn, (1825) 3 Bing 119, 122. In my opinion it is stated too widely. An admission made by counsel in the course of proceedings can be withdrawn unless the circumstances are such as to give rise to an estoppel. If the other party has acted to his prejudice on the faith of it, it may not be allowed to be withdrawn: See R.N. Kelly v. Bushby, (1835) 3 Knapp 375. But otherwise an admission can be withdrawn. For instance, an admission is often made by error in a pleading. It can be withdrawn if the other party has not been prejudiced, or, indeed, if any prejudice can be cured by compensation in costs. Another illustration is to be bound in R.S.C., Ord. 27, under which even a formal admission in a pleading can be withdrawn at any time on such terms as may be just."

(11) We follow with respect the principle laid down in the above decision, and are of opinion that an admission made by a counsel in the course of a proceeding can be withdrawn unless circumstances are such as to give rise to an estoppel. If the other party has acted to his prejudice on the faith of that admission, it may not be allowed to be withdrawn.

(12) Having regard to the facts of the instant case we are of opinion that Sri Narasimham Iyengar had not made the admission attributed to him, and there was a misunderstanding by the Tribunal as to what he had stated before it. Even granting for the sake of argument that such a admission was made, it could be withdrawn as it was an admission made in the course of argument, and is one on the strength of which the Department had not acted to its prejudice. The order of the Appellate Tribunal basing its decision solely on the alleged admission is therefore unsustainable.

(13) The question was then mooted as to whether this Court should dispose of the case on the other aspects arising out of the question referred, or call for an additional statement of the case from the Tribunal on aspects which have not been considered by it.

(14) It is therefore, necessary to consider the position of law in this regard. In commissioner of Income Tax, Commissioner Of Income Tax, West Bengal v. Calcutta Agency Ltd.. it was ruled that the jurisdiction of the High Court in the matter of Income Tax References made by the Appellate Tribunal is an advisory jurisdiction, and the decision of the Tribunal on facts is final, unless it can be successfully assailed on the ground that there was no evidence for the conclusions on facts recorded by the Tribunal. It was also held that as the statement of the case prepared by the Appellate Tribunal under the rules framed under the Income Tax Act is prepared with the knowledge of the parties concerned, and they have a full opportunity to apply for any addition or deletion from that statement, if the parties approved of that statement, that is the agreed statement of facts by the parties on which the High Court has to pronounce its judgment. The High Court would be committing an error if it takes the arguments of counsel for assessee as if they were facts and bases its conclusion on those arguments.

(15) In New Jehangir Vakil Mills Ltd. v. Commissioner of Income Tax, Bombay, , the Supreme Court held that it is the facts admitted or found by the Appellate Tribunal that would form the basis on which the statement of case would be drawn and reference of the question of law made by the Tribunal to the High Court and that facts which are not found in the order of the Tribunal or in the record, before it cannot be the foundation for the raising of any question of law either in the abstract or otherwise. It was also held that the scope and subject matter of the reference under S. 66(2) is co-extensive with that of the reference under S. 66(1) of the Income-tax Act and the High Court has no power or jurisdiction under Section 66(2) to travel beyond the ambit of Section 66(1).

(16) In Omar Salay Mohamed Sait v. Commissioner of Income-tax Madras, , Bhagwati J., speaking for the Court held that the Appellate Tribunal is a fact finding Tribunal, and if it arrives at its own consideration of fact after the consideration of the evidence before it, the Supreme Court will not interfere. It is necessary however, that every fact for and against the assessee must have been considered with due care, and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them, and what were the findings reached on the evidence on record before it.

(17) The Supreme Court, by a majority, held in Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd., that when a question is raised before the Appellate Tribunal and is dealt with by it or when a question of law is raised before the Appellate Tribunal and is dealt with by it or when a question of law is raised before the Tribunal, but the Tribunal deals with it, will all the questions arising out of the order of the Appellate Tribunal but that a question of law, which is neither raised before the Tribunal nor considered by it, will not be a question arising out of its order, notwithstanding that it may be arise by the findings given by it, or stating the position compendiously, it is only the question that has been raised before, or decided by the Tribunal that could be held to arise out of its order.

