# AMARCHAND SOBHACHAND v. COMMISSIONER OF. INCOME TAX, MADRAS

- **Citation:** [1971] 3 S.C.R. 415
- **Court:** Supreme Court of India
- **Decided:** 1969-07-29
- **Case number:** Civil Appeal No. 949 of 1966
- **Bench:** C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/amarchand-sobhachand-v-commissioner-of-income-tax-madras-5145
- **Pages:** 9

## Headnote

415
Inoo111e-lllx Act. 1922, s. 10(2)(vi), s. 66(1)-Bad debt-May relate
10 nioney [ending business of assessee or olher business--Question referred
by tribunal to Higlz Court n111st corer both businesses u·hen the .c/aini can
be related to either-Staten1ent of cuse 1nust contain Tribunal's findings on
the facts of the case-Must not be 111ere resume of facts and arg111nents.
Supre111e Court Practice-Appeal hy special leai:e against High Court's
judg1nent in l11co111e~tax Refere11ce-S11pren1e Court lvi/I not interfere 1''ith
finding of /"ct given by Tribunal 011 the evidence recorded in the case.
The appellants were a registered partnership firm engaged
in moneyJending business as '.well as business in certain chemical goods and silk yarn.
Another firm had a current account v:ith the appellants between the samvat
years 2003 and 2008.
At the end of the latter year the said account had a
debit balance of Rs. 268385-1-3.
In the return of income for the assessment year 1953-54 the appellants claimed allowance for the said sum of
Rs. 268385 as a bad debt \\'fitten off as irrecoverable.
The clain1 \\'as <lisallo\ved bv the authorities under the Jncome-tax Act, 1922.
The Tribunal
referred to the High Court under s. 66(2) of the Income-tax Act,
1922
the question \.rhether on the iacts and circumstances of the case the Tribunal's finding that the sum in question did not relate to the appellants mooeyIending business was correct. The High Court answered the question in
the affirmative against the appellants.
This
Court in appeal by special
leave re-framed the question to be ans\\'ered by the T ribunaI so as to cover
not only the money-lending business of the nppellants but also the business
in chemicals etc. The Court directed the Tribunal to suhmit a suppl~men
tary statement of case.
The. supplementary statement of case suhinitted
by the Tribunal was ho\\·ever found unsatisfactory in as much as . it contained a summary of arguments on both sides but no findings on the facts
of the case.
Hence supplementary statement on fact. was called for.
The
findings given by the Tribunal were against the appellants.
On the con·
tention that the conclusion reached by the Tribunal was not supported by
proper discussion of the materials before it,
HELD : The finding• reached by the Tribunal were findings of fact and
those findings were supported hy the evidence on record.
The Tribunal
had. found that the loans w.erc not made in the course of money-lending
business of the assessee nor 1n respect of anv other husiness of the assessce.
This finding covered the entire amount so'ught to he deducted.
In vic\Y
of this finding \\.:hich was bintlinJ? on this Court, the .lllS\\·tr to the question re-framed had lo be in favour of the department. j-12.1 BJ
Also held : (i) The Tribunal in submilling its slalcmcnl of case must
give not only the facts of the case or the arguments of p;,1rties hut also its
own findings on the facts and evidence. j-110 DJ
H
(ii) When the assessee had money-lending as well as other business.
its claim for a bad debt under s. IO(!)(xi) of the Act must be considered
in relation 10 both the busine.,.cs and the question
submitted
by
the
Tribunal must cover the cfoim in both its aspects. [418 F-419 Al
416
SUPREME COURT REPORTS
[1971]3 S.C.R.

## Text

~·
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B
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AMARCHAND SOBHACHAND
v.
COMMISSIONER OF. INCOME TAX, MADRAS
July 29, 1969, April 7, 1970 & Januarv 21, 1971
[J, C. SHAH, C.J., K. S. HEGDE AND A. N. GROVER, JJ.]
