Judgement

Appeal (No. 71 of 1930) from a judgment of the Court of the Judicial Commissioner (December 30, 1928) upon a reference under s. 66, sub-s. 2, of the Indian Income-tax Act, 1922.

The first only of the two questions referred was material to the present appeal, and its terms appear from the judgment of the Judicial Committee. Shortly stated, the question was whether in computing the profits of a business for the purposes of the above Act the assessee has the option of declaring a debt to be a bad debt in the particular year of assessment.

The Court of the Judicial Commissioner, in a judgment reported at 25 Nag. L. R. 35r held that an assessee has the right to decide whether a debt is bad and when it became bad, and that the income-tax authorities could not override his decision.

Law. Rep. 59 Ind. App. 290 ( 1931- 1932) Commissioner of Income-Tax V. Sir S. M. Chitnavis

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1932. April 5. Dunne K.C. and R. P. Hills for the appellant. The income taxable under the heads mentioned in s. 6 of the Act, which includes business, has by s. 3 to be in respect of the gains in the previous year. Whether a particular debt became a bad debt in the year of assessment is a question of fact to be determined by the income-tax officer subject to appeal to the Assistant Commissioner under s. 30 of the Act. Their finding was supported by the Commissioner, and was conclusive In re Binjraj Hukumchand. (( 1931) I. L. R. 58 C. 1446.) [Reference was made also to Gleaner Co. v. Assessment Committee ([ 1922] 2 A. C. 169.) and Sun Insurance Officer v. Clerk. ([ 1912] A. C. 443, 455.)]

Latter K.C. and Jinnah for the respondent. By s. 13 of the Act the profits and gains of the business were to be computed in accordance with the method of accounting regularly employed by the assessee. The debts were admittedly bad debts, and it was for the assessee to determine when according to his ordinary methods they should be treated as bad. The findings were wholly based upon the mistaken view that a time-barred debt is necessarily bad, and the assessee was given no sufficient opportunity of showing why the debts in question did not become bad debts till the year of assessment. There was no evidence precluding the debts, admittedly bad, being treated as a loss in the year of assessment.

April 2C. The judgment of their Lordships was delivered by

LORD RUSSELL OF KILLOWEN. This is an appeal from a judgment of the Court of the Judical Commissioner, Central Provinces, upon a reference of questions of law, made at the instance of an assessee, under s. 66, sub-s. 2, of the Indian Income-tax Act, 1922 (which will hereafter be referred to as "the Act").

The questions involved were considered by the said Court to be of such importance that the case was (after argument before two Commissioners) re-argued before a Full Bench.

Two separate and distinct matters were raised for decision before the said Court, and its adjudication upon each was adverse to the present appellant. In respect of one of those matters he made no attempt to appeal, and the dispute in regard thereto is at an end. In regard to the other matter, however, he applied to the said Court for leave to appeal to His Majesty in Council, and in response to that application the Court certified that the requirements of s. 109 (c) of the Code of Civil Procedure, 1908, were fulfilled, " inasmuch as a question of great public importance is involved in the case." Their Lordships draw attention to this aspect of the case at the outset in view of the contentions which were advanced before them on behalf of the respondent.

The facts of the case may now be stated.

Sir Shanker Rao Chitnavis (who will be referred to as c the assessee ") for the purpose of assessment to income-tax for the year 1926- 1927 had, under s. 22 of the Act, to make a return of his total income during the year 1925- 1926, He returned that income at Rs.74,668. The income-tax officer, proceeding under s. 23 of the Act, by his order dated January 17, 1927,