(18) In Commissioner of Income-tax, Bombay v. Jadavji Narsidad and Co., , it was held by the Supreme Court that where the case is decided by the Appellate Tribunal only on one ground, it is open to the High Court to examine all the other aspects arising out of the question referred. In the words of Hidayatullah, J.:

"On the first question the appellant argues that the High Court has decided the case as an appeal court which it was not entitled to do. This is not a true representation of what the High Court did. Whenever the question propounded is whether there is any material on which a finding can be given the discussion favours of an appellate approach but it is not so. The High Court noticed that the Tribunal had picked up only one reason from the order of the Income-tax Officer and held that the assessee firm had 'Purchased losses' from Damji Laxmidas but said nothing about the other reasons which had influenced the Income-tax Officer. The High Court however, examined all the reasons given by the Income-tax Officer and reached the conclusion that there was no evidence to justify the finding which had been given in the case.

The question, then, is whether there was evidence to justify the Tribunal's finding that the transactions with Damji Laxmidas were not the transactions of the assessee firm. In such an inquiry the court looks not to the sufficiency of the evidence but whether any evidence exists at all. Even if there be slight evidence which was believed by the Tribunal and on which the conclusion can be rested, such question must be answered in the affirmative. But the finding must not proceed upon conjecture, suspicionor surmise. If thereis not a scintilla of evidence, the finding cannot be sustained because the proved facts would not then support the inference."s (19) In Keshav Mills Co. Ltd., Petlad v. Commissioner of Income-tax, Bombay, North Ahmedabad, , a Bench of seven Judges of the Supreme Court considered the scope of section 66(4) of the Income-tax Act, and following the earlier decisions in and Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax, Bombay North, , stated the position thus:

"After the Tribunal has passed orders on the appeal before it, the stage is reached to take the matter by way of reference proceedings before the High Court under section 66. This scheme indicates that evidence has to be led primarily before the Income-tax Officer, though additional evidence has to be led primarily before the Income-tax Officer, though additional evidence may be led before the Appellate Assistant Commissioner or even before the Tribunal. Subject to the provisions of Section 31 (2) of the Act and rule 29 respectively, and that means that when the Tribunal has disposed of the matter and is preparing a statement of the case either under Section 66 (1) or under section 66 (2), there is no scope for any further or additional evidence. When the matter goes the High Court, it has to be dealt with on the evidence which has already been brought on the record. If the statement of the case does not refer to the relevant and material facts which are already on the record, the High Court may call for a supplementary statement under section 66 (4) but the power of the High Court under section 66 (4) can be exercised only in respect of material and evidence which has already been brought on the record.

There is another consideration which is relevant in dealing with the question about the scope and effect of the provisions contained in section 66 (4). Proceedings taken for the recovery of tax under the provisions of the act are naturally intended to be over without unnecessary delay, and so. It is the duty of the parties, both the department and the assessee, to lead all their evidence at the stage when the matter is in charge of the Income-tax Officer. Opportunity is, however, given for additional evidence is allowed to be taken under the directions of the High Court under section 66 (4), it is likely that tax proceedings my be prolonged interminably and that could not be the object of the Act as it is evidenced by the relevant provisions to which we have already referred. These mainly are the grounds on which the earlier decisions of this court in the New Jehangir Mills' Case, and the Petlad Co. Ltd. case, substantially rest."

Their Lordships finally concluded:

"Having carefully weighed the pros and cons of the controversy which have been pressed before us on the present occasions, we are not satisfied that a case has been made out to review and revise out decisions in the case of the New Jahangir Mills, and the case of the Petlad Co. Ltd., ."

(20) On an examination of the above decisions the following principles can be deduced:

(1) The Appellate Tribunal, as a fact defence, pro and contra, and unless it is a case where there is no evidence, its finding cannot be interfered with. A conclusion, however, not based on evidence, but based on conjectures or surmises is not binding.

(2) Where the statement of the case is an agreed one, it is not open to either party to go beyond that, and address arguments not based on the facts stated therein.

(3) The jurisdiction of the High Court under section 66 of the Act is advisory in character. and it does not act as an appellate authority.

(4) Where the facts appearing on the record have all been narrated in the statement of the case, even if the Appellate Tribunal has failed to consider some of the aspects, though raised before it, but rested its decision only on one or two limed aspects, the High Court cannot call for a further statement of the case, but must decide all the aspects on the evidence already on record, appearing in the statement of the case.

