C.I.T.AMRITSAR vs. M/S AMRIK SINGH SURINDER SINGH ASR.

ITR/174/1989HC Punjab & HaryanaPHHC01022545198926 March 2007Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE M.M. KUMAR6 pages
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What did the High Court hold?

The High Court held that the assessee was entitled to the deduction as a business loss. The court agreed with the Tribunal that the claim could not be allowed as a bad debt under Section 36(2) because the amount had never formed part of the assessed turnover of the assessee, thus not constituting a debt in the assessee's hands. However, the court upheld the allowance as a business loss. The court found that the assessee, as a sole selling agent, had agreed to be responsible for the recovery of outstanding dues from parties supplied through its agency, in lieu of commission. This responsibility was established through the agreement dated 1.10.1973 and its modification by the letter dated 31.10.1973, which clearly stated that irrecoverable outstandings would be the assessee's responsibility. The subsequent debiting of the amount to the assessee's account by the principal confirmed this arrangement. Therefore, the loss incurred due to non-recovery of these dues from M/S Nagaland Liquor Store was considered a business loss related to the assessee's business activities. The court answered the questions against the revenue and in favour of the assessee.

What were the facts?

The assessee, M/s Amrik Singh Surinder Singh, a partnership firm, was the sole selling agent for M/s Central Distillery & Chemical Works Ltd. (the principal) for Indian made foreign liquor. For the assessment year 1975-76, the assessee claimed a bad debt of Rs. 4,15,944/- relating to dues from M/S Nagaland Liquor Store. This claim was disallowed by the Assessing Officer and confirmed by the CIT(A). Before the Income Tax Appellate Tribunal (ITAT), the assessee restricted its claim to this amount and argued it should be allowed as a bad debt or, alternatively, as a trading loss. The ITAT rejected the bad debt claim but allowed it as a trading loss. The Revenue referred the matter to the High Court.

What were the issues?

1. Whether the Appellate Tribunal was right in law in allowing the claim of Rs. 4,15,944/- as a trading loss under section 37 of the Income Tax Act, 1961, after rightly rejecting it as a bad debt under section 36(2)? Assessee's contention: The amount should be allowed as a deduction, either as a bad debt or a trading loss. Revenue's contention: The claim should not be allowed as a bad debt because it did not form part of the assessed turnover. The revenue also contended that the modification of the agreement by the principal's letter dated 31.10.1973 did not saddle the assessee with the principal's old dues from a third party, M/S Nagaland Liquor Stores, transforming it into the assessee's liability. Furthermore, the revenue argued that the amount did not become a trading liability of the assessee by virtue of the principal's letter dated 16.5.1974, and there was no evidence of efforts to recover the dues from M/S Nagaland Liquor Stores. The revenue also questioned whether the ITAT's finding was vitiated by considering irrelevant material.

Which sections of the Income-tax Act were involved?

Section 36(2),Section 37

AI-generated summary — verify with the full judgment below

I.T.R.

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

Date of decision: 26.3.2007 The Commissioner of Income-Tax, Amritsar ...Petitioner Versus M/S Amrik Singh Surinder Singh, Amritsar ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.Sanjiv Bansal, Advocate for the Revenue **** RAJESH BINDAL, J. Following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short, ‘the Tribunal) arising out of its order dated 5.12.1980 in ITA No.592(ASR)/1979 for the assessment year 1975-76:- “1. Whether on the facts and in the circumstances of the case, while rightly affirming the order of the CIT (A) rejecting the assessee’s claim of deduction of Rs.4,15,944/- as bad debt under section 36 (2) of the Income Tax Act, 1961, the Appellate Tribunal is right in law in allowing the same as trading loss incurred by the firm under section 37 of the Act?

2.

Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the agreement dated 1.10.1973

The order continues below.

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