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Commissioner Of Income Tax, Bihar And Orissa, Patna v. Pandit Lakshmi Kant Jha And Others
Factual and Procedural Background
The assessee, who succeeded to the impartible estate and money-lending business of his father, claimed a deduction of Rs 10,55,025 as a bad debt for Assessment Year 1957-58. The debt originated in 1921 when the assessee’s father advanced an aggregate sum of Rs 32,00,000 to Kunwar Ganesh Singh under an agreement to operate a trading “guddee” named “Sadhashiva Vishwanath.” Following the agent’s failure to perform, the relationship was converted into that of creditor and debtor. After partial realisation of a 1927 Calcutta High Court decree, Rs 16,64,596 remained unpaid, of which the assessee wrote off Rs 10,55,025 (principal) and Rs 6,09,571 (interest). The Income-tax Officer disallowed both components; the Appellate Assistant Commissioner upheld the disallowance. On second appeal, the Income-tax Appellate Tribunal allowed the principal amount but rejected the interest portion. The Patna High Court, on reference, affirmed the Tribunal’s order. The Revenue obtained a certificate under Section 66-A(2) of the Income-tax Act, 1922, leading to the present Supreme Court appeal.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the sum of Rs 10,55,025 due from Kunwar Ganesh Singh was allowable as a bad debt under Section 10(2)(xi) of the Income-tax Act.
Arguments of the Parties
Assessee’s Arguments
- The original advance of Rs 32,00,000 formed part of a continuing money-lending business inherited from the assessee’s father.
- Subsequent transactions converted the partnership into a pure debtor-creditor relationship, making the unpaid balance a loan of the money-lending business.
- Prior judicial determinations (including the Privy Council decision in 1934) had already settled that the advances were money-lending transactions; therefore, the Revenue could not reopen that finding.
Revenue’s Arguments
- The unpaid amount did not arise from the assessee’s money-lending business and therefore could not be written off under Section 10(2)(xi).
- The component of Rs 6,09,571 represented accrued interest on the original advance and was unrelated to any irrecoverable loan.
- The Tribunal erred in treating the sum as a business bad debt.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Maharajadhiraj of Darbhanga v. Commissioner of Income-tax, (1934) 2 ITR 345 (Privy Council) | Held that the assessee had succeeded to his father’s money-lending business. | The Tribunal relied on this decision to conclude that the entire advance was part of the assessee’s money-lending activity, a finding the Supreme Court treated as binding. |
Court's Reasoning and Analysis
The Supreme Court, per K.S. Hegde J., observed that the Tribunal’s conclusions — namely, that the assessee carried on a money-lending business during the relevant period and that the sum of Rs 10,55,025 constituted an irrecoverable loan of that business — were findings of fact supported by evidence. The High Court had expressly recognised them as such. Under settled appellate principles, neither the High Court nor the Supreme Court could interfere with factual findings absent perversity or absence of evidence, none of which was alleged. The Court further remarked that the High Court should not have issued a certificate because no substantial question of law arose. Nevertheless, to avoid prolonging litigation, the Supreme Court decided the appeal on merits and upheld the Tribunal’s determination.
Holding and Implications
Appeal dismissed with costs.
The dismissal confirms the assessee’s entitlement to deduct Rs 10,55,025 as a bad debt. The decision reinforces the principle that appellate courts will not revisit concurrent findings of fact by the Tribunal and High Court in income-tax matters. No new legal precedent was set beyond affirming this established boundary.
K.S Hegde, J.— The question of law which we have to consider in this appeal by certificate is “whether, on the facts and circumstances of the case, the sum of Rs 10,55,025 due from Kunwar Ganesh Singh was allowable as a bad debt under Section 10(2)(xi) of the Income Tax Act”. Both the Tribunal as well as the High Court had held against the department on the point in issue.
2. The facts of the case are fully set out in the statement of the case submitted by the Tribunal to the High Court. It is sufficient to extract the facts as set out in that statement:
“2. The statement of the case relates to Assessment Year 1957-58. For this assessment year, the assessee changed his previous year into the financial year, and consequently, the previous year for the present assessment year covered a period of 18 months ending on March 31, 1957. The assessment has been made in the status of individual.
3. The assessee succeeded to the impartible estate of the Darbhanga Raj after the death of his father Sir Maharajadhiraja Rameshwar Singh, on July 3, 1929. During his lifetime Sir Maharajadhiraja Rameshwar Singh carried on extensive moneylending business.
4. For Assessment Year 1929-30, the question arose whether the assessee succeeded to the moneylending business of his father with the meaning of Section 26(2) of the Income Tax Act, as it then stood, The assessee contended that he did not succeed to the business and the Revenue held to the contrary. The matter was agitated right up to the Privy Council in the case reported as Maharajadhiraj of Darbhanga v. CIT, (1934) 2 ITR 345. Their Lordships of the Privy Council held that the assessee succeeded to the moneylending business which had been carried on by his father in his life-time.
5. By a registered deed dated August 4, 1921 the assessee's father Maharajadhiraja Sir Rameshwar Singh (hereinafter referred to as “the Maharajadhiraja”) entered into an agreement with one Kunwar Ganesh Singh (hereinafter referred to as “the debtor”) to open a firm or “guddee” under the name of “Sadhashiva Vishwanath” at Calcutta, to do ready and forward-transactions in gunnies hessians, linseed, jute etc. and also for dealings in stocks and shares. In this agreement, the Maharajadhiraja was styled as the principal and the Debtor as the agent.
