Case: Narain Dutt Chimwal Vs. Commissioner of Income Tax. U.P. Lucknow

2. The assessee, at the material time, was an undivided Hindu family carrying onbusiness. In the course of that business the assessee lent Rs. 40,000/to one Sri Kishan and his brother in September 1930 The transaction was one of simple mortgage of immovable properties and the interest was payable according to the terms of the mortgage. In September 1933 the assessee purchased a portion of the mortgaged property for Rs.Out of this amount a sum of Rs. 3,000/was adjusted against the mortgagors share of the loss in a firm which was payable to the assessee. The balance of Rs. 32,000/was adjusted against the mortgage debt leaving a sum of Rupees 8,000/outstanding on the mortgage. Between the date of mortgage in September 1930 and the date of sale three years later, the mortgagors had effected further encumbrances on the properties which were the subject matter of mortgage. The assessee had to pay Rs. 17,800/to the mesne encumbrancers. In October 1946 the assessee obtained a decree for Rs. 25,000/against the mortgagors to be realised by the sale of that portion of the mortgaged properties which had not been sold to the assessee in 1933. Even after the sale the entire amount was not realized and the shortfall including the cost came to Rs.The assessee claimed this amount as a bad debt which was allowed in a previous assessment. In 1948 the assessee sold half the area of the land purchased by him in 1933 for Rs.This sale was effected by means of a public auction after dividing the area sold into certain number of plots.

Court's reasoning:
5. It has been urged before us on behalf of the assessee that the Tribunal had overlooked the fact that the property purchased by the assessee was not treated as the assesseesthe cost having been debited to the capital account. Moreover no part of the income arising from the property which had been purchased or the expenditure incurred on its maintenance, improvement or repairs had ever been credited or debited to the revenue account of the assesseesbusiness and that the income derived from such property had been assessed tounder S. 9 of theAct, 1922. The debit of the sum of Rs. 17,800/to the account of the mortgagor was in order according to the principles of accountancy for the sum had to be debited to the account of the mortgagor in relation to the original mortgage debt. It does not appear from the order of the Tribunal that all these matters were pressed before it. What seems to have been urged is that the assessee had incurred expenses on the grove which was included in the property purchased by him and that he had derived income which, being agricultural, was not chargeable to incometax and that these facts showed that the investment was of a capital nature. The Tribunal based its decision mainly on two facts the first was that the assessee had claimed and obtained an allowance as a bad debt of the sum of Rs. 4,763/mentioned before and the payment of a sum of Rs. 17,000/and odd to the mesne encumbrancers had been shown as a debit in the money lendingare unable to find any infirmity in the reasoning or the conclusion of the Tribunal on the facts that were presented to it which would have justified the High Court taking a different view