415
Inoo111e-lllx Act. 1922, s. 10(2)(vi), s. 66(1)-Bad debt-May relate
10 nioney [ending business of assessee or olher business--Question referred
by tribunal to Higlz Court n111st corer both businesses u·hen the .c/aini can
be related to either-Staten1ent of cuse 1nust contain Tribunal's findings on
the facts of the case-Must not be 111ere resume of facts and arg111nents.
Supre111e Court Practice-Appeal hy special leai:e against High Court's
judg1nent in l11co111e~tax Refere11ce-S11pren1e Court lvi/I not interfere 1''ith
finding of /"ct given by Tribunal 011 the evidence recorded in the case.
The appellants were a registered partnership firm engaged
in moneyJending business as '.well as business in certain chemical goods and silk yarn.
Another firm had a current account v:ith the appellants between the samvat
years 2003 and 2008.
At the end of the latter year the said account had a
debit balance of Rs. 268385-1-3.
In the return of income for the assessment year 1953-54 the appellants claimed allowance for the said sum of
Rs. 268385 as a bad debt \\'fitten off as irrecoverable.
The clain1 \\'as <lisallo\ved bv the authorities under the Jncome-tax Act, 1922.
The Tribunal
referred to the High Court under s. 66(2) of the Income-tax Act,
1922
the question \.rhether on the iacts and circumstances of the case the Tribunal's finding that the sum in question did not relate to the appellants mooeyIending business was correct. The High Court answered the question in
the affirmative against the appellants.
This
Court in appeal by special
leave re-framed the question to be ans\\'ered by the T ribunaI so as to cover
not only the money-lending business of the nppellants but also the business
in chemicals etc. The Court directed the Tribunal to suhmit a suppl~men
tary statement of case.
The. supplementary statement of case suhinitted
by the Tribunal was ho\\·ever found unsatisfactory in as much as . it contained a summary of arguments on both sides but no findings on the facts
of the case.
Hence supplementary statement on fact. was called for.
The
findings given by the Tribunal were against the appellants.
On the con·
tention that the conclusion reached by the Tribunal was not supported by
proper discussion of the materials before it,
HELD : The finding• reached by the Tribunal were findings of fact and
those findings were supported hy the evidence on record.
The Tribunal
had. found that the loans w.erc not made in the course of money-lending
business of the assessee nor 1n respect of anv other husiness of the assessce.
This finding covered the entire amount so'ught to he deducted.
In vic\Y
of this finding \\.:hich was bintlinJ? on this Court, the .lllS\\·tr to the question re-framed had lo be in favour of the department. j-12.1 BJ
Also held : (i) The Tribunal in submilling its slalcmcnl of case must
give not only the facts of the case or the arguments of p;,1rties hut also its
own findings on the facts and evidence. j-110 DJ
H
(ii) When the assessee had money-lending as well as other business.
its claim for a bad debt under s. IO(!)(xi) of the Act must be considered
in relation 10 both the busine.,.cs and the question
submitted
by
the
Tribunal must cover the cfoim in both its aspects. [418 F-419 Al
416
SUPREME COURT REPORTS
[1971]3 S.C.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 949 of
1966.
Appeal by special leave from the ju~gment and order dated
September 11, 1964 of the Madras High Court in Tax Case No.
181 of 1962.
A
M. C. Chag/a and B. R. Aganvala, for the appellant.
B
S. T. Desai, R. N. Sachihey and B. D. Sharma, for the respondent.
[The appeal was originally heard by J. C. Shah, Ag. C.J.,
V. Ran;iaswami and A. N. Grover, JJ.
The case was twice remanded to the Tribunal.
The first Order of the Court remanding
C
the case to the Tribuinal was delivered by]
Shah, Ag. C. J.