(21) Both the learned Advocates Sri Krishna Reddy, and the learned Counsel for the Department, Sri Konaiah, are unanimous in their contention that keeping in view the above principles this Court must necessarily now arrive at a conclusion in answering the question referred to us on the material on record, and on the facts found in the statement of the case, having regard to the failure of the Tribunal to deal with the questions arising before it. We have no doubt that this is the correct position, and we accordingly proceed to consider whether the assessee is entitled to the deduction claimed on the ground that it is a bad debt.

(21-A) On behalf of the Department is argued by Sri Kondaiah that, inasmuch as it is an allowance or a deduction that is claimed in computing the income, the burden of proving the seral requirements of section 10(2)(xi) is upon the assessee, and that proposition cannot, and in fact, has not been disputed by the assessee. From a reading of section 10(2)(xi) of the Act, it is clear that the conditions which must be satisfied for invoking the section area (1) that the assessee carried on money-lending business; (2) that the money was lent in the ordinary course of such business to his daughter and (3) that the debt or loan became irrecoverable in the relevant accounting year in the opinion of the Income-tax Officer, and not prior or subsequent to the accounting year.

(22) The Section makes it manifest that no allowance can be claimed unless the debts are in respect of and incidental to the business, profession or vocation, or unless the loans are made, in the ordinary course of banking or money-lending business. In other words, if the debt due to the assesses not incidental to the business, or if the loan was advanced by him out of the motive of business relationship or expediency, no allowance can be claimed in respect of such debt, and the loss must be treated as capital loss.

(23) The first argument on behalf of the Department is that there was no money-lending business during the accounting year. This contention cannot prevail. The Income-tax Officer, was of the view that the assessee was not carrying on money-lending business, on the ground that he had no license. He could not have said that there was not money-lending business at all, because his order refers to the several debts or loans due to the assessee, including the debt in question. For the immediately preceding year, the Appellate Tribunal had examined the question as to whether or not the assessee carried on money-lending business, and had found that the assessee was carrying on money-lending business, and that he was entitled to write off during the year 1954-55 the loans, due to him from Tajammul Hussain and Abdul Khader. The Appellate Assistant Commissioner, relying on this order, held that the assessee had money-lending business even during the accounting year. It is significant to note that even in the grounds of appeal before the appellate Tribunal it was not contended by the Department that the assessee had no money-lending business. The Statement of the case also proceeded on the basis that the assessee had money-lending business. As already stated, in his return, the assessee referred to as many as six debts due to him at the end of the year. The daughter of the assessee in her accounts had been showing that she was borrowing moneys from her father. The Tribunal has not given a finding that the assessee in her accounts had not been showing that she was borrowing moneys from her father. The Tribunal has not given a finding that the assessee has no money-lending business. As already stated, in his return, the assessee referred to as many as six debts due to him at the end of the year. The daughter of the assessee in her accounts had been showing that she was borrowing money from her father. The Tribunal has not given a finding that the assessee has no money-lending business, but observed that the Tribunal held in regard to the earlier year that the assessee was carrying on money-lending business, and in the present case, even if it is conceded that the assessee had lent certain amounts in connection with his money-lending business, and in the present case, even if it is conceded that the assessee had lent certain amounts in connection with his money-lending business, there was nothing to indicate that the assessee lent moneys to his daughter. This can hardly be said to be a finding of fact by the Tribunal that in the accounting year the assessee had no money-lending business. On the other hand, it suggests that Tribunal was prepared to assume that the assessee had money-lending business.

(24) Sri Kondaiah then contended that the assessee's books did not show that any money was lent to the daughter; in other words that the debt in question did not arise out of the money-lending business. This contention is equally not tenable. The Supreme Court in Commissioner of Income-tax, Bombay v. Abdullabhai Abdulkadar, laid down that under clause (xi) of Section 10 (2) of the Income-tax Act, a debt was only allowable when it was a debt, and arose out of and as an incident to the trade. Except in money-lending trade, debts can only be so described if they were due from customers for goods supplied or loans to constituents or transactions of a similar kind. If it was not that character, it would be a capital loss.

