Summary
Section 10(2)(xi) of the Income Tax Act, 1922 provided for deduction of bad and doubtful debts. The proviso thereto laid down that if the amount ultimately recovered on any such debt was greater than the difference between the whole debt and the amount allowed the excess shall be deemed to be a profit of the year in which it was recovered. These provi- sions were re-enacted in the Income Tax, Act, 1961 as s.
36(1)(vii) provides, subject to the provisions of sub-s.(2), for deduction of amount of any debt established to have become a bad debt in the previous year, whereas s. 41(4) provides for bringing to tax amounts of such bad debts, if recovered subsequently, as the income of the previous year in which it was recovered, whether the business in respect of which the deduction had been allowed was in existence in that year or not.Certain amounts which had been allowed to be written off as bad debts in terms of s. 10(2)(xi) of the Income Tax Act, 1922 in the year 1959-60, but subsequently received by the assessee were sought to be brought to tax in the assessment years 1964-65, 1965-66 and 1967-68 under s. 41(4) of the Income Tax Act, 1961. The assessee's business had discontin- ued prior to the relevant years of recovery of the amounts.The orders of assessment were confirmed by the Appellate Assistant Commissioner. The Tribunal, however, held that the amounts could not be taxed under s. 41(4) of the 1961 Act for that section had no application to amounts written off in 1959-60 in terms of s. 10(2)(xi) of the 1922 Act when it was in force.On a reference, the High Court held that the amounts in question were includable in computing the taxable income of the assessee in respect of the relevant years under s. 41(4) of the 1961 Act. It took the view that there was no incon- sistency between the relevant provisions of the two enact- ments and that s. 24 of the General Clauses Act, 1897 was attracted as a result of which the order in terms of which the amounts 207had been written off was deemed to have been made under the reenacted provisions, as contained in s. 36(1)(vii).In these appeals by certificate, it was contended for the appellant that the relevant provisions of the 1922 Act and 1961 Act were not in pari materia, that s. 41(4) would be attracted only where the bad debt had been written off in terms of s. 36(1)(vii), and that what has been allowed as a deduction in terms of s. 10(2)(xi) of the 1922 Act could not on recovery be brought to tax under s. 41(4) of the 1961 Act, unless the business itself had continued to exist at the time of recovery.Dismissing the appeals, the Court,HELD: 1. If the amounts had been received prior to the repeal of the 1922 Act the entire transaction would have been covered by the provisions of section 10(2)(xi) of the Act, and the business having been discontinued prior to the relevant years of receipt, these amounts would not have been taxable. [209H; 210A]Commissioner of Income Tax, Madras v. Express Newspapers Ltd., 53 ITR 250 referred to.2.1 The effect of section 24 of the General Clauses Act, 1897, in so far as it is material, is that where the re- pealed and re-enacted provisions are not inconsistent with each other, any order made under the repealed provisions would be deemed to be an order made under the re-enacted provisions. [212B]2.2 Section 10(2)(xi) of the 1922 Act is equivalent to sections 36(1)(vii), 36(2) and 41(4) of the 1961 Act. The repealed section 10(2)(xi) is thus a composite section containing the ingredients of the re-enacted sections 36(1)(vii), 36(2) and 41(4). Consequently, when a debt is written off by an order in terms of section 10(2)(xi) of the 1922 Act, the Income Tax Officer exercises the same power as he would have exercised on the enactment of section 36(1)(vii) of the 1961 Act. These two provisions are, there- fore, consistent with each other. Section 36(1)(vii) is subject to the provisions of sub-section (2) of that sec- tion. Therefore, both sections 36(1)(vii) and 36(2) of the 1961 Act, being two of the ingredients of section 10(2)(xi) of the 1922 Act, must be read together with reference to an order under which debts had been written off. Accordingly, in the light of section 24 of the General Clause Act, 1897, the relevant order made under section 10(2)(xi) of the 1922 Act with reference to which the debt in question had been written off, would be 208deemed to be an order made under section 36(1)(vii) of the 1961 Act and such order is what is contemplated under sec- tion 41(4) of that Act. Any amount which is recovered on any such debt is attracted by the provisions of section 41(4) of the 1961 Act and is, therefore, chargeable to tax in terms of that sub-section to the extent of the 'excess' specified therein. [212C-G]See the full content of this document
Extract
Poonjabhai Varmalidas VS. Commissioner Of Income Tax, Ahmedabad
PETITIONER: POONJABHAI VARMALIDAS Vs.RESPONDENT: COMMISSIONER OF INCOME TAX, AHMEDABADDATE OF JUDGMENT09/10/1990BENCH: THOMMEN, T.K. (J)BENCH: THOMMEN, T.K. (J)SAHAI, R.M. (J)CITATION: 1991 AIR 1 1990 SCR Supl. (2) 206 1992 SCC Supl. (1) 182 JT 1990 (4) 106 1990 SCALE (2)698ACT: Income Tax Act, 1922: S. 10(2)(xi)/ Income Tax Act, 1961: ss 36(1)(vii), 36(2) and 41(4): Bad debts written off subsequently recovered--Business discontinued--Amounts whether assessable to tax.JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1431- 33(NT) ...
See the full content of this document