M/s Amarchand Sobhachand a firm registered under the Indian Income-tax- Act, 1922, carried. on business at Madras in drugs, chemicals, mercury, camphor and silk
yarn and as money lenders. There were two partners of the firm
-Mohanlal Sagmal and Seshmal Sobhachand, and Ramniklal
D
and Lakshmichand minors were admitted to the benefits of the
partnership, each with 7 /32 share in the profits. The appellants
had for a long time business relations with a firm styled "Bhojaji
Sobhachand" carrying on business at Bombay as
importers of
yarn and also as agents and adathias.
Sobhachand, one of the
partners of Bhojaji Sobhachand with 16% share in the profit and E
loss is the father of Seshmal, Ramniklal and Lakshmichand, partners of the appellants.
In the books of account of the appellants which were maintained according to the mercantile system there was a current
sarafi account in respect of their transactions with the Bombay
firm in which were credited the funds transmitted from Bombay in
f
respect of their business transactions. Entries. relating to interest
were posted till the end of Samvat Year 2006 in the account on
the amount due at the foot of 'the account. The following is a
tab!. showing the ~alances at the end of thJ Samvat years 2003
to 2008 and the interest charged thereon :
At the end bfihe Samvat Year 2003 Cr.
2004 D•.
"
,;
2005 Cr.
,,
2006 Cr.
Amount
16,95! ·00
I.02,\88-4-5
27,815-0-0
\ l ,975-0-0
,,
,,
2007 Dr.
2,02,823-12-3
- Interest
Dr. 2633-9-3
Dr. 483-\-9
Cr.
1008~ 7-3 .
G
,.
.,
,,
2()08 Dr.
2,68,385-1-3
H
In the assessment for income-tllx of the appellants for the
assessment year 1952-53 relevant to the account year Samvat
A
AMARCHANDV. C.I.T. (Shah, Ag. C.J.)
417
2007 an item of Rs. 2,03,147-8-0 in the account of the Bombay
firm was disallowed by the Income-tax Officer, but .in appeal the
amount was allowed.
In the return of income for the assessment year 1953-54 the
appellants claimed allowance for Rs. 2,68,385/- due from the
B
Bombay firm at the foot of their running account as a bad debt
writtein off as ir{;Ceoverable.
The Income-tax Officer disallowed
their claim holding that :
"these ·transactions were
mere
accommodations
which can have no bearing to the regular business carried
on by the assessee."
C
The Appellate Assistant Commissioner agreed with the Incometax Officer. He held that the debt did not arise in the course of
the appellanls' business as chemists and druggists nor in the
course of their money-lending business. The Income-tax Appellate Tribunal accordingly confirmed the order of the Appellate
Assistant Commissioner.
D
The assessee firm then applied to the Tribunal to refer the
following question to the High Court of Madras :
; '
"Whether on the facts and in the circumstances of
the case the disallowance of the bad debt of Rs. 2,68,385
is right in law ?"
E
The Tribunal rejected the application, but pursuant to an order
made by the High Court of Madras under s. 66(2) submitted
a statement of the case on the following question :
F
"Whether on the facts and in the circumstances of
the case, the Tribunal was right in law in holding that
the debt of Rs. 2,68,385/- was not one incurred in the
course of money lending business of the assessee ?"
In the opinion of the High Court the debt of Rs. 2,68,385/- due
to the appellants was not a b~d and doubtful debt in its moneylending business not a debt representing loss sustained in the other
business. The question referred was therefore, answered in the
G
affirmative and against the appellants.'
Section 10(2) (xi) of the Indian Income-tax Act, 1922 as in
force at the relevant time provided :
'
"(2) Such profits or gains shall be computed after
making the following allowances, namely : -
·ff
(xi) When the assessee's accounts in respect of any
part of his business, profe~.sion or vocation are
not kept on the cash basis, such sum, in respect
of bad and doubtful debts, due to the assessee in
13-L807SupCJ/7J
118
SUPREME COURT REPORTS
[1971)3 S.C.R.
respect of that part of his business, profession or
vocation, and in the case of an assessee carrying
on a· banking or money-lending business, such
sum in respect of loans niade in the ordinary
course of such business as the Income-tax Officer
may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee :
Provided
"
A
B
Clause (xi) was in two parts. A bad and doubtful debt due to c
the taxpayer, written off as irrecoverable in the books of account
was ,properly allowable in computing the taxable profits from
business, profession or vocation, whe.re accounts were not kept
on the cash basis, 1f the debt was in respect of a loan made in
the course of the taxpayer's business as a banker or money-lender,
or when the taxpayer was carrying on any other business the debt
was in respect of •:iat other business.