6. The business of “Sadhashiva Vishwanath” was apparently started as a partnership business, in which the debtor was to be the working partner entitled to -/3- share. The Maharajadhiraja supplied all the funds and the accounts of the Maharajadhiraja showed advances aggregating to Rs 32,00,000 as under:
31-8-1921 To Kunwar Ganesh Singh for starting a Guddee for ready and forward transactions in various goods, import of goods amd dealings in shares Rs 2,50,000 17-9-1921 To Kunwar Ganesh Singh for dealings in shares 1,50,000 ,, For starting a Guddee styled Sadashiva Viswanath 2,00,000 ,, To Kunwar Ganesh Singh for Guddee and other business 4,50,000 between 29-12-1921 and 30-5-1922 By transfer from various banks 10,50,000 27-10-1922 For Howrah Jute share 2,00,000 2-11-1922 Kunwar for jute shares 4,00,000 30-11-1922 To Kunwar by transfer from bank 5,00,000 Total 32,00,000
7. The debtor did not act up to the agreement and special efforts were made in 1923 to collect as much as possible from him. Between 1924 and 1925 several agreements were entered into, and later on, the Maharajadhiraja was recognised to be the sole owner of the business of Sadhashiva Vishwanath.
8. On April 30, 1925 the debtor executed a registered document admitting his indebtedness to the Maharajadhiraja to the extent of Rs 30,09,571 and in part satisfaction thereof, transferred to the Maharajadhiraja various assets valued at Rs 20,74,973. The debtor had also earlier executed two pronotes for Rs 25,000 each. In pursuance of the registered deed dated April 30, 1925 the debtor executed a promissory note for the balance of Rs 16,84,596/1/5 which was to carry interest at the rate of 9 per cent per annum. The sum of Rs 16,84,596/1/5 itself included interest of Rs 6,09,571 due from the debtor on the original advance of Rs 32,00,000 while the balance represented the outstanding amount out of the original advances aggregating to Rs 32,00,000.
9. In the year 1925, the assessee's father brought a suit in the Calcutta High Court against the debtor for Rs 16,84,596. A decree was obtained on March 14, 1927 for Rs 17,78,476 inclusive of further accrued interest of Rs 93,835. A part of the debt was realised and a sum of Rs 16,64,596 remained unrealised as due from the debtor. The assessee wrote off the sum of Rs 16,64,596 in the accounting year and claimed the same as a bad debt arising in his moneylending business.
10. The Income Tax Officer disallowed the claim of Rs 6,09,571 on the ground that it represented interest pertaining to the original advance of Rs 32,00,000 and not connected with the claim of irrecoverable loan in question. As regards the balance of Rs 10,55,025 the Income Tax Officer held that it did not relate to the moneylending transactions of the assessee. Extract of Income Tax Officers order (pp. 8 to 11) is annexed hereto as Annexure ‘A’.
11. On appeal, by an elaborate order, the Appellate Assistant Commissioner upheld the disallowance. Extract from Appellate Assistant Commissioners order (paras 20 to 26) is annexed hereto as Annexure ‘B’.
12. The matter came up in second appeal before the Tribunal. For the detailed reasons discussed in its order (paras 1 to 26) the Tribunal allowed the claim of Rs 10,55,025 as bad debt and negatived the claim in respect of Rs 6,09,571 representing interest.
13. Though under the agreement dated August 4, 1921 the assessee's father had entered into a partnership business with the debtor, it was submitted that the Maharajadhiraja converted the entire transactions into one of loan to the debtor, and the relationship of partner into one of creditor and debtor, on the footing that the entire transaction was a loan. Claims of bad debts in respect of some of the assets transferred to the assessee at a valuation of Rs 20,74,973 (in connection with the very transaction), and the legal expenses in connection therewith, had come up before the High Court and the Privy Council. The decisions proceeded on the footing that the assessee was a moneylender, and that the assets in question had been acquired in the course of the moneylending business on account of loan of Rs 32,00,000 made to the debtor. The Tribunal, therefore, agreed with the submission of the learned counsel for the assessee that at this distance of time, it was not open to the Tribunal to disturb the finding that the whole of the sum of Rs 32,00,000 represented moneylending advances made by the Maharajadhiraja. The assessee succeeded to the moneylending business of the father. The Tribunal further held that the assessee continued to carry on the moneylending business in the accounting year and allowed deduction of Rs 10,55,025 as bad debt being in the nature of irrecoverable loan of the assessee's moneylending business.”
3. The findings reached by the Tribunal are findings of fact. The High Court also pointed out that they are all findings of fact. This is what the High Court says as regards the findings reached by the Tribunal:
“All the questions we have referred above were the questions of fact, and the Tribunal came to its own findings on those facts. It was not, as it could not be, urged before us that those findings were not based upon the materials or findings of fact.”
Strangely enough, even after coming to the conclusion, the High Court certified this case to be a fit case for appeal to this Court, under Section 66-A(2) of the Income Tax Act, 1922. The High Court did not give any reasons in support of the certificate granted by it. In the ordinary course we would have revoked that certificate and sent back the case to the High Court for giving reasons in support of the certificate. But as we see no merit in this appeal no useful purpose will be served in prolonging this litigation. Findings arrived at by the Tribunal are findings of fact. Those findings are based on evidence. Hence, neither the High Court could have interfered with those findings, nor can we interfere with the same.
4. In the result this appeal fails and is dismissed with costs.
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