“Section 37(1)(vii)”
The decision most relied on for Section 37(1)(vii) is Vijaya Bank v. CIT (323 ITR 166), cited in 392 judgments on BharatTax.
Leading authorities on Section 37(1)(vii)
A provision for bad and doubtful debts debited to the profit and loss account and reduced from advances on the balance sheet constitutes a write-off for deduction purposes. This is true even if individual debtor accounts are not closed.
The case concerns the allowability of deductions for provisions made under Section 36 of the Income Tax Act, 1961, especially those related to bad and doubtful debts. It distinguishes such deductions from the recognition of interest income on non-performing assets (NPAs).
When following the mercantile system of accounting, provisions for liabilities made on a scientific and rational basis are allowable as deductions, even if their actual quantification and discharge are deferred to a future date.
For a bad debt deduction under Section 36(1)(vii), the debt must be actually written off as irrecoverable in the assessee's accounts, distinct from merely making a provision for bad and doubtful debts. The assessee bears the onus to satisfy the conditions under both Section 36(1)(vii) and Section 36(2) of the Income-tax Act.
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
An assessee engaged in the business of hire purchase or leasing, being the lessor, is entitled to claim depreciation on assets leased out, even if the assets are registered in the name of the lessee and used by the lessee.
A non-resident commission agent is not chargeable to tax in India on commission income if no business operations are carried out in India. Consequently, no TDS is required under Section 195 on such payments.
Technical services involve human intervention and expertise, not just routine or machine-based operations. Routine customer support and standard facility provision through technology do not constitute technical services under the Act.
