The time of determination of when a loan becomes irrecoverable for the purpose of claiming a deduction under S. 10 (2) (xi) of the Income-tax Act is a question of fact to be decided by the Income-tax Officer.

Chagla, C.J. - This reference raises a question as to the interpretation of S. 10 (2) (xi), Income-tax Act. We entirely agree with the Tribunal when it takes the view that this particular clause has not been very happily drafted. If anything, the Tribunal has used very moderate language in considering the wording used by the Legislature. But, we have to construe it as we find it, and when we turn to that clause, it deals with a deduction under S. 10 (2); and the deduction, in case of a person who is doing business, and whose accounts are not kept on cash basis, is

"such sum, in respect of bad and doubtful debts . . . . 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."

It is difficult to understand what distinction is sought to be made between bad and doubtful debts; but the difficulty and ambiguity is cleared by the fact that whether the debt is bad or doubtful, it must in the estimate of the Income-tax Officer be irrecoverable. Therefore, in the case of persons doing business, and whose accounts are not kept on cash basis in order to be entitled to a deduction under S. 10 (2) (xi) those conditions are necessary; the debt must be bad or doubtful debt; the Income-tax Officer must take the view that it is irrecoverable and further it must be written off in the books of the assessee. However, when a debt is written off in the books of the assessee, the Income-tax Officer may take the view that although the assessee has written off the debt, it became irrecoverable not in the accounting year but in an earlier year. If he takes that view, then the assessee would not be allowed to claim a deduction in the year of account. However, in the case of bankers and money-lenders what can be claimed as a deduction is a loan or part of a loan which may become irrecoverable in the opinion of the Income-tax Officer, and there again, the banker or the money-lender has to write off the loan or the part of the loan and in his case also the mere fact that he chooses to write off the loan or part of it in a particular year does not necessarily mean that it had become irrecoverable in that particular year. In other words, it is not left to the creditors choice to determine when a particular debt became a bad debt or irrecoverable, nor is it left to the banker or money-lender to decide when a loan or part of it became irrecoverable, by merely writing off the debt or the loan or part of it in his books. One of the conditions is the writing off of the bad debt or the loan which has become irrecoverable; but it is not sufficient. The assessee must satisfy the Income-tax Officer that in fact the debt or the loan became irrecoverable in the year of account. Now; the tribunal has pointed out in the statement of the case that it felt some doubt and required guidance from us and they have referred to a Privy Council case, viz. Income-tax Commissioner v. Chitnavis, 59 Ind App 290. Now, that case itself furnishes sufficient guidance to the Tribunal with regard to the matter in which they felt doubt, because when we turn to that case, their Lordships point out as