Case: Commissioner of Income Tax, Bihar & Orissa Vs. Lakshmi Kant Jha and Ors

HEGDE, J.1. 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 ? "2. Both the Tribunal as well as the High Court had held against the department on the point in issue -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 the 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 Rai after the death of his father, Sir Maharajadhiraja Rameshwar Singh, on 3rd July, 1929. During his lifetime Sir Maharajadhiraja Rameshwar Singh carried on extensive money lending-business.4. For the assessment year 1929-30, the question arose whether the assessee succeeded to the money-lending business of his father within 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. Commissioner of Income-tax. Their Lordships of the Privy Council held that the assessee succeeded to the money-lending business which had been carried on by his father in his lifetime5. By a registered deed dated August 4, 1921, the assessees 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 agent6. The business of Sadhasiva Vishwanath was apparently started as a partnership business, in which the debtor was to be the working partner entitled to a 3 as. share. The Maharajadhiraja supplied all the funds and the accounts of the Maharajadhiraja showed advances aggregating to Rs. 32, 00, 000 as underRsAugust 31, 1921 To Kunwar Ganesh Singh for starting a Guddee for ready and forward transactions in various goods, import of goods and dealings in shares 2, 50, 000 September 17, 1921 To Kunwar Ganesh Singh for dealings in shares 1, 50, 000" For starting a Guddee styled Sadashiva Vishwanath 2, 00, 000" To Kunwar Ganesh Singh for Guddee and other business 4, 50, 000Between December 29, 1921 and May 30, 1922 By transfer from various banks 10, 50, 000 October 27, 1922 For Howrah jute share 2, 00, 000November 3, 1922 Kunwar for jute shares 4, 00, 000November 30, 1922 To Kunwar by transfer from bank 5, 00, 00032, 00, 000"7. The debtor did nut act up to the agreement and special efforts were made in 1923 to collect asmuch as possiblse 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 Vishwanath8. 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 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, 0009. In the year 1925, the assessees 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 money-lending business10. 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 money-lending transactions of the assessee11. On appeal, by an elaborate order, the Appellate Assistant Commissioner upheld the disallowance12. The matter came up in second appeal before the Tribunal. For the detailed reasons discussed in its order (paragraphs 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 assessees 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 transation), 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 money-lender, and that the assets in question had been acquired in the course of the money-lending business on account of loan of Rs. 32, 00, 000 made to the debtor. The Tribunal, thereore, 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 ending that the whole of the sum of Rs. 32, 00, 000 represented money ending advances made by the Maharajadhiraja. The assessee succeeded the money-lending business of the father. The Tribunal further held that the assessee continued to carry on the money-lending 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 s money-lending business."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 whatt!he High Court says as regards the findings reached by the Tribunal :" All the questions that we have referred to above were 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 materials or evidence on record."Strangely enough, even af ter coming to that conclusion, the High Court certified this case to be a fit case for appeal to this court, under section 66A(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.14.

Decision:
0[ds]Strangely enough, even af ter coming to that conclusion, the High Court certified this case to be a fit case for appeal to this court, under section 66A(2) of theAct, 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