D
Before the Tribunal the appellants claimed allowance for the
debt written off relying upon both the branches of s. 10 (2) (xi)
and by the application under s. 66 (1) of the Income-tax Act a
question covering both the
branches of the section was also
sought to be raised. But the question on which the Tribunal was
E
called upon to state the case was in form· imprecise and in import somewhat vague. . A bad and dout:ful debt due to an assessee in respeet of banking or money-lending business is allowable
under s. 10(2) (xi) if it. is in respect of loans made in the ordinary course of such business. A bad and doubtful' debt in respect
of a business other than banking or money-lending is allowable
even if it is not in respect .of loan : but a debt due in the course
of the business of a money-lending is not allowable unless it is
in respect of loans made in the ordinary course of his business.
We are of the view that the question should have been referred
in the form suggested by the appellants in their application under
s. 66 ( 1 ) with appropriate variation~ In the interest of justice,
we direct that the question be refrariied as follows :
"Whether on the facts and in the circumstances of
the case the Tribunal erred in disallowing the debt of
Rs. 2,68,385/- written off by the assessee in their books
of account as irrecoverable."
The two branches of the question as reframed then are : ( 1 )
Whether the debt or any part thereof is in respect of loans made
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AMARCHAND v. C.I.T. (Shah, Ag, C.J.)
419
in the ordinary course of money-lending business of the appellants; and (2) whether the debt or any part thereof is in respect
of the other business of the appellants.
We are of the view that before the question may be answered, ·
it is necessary to call for a supplementary statement of the case
from the Tribunal. The Tribunal's order is very brief : it gives
no reasons in support of the conclusions. The argument based
on the first part of s. 10(2)(xi) that the debts were due in respect of the business of the appellants other than money-lending
was not considered at all, and the Tribunal disposed of the second
part of the case by lnerely observing that it w~s an "acco~oda
tion" account to enabie the Bombay firm to tide over the financial crisis" threatening it in Samvat Year 2007, and.that the transactions in the account were totally unconnected with the normal
business of the appellants. An "accommodation" advaii.ce is a
neutral expression : it may' be of the nature of a loan a~vanced
in the ordinary course of business by a money lender; 1t may
be an advance the money-lending or other business of the assessee but not in the nature of a loan; or it may be wholly unrelated
to ,the business of the tax-payer.
The statement submitted by the Tribunal is also inadequate.
It contains only a summary of the business relations between the
appellants and the Bombay firm, a statement as to the amounts.
due at the end of each year at the foot of the account, the interest if any charged and a summary of the orders made by the
Incom,e-tax Offic~, the Appellate Assistant Commissioner
and
the Tribunal.
The statement of the case does not analyse the
evidence and throws no light upon the two branches of the argument raised before the Tribunal and which, in our view, arose
out of the question on which they ~ere required to submit a statement of the case.
Counsel for the Revenue, however, contended that there are
three important circumstances which appear from the order of
the Appellate Assistant Commissioner and the Income-tax Officer
from which it may be inferred that the advances made by the
appellants to the Bombay firm were not in respect of loans in
the ordinary course of the business of the appellants, nor in respect of their other business. Counsel said that (I) Sobhagchand
Amarchand partne!' of. the Bombay firm is the father of Seshmal
one of the partners of the appellants and of the minors Ramniklal
an.d Lakshmichand who are admitted to the benefits of partnership; (2) that large amounts of money were advanced shortly
before the Bombay firm closed its business; and (3) that there
was a consistant practice for paying or receiving interest on the
420
SUPREME COURT REPORTS
[197!J3 S.C.R
amounts due at the foot of the account, but no interest was charged
by· the appellants in respect of the dues at the foot of the account
at the end of Samvat Years 2007 and 2008. But the Tribunal
has not raised any inference from these circumstances and has
merely observed that charging of interest cannot make it a moneylending account.