(25) The statement of account furnished by the assessee on 18-10-1962 refers to "Shri B. A. Basith's Account 1948-49 (OS. Account) L. F. 105" evidently meaning that it is copied from Ledger Folio 105. It discloses that moneys were lent from time to time from 1948 and that on 30-9-1955, a sum of Rs. 1,31,290-10-2 was due. The entries in the right hand column show that that sum was made up of three items: (1) Rs. 6,000 being the amount fidgeted to Zaheera Khatoon, (2) Rs. 36,150 being the adjustment of loan given to B. A. Basith in his individual capacity as proprietor of D. S. Works (evidently meaning Desai Soap Works) and (3) Rs. 89,140-10-2 being the adjustment of loan given to Z.K. (Zaheera Khatoon) by first debiting it to B. A. Basith, and then transferring to Mrs. Zaheera Khatoon.

(26) The Statement of the assessee also contains Mrs. Zaheera Khatoon's account which is as follows:-

"To 30-9-1955 Amount transferred 89,140-10-2 from B.A. Basith a/c. __________ 89,140-10-2 __________ By amount 89,140-10-2 Written off _________ 89,140-10-2 _________

1. This amount was given as loan. The amount was pressed for repayment. But representation was that she suffered losses and now she had no capacity to pay. As there is no chance of recovery written off.

2. The date of 20-9-1955 (Sri B. A. Basith's account) originally mentioned in the extract for 1954-55 accounting year in the account of Sri B. A. Basith is a typographical error. The adjustment was made on 30-9-1955. The above is a true extract from the books.

Sd/- A.K. Khan, 18-10-1962.

(27) In view of this statement, it cannot be said that the assessee's books did not show that any money was lent to his daughter. The only comment that could be made was that the amounts due from the son-in-law and the daughter individually were not separated in his account till 30-9-1955. That is due to the fact that even the moneys intended for the daughter were sent only to the son-in-law, and his account was being debited all through.

(28) The statement of account filed by the daughter, Zaheera Khatoon before the Income-tax Officer, Bombay, gave the particulars of the sum borrowed by her from her father commencing from the year 1948 till 31-3-1956. This statement clearly reveals that they were all borrowings by her on the several dates, and the total amount borrowed is Rs. 94,176. The statement of account filed by the son-in-law of the assessee, B. A. Basith, shows that he is indebted to his father-in-law to the tune of Rs. 5,032-5-10, between the total due from the daughter as per her statement of account and the total debt now claimed by the assessee to be written off, viz., Rs. 89,140-10-2, has been explained in the order of the Appellate Assistant Commissioner as being due to the fact that the assessee had not included in the amount some hand-loans given by him to his daughter, while the latter included them in her account.

(29) From the several documents placed before the Appellate Assistant Commissioner and referred to in the statement of the Case, the following facts emerge:

(30) The daughter was crediting the assessee's account with the interest from year to year. The assessee however did not include any interest in his accounts for the obvious reason that he had not received any interest, and his accounts are maintained on cash basis. The copies of statements of account submitted by the daughter before the Income-tax Act Officer, 'C' Ward, Bombay reveal that on account of her two businesses she borrowed the money from her father, promising to repay with interest at 6 percent. That she was carrying on business was proved by the licenses which she obtained from the Municipal Corporation of Bangalore and the Chief Inspector of Factories, the agreement under which she acquired the business of Tower Trading Company and the orders of assessment passed by the Income Tax Officer, Bangalore in respect of her returns and this documentary evidence reveals that the assessee lent moneys to his daughter in the course of money-lending business. The statement of the case adverts to all these facts, and their correctness was not disputed by the Department. We cannot, therefore, go beyond that statement and accede to the argument of Sri Kondiah that the moneys were lent on account of considerations of love and affection, but not as money-lending transactions. There is evidence on record referred to in the statement of the on record referred to in the statement of the case which justifies the finding of the Appellate Assistant Commissioner in this regard, and we see no reason to differ from that conclusion.

(31) We shall now consider the next contention raised on behalf of the Department, viz., whether the debt because bad in the course of the accounting year.