A
B
We, therefore, direct that the Income-tax Appellate Tribunal
do submit a supplementary statement of the case on the question
refraJl'ed, on both the branches of s. 10(2)(xi) of the Indian
Income-tax Act, 1922.
The Tribunal will give opportunity to
both the parties of being heard, but will restrict themselves to the
evidence on the record. The supplementary statement to be sub- . c
mitted within three months from the date the papers reach the
Tribunal.
[After receipt of the supplementary statement of case from the
Tribll\nal the appeal w«s heard by J. C. Shah, K. S. Hegde and
A. N. Grover, JJ. The order of the Court was delivered by]
D
Shah, J. By our order dated July 29, 1969 we called for
;a ~upplementary statement of case on the question reframed in
the light of the two branches of s. 10(2) (xi) of the Indian Income-tax Act, 1922. We have now received a statement of case
from the Tribunal. The Tribunal has set out in great detail the
E
arguments advanced before it by the assessee and by the Revenue
but it has not set out the facts found by it from the evidence on
the record in the light of the arguments advanced.
The statement of case is intended to be a finding on facts and not a catalogue of the arguments advanced at the Bar. Since the Tribunal
has not found the facts we are constrained to send back the case
again to the Tribunal for submitting to this Court a supplementary F
·statement on facts found by the Tribunal. The Tribunal will sub-
·~~
mit the statement within three months from the date on which
the papers reach the Tribunal.
[After receipt of the second supplementary statement of case
from the Tribunal the appeal was finally heard by J. C. Shah, C.J.,
G
K. S. Hegde and A. N. Grover, JJ. The Judgment oi the Court
was delivered by]
Hegde, J. The appellant firm (which will hereinafter ~
referred to as the "assessee") carried on business in drugs, chem1-
<:als, mercury, camphor and art silk yarn .as also in .mone~-lendH
,,
ing. over a number of years. The accountmg year with which _we
are concerned in this appeal is Samvat year 2008 commencmg
from '1ctober 31, 1951 and ending on Oct. 18, 1952. The firm
AMARCHAND v. C.J.T. (Shah, Ag. C.!.)
421
A consisted of two partners, Mohanlal Bagmal and Sashrnal Sobha
Chand. Two minors, Ramniklal Sobhachand and Lakshmichand
Sobhachand were admitted to the benefits of the partnership.
The assessee had dealings for several years with a firm known as
'·Bhojaji Sobhachand" (to be hereinafter referred to as the Bombay
B
c
D
firm).
Sobhachand Amarchand, a partner of the Bombay firm,
is the father of Seshmal, Ramaniklal and Lakshmichand and he
was having sixteen percent share in the Bombay firm. That firm
became insolvent in April 1952. The Bombay firm owed certain
amount to the assessee. In the assessment of income-tax of the
appellant for the assessment year 1952-531 relevant to the account
year Samvat 2008, the assessee claimed a deduction of
Rs. 2,68,385/· as bad debt due from the Bombay firm, incurred
by that firm in the course of business transaC'tions. The Income·
tax Officer disallowed that claim .holding that "these transactions
were mere accommodations which can have no bearing to the
regular business carried on by the assessee. In appeal the Appellate Assistant Commissioner agreed with the Income-tax Officer.
He held that the debt did not arise in the course of the assessee's
business as Chemists and Druggists nor in the course of their
money-lending business. On a further appeal taken by the assessee to the Income-tax Appellate Tribunal, the tribunal confinned
the order of the Appellate Assistant Commissioner. The assessee
there'\fter applied to the tribunal under s. 66 ( 1) of the Indian .