(32) The law bearing on this question is now well settled. In Commissioner of Income-tax, C. P. and Berar v S. M. Chitnavis, AIR 1932 PC 178, Lord Russell of Killowen, speaking for the Judicial Commitee, held that although the Income-tax Act, as it then stood, nowhere in terms authorised the deduction of bad debts of a business, such a deduction was necessarily allowable, and that what were chargeable to Income-tax Act, as it then stood, nowhere in terms authorised the deduction of bad debts of a business, such a deduction was necessarily allowable, and that what were chargeable to Income-tax in respect of a business were the profits and gains of a year, and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred. It follows observed his Lordship that a debt which had in fact become bad debt before the commencement of a particular year could not properly be deducted in ascertaining the profits of that year, because the loss has not been sustained year, because the loss has not been sustained in that year. it was further held that, whether a debt was a bad debt, and if so, at what point of time it became a bad debt, were questions of fact, to be decided in the event of dispute by he appropriate tribunal, and not by the apse dixit of anyone else, and that the assessee had no option of declaring a debt as bad. Their Lordships pointed out that the mere fact that a debt was incurred at a date beyond the period of limitation will not of itself make the debt a bad debt; still less will it fix the date at which it became a bad debt. A statute-barred necessarily bad: neither is a debt which is not statute-barred necessarily bad; neither is a debt which is not statute-barred necessarily good. The age of the debt is no doubt a relevant matter to take into consideration. In every case it is a question of it to be determined after consideration of all relevant circumstances.

(33) This decision of the Privy Council was followed by the Bench of the Bombay High Court in Mukundlai Bansilal v. Commissioner of Income Tax, Bombay City, consisting of Chagla, C. J., and Tendolkar, J. which held that under section 10 (2) (xi) of the Act it is not left to the creditor's choice to determine when a particular debt has become bad or irrecoverable by merely writing off the debt or the loan or part of it in his books. The assessee must satisfy the Income-tax Officer that in fact the debt or loan became irrecoverable in the year of account. A loan becomes irrecoverable or a debt becomes a had debt when the creditor has no reasonable expectations of recovering it from the debtor, or when there is no ray of hope is at all on which the creditor can rely for recovering the amount from his debtor. Whether a debt has become a bad debt, and when it has become bad are questions of fact. Where the assessee claimed that a certain loan had become irrecoverable in an accounting year, it is not sufficient for the Tribunal in order to deprive the assessee of his claim to reduction under section 10 (2) (xi), to hold that it was "practically irrecoverable" but it must find as a fact that the loan had become irrecoverable at a time prior to the accounting year.

(34) The Supreme Court in , cited the Privy Council decision in AIR 1932 PC 178 with approval and held that in order that a loss might be deductible, it must be a loss in the business of the assessee, and not a payment relating to the business of somebody else, which, under the provisions of the Act, was deemed to be and became liability of the assessee.

(35) In Bank of Bihar Ltd., Patna v. Commissioner of Income Tax, Bihar and Orissa, , it was laid down that if a debt has become bad, subsequent amalgamation of that being with other debts due from the same debtor which had not become bad, could not revive the bad debt so as to enable the creditor to write it off as a bad debt in a later year. It was further held that the question, whether a debt is a bad, is one of fact, and if there is some evidence to justify the conclusion of the Tribunal, it is not open to the High Court in a reference under Section 66 of the Income Tax Act to re-appreciate the evidence.

(36) In the instant case, as already noticed, on 30-9-1955 the assessee split up the account, which till then stood in the name of Basith, opened a separate account in the name of his daughter Mrs. Zaheera Khatoon, and transferred from the account of Basith the sum of noted, "By amount written off, Rs. 89,140-10-2" and the remark is that the assessee pressed for re-payment of the loan, but the daughter represented that she suffered losses and had no capacity to pay, and as there was no chance of recovery, it was written off. The assessee also produced before the Appellate Assistant Commissioner a note regarding the realisable value of the assets of Rahat Silk Mills, Bombay, as on 31-3-1955 signed by the assessee's daughter and certified by a Cost and Works Accountant. That statement reveals that during the years 1948 to 1954 the mills suffered heavy losses and got very negligible profits only in two years, and the result was said to be that taking into account the depreciation allowed under the Income Tax Act, and the initial and extra rates of depreciation and equipment, it was doubtful whether the concern could be worked successfully. That statement was enclosed with the letter of an Advocate at Bangalore, dated 24-2-1955, addressed to the assessee. It was stated in that letter that the Advocate looked into the accounts of Rahat Silk Mills as supplied by the assessee, and his claims against the Mills, and his finding was that the Mills could not pay the amount because its liabilities far exceeded its assets, that the business seemed to be running at a great loss, and that it would be throwing good money after bad to take legal proceedings for the recovery of Rs. 89,141/-. Since the proprietrix of the Mills (Zaheera Khatoon) is not possessed of any properties, movable or immovable and earns a little as a commission agent, her agency may be cancelled as soon as any legal proceedings are taken against her and that it was wiser to write off the debt than to sue her and incur a loss. Regarding the amount due from Basith, the Advocate opined that it could be recovered, though with a little difficulty.

(37) These two documents establish that the assessee made the necessary enquiries, and also took legal opinion, and was convinced that there was absolutely no reasonable expectation of recovering that amount from his daughter. It only thereafter that the assessee concluded that it was a bad debt and was irrecoverable and wrote it off. On this material, the Appellate Assistant Commissioner was satisfied that it is not a case where the assessee, out of his own whim or fancy, had written off the debt, but did so only after making the necessary enquiries, and investigations and held that the requirements of section 10 (2) (xi) were satisfied.

(38) In refuting this, Sri Kondaiah on behalf of the Department submitted that it is only for the purpose of writing off the debt that the account of Basith was split up. We have already held that that contention is not acceptable, as the debt was due from the assessee's daughter, and it existed even from the year 1948-49. He then contended that it is not proved that the debt became bad in 1955. Having regard to the decisions cited above, what all the assessee has to prove is that the debt became irrecoverable in the course of the accounting year. The assessee cannot be presumed to have given up all hope of recovery from the moment the loan was advanced. On the other hand, like all other creditors he would also have hoped that the fortunes of the business might improve, and that he would be able to recover his debt. It is only when it became impossible that he wrote it off in the year of account. That would not justify the argument that he separated the account for writing it off. It was decided in the cases cited above, that once the assessee shows that the debt became bad in the accounting year, but the Department maintains that it became a bad debt in a previous year, it is up to the Department to make out that case, and establish not that it was "practically not recoverable", but as a fact the loan became irrecoverable in a previous year. But that was not the case here. The Income Tax Officer found that it had not become a bad debt in 1955 because to him it appeared to have been written off not on business considerations, but on account of the assessee's love and affection for his daughter and that contention is reiterated before us. But this is inconsistent with the other contention on behalf of the Department that the loan became irrecoverable even previously. It is note worthy that in the grounds of appeal to the Tribunal, the Department only contended that the Appellate Assistant Commissioner erred in finding that the so-called debt became bad in 1955, thereby meaning it was still recoverable, but had not taken the ground, though inconsistent, that the debt became irrecoverable in a previous accounting year. The Tribunal did not at all consider the question. The Appellate Assistant Commissioner on the evidence before him was satisfied that the debt became bad in the accounting year. That is a finding of fact arrived at on sufficient evidence, and cannot, therefore, be interfered with.

(39) Sri Kondaiah placed reliance on the decision in R. B. Champalal Ramsarup v. Commissioner of Income Tax U. P., 1964-52 ITR 194 (All), where the facts cannot be said to be similar to those in the instant case. The observations of the learned Judges that the assessee had not discharged its burden of proving that the debts were good at the commencement of the relevant accounting year, and had become bad during the year, cannot, in the light of the decisions referred to above, be understood as an authority for the position that the assessee had not only to prove that the debt became bad in the course of the accounting year, but also that it was a good debt at the commencement of the year. The argument on behalf of the Department that no registered notices were issued, nor legal proceedings were taken and hence the debt could not be written off has no substance in view of the evidence already referred to. At any rate, we cannot say that the finding of the Appellate Assistant Commissioner in this regard is not based on evidence, and warranting interference by this Court.

(40) For all these reasons, we hold that the assessee is entitled to the allowance of Rs. 89,140-00 under section 10 (2) (xi) of the Act on the ground that it is a bad debt, and that the Department was not justified in disallowing it. We, therefore, answer the question referred to us in favour of the assessee. The costs of this reference, Rs. 250/- will be paid to the assessee by the commissioner of Income-tax.

CJ/R.G.D.

(41) Question answered in favour of assessee.