Income-tax Act, 1922 to submit a statement of the case with the
E
question "whether on the facts and in the circumstances of the
case the disallowance of the bad debt of Rs. 2,68,385/- is right
in law" to the High Court of Madras for its opinion. The tribunal
rejected that application but pursuant to an order of the High
Court under s. 66 (2), the tribunal submitted a statement of the
case on the following question :
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"Whether on the facts and in the circumstances of
the case, the Tribunal was right in law in holdin¥ that
the debt of Rs. 2,68,385/- was not one incurred Ill the
course of money-lending business of the assessee."
The High Court opined that the debt in question was not a
bad and doubtful debt in the assessee's money lending business
nor a debt representing loss sustained in the other business. The
question referied was, therefore, answered in the affirmative and
against the assessee. Thereafter the present appeal was brought
after obtaining special leave from this Court. At the hearing of
the appeal this Court found that the tribunal's order was very
brief and that it gave no reasons in support of its conclusions. It
also found that the statement submitted by the tribunal was inadequate. This Court took the view that the question framed at
422
SUPREME COURT REPORTS
[1971 ]3 S.C.R
th~ .instance of .the High Court ~id not bring out the real quesion A
ansmg for dec1s1on.
It accordingly reframed the question as
follows :
"Whether on the facts and in the circumstances of
the case the Appellate Tribunal erred in disallowing a
sum of Rs. 2,68,385/- written off_ by the assessee in
B
their books of accounts as irrecoverable ?"
By its order dated July 29, 1969 this Court called upon the Tribunal to submit a supplementary statement of case on the reframed question. The tribunal accordingly submitted a fresh statement of the case on the question referred. But that statement c
merely catalogued the arguments advanced at the bar. The tribunal did not give any findings.on the points arising for decision.
Hence by its order dated April 7, 1970, this Court directed the
tribunal co submit a further statement. The tribunal has accordingly submitted a further statement.
The facts found by the tribunal are found in paragraphs 11
and 12 of the statement. They read :
"11. We have taken into consideration the available
materials and the rival submissions. The only facts in
favour of _the assessee are thr.t incidental charges are
debited to the Bombay firm in respect of some of the
remittances and there is a flow of moneys to the Bombay
firm up to 10-3-1952 when the last of the remittances
was sent to it before the firm collapsed in abou: April
1952. On the other hand, the narrations in the entries,
as they stand, the failure to adjust interest in the
account of the Bombay firm at the stage at which it became a debtor in Samvat yea.r 2007, the m~er in
which the partner of the appellant-firm tried to explain
the position in March, 1954 and the stand of the firm
itself at all earlier stages support the case of the Department."
"12. Having considered all the circumstances of the
case, we are of the opinion that the sums in question
were not sent to the Bombay firm as loans m_ade in the
ordinary course of the money·-lending business of the
assessee nor in respect of any other business of the
assessee. As this is the finding with regard to the whole
of the amount of Rs. 2,68,385/- there is no question of
:lllocating any portion thereof as between the business
of money lending or for any other purpose as preferred
to para 7 above."
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AMARCHAND v. C.l.T. (Shah, Ag. C.J.)
423
It ts true as contended by the learned Counsel for the asstssee
that the conclusions reached by the tribunal are not supported by
proper discussion of the material before it. It is also true that
the tribunal after catalogueing the arguments
advanced at the
bar, has come to certain abrupt conclusions, but all the ~ame it
cannot be denied that the findings reached by the tribunal are
findings of fact and those findings are supported by the evidence
on record. The tribunal has found that the monies sent by the
assessee to the Bombay firm were not loans made in the ordinary
course of its money-lending business, nor in respect of any other
business of the. assessee. This finding covers the entire amount
sought to be deducted. Jn view of this finding, which is binding
on this Court, our answer to the question reframed has to be in
the negative and in favour of the Department. The appeal fails
and is dismissed. No costs.
.
G.C.
Appeal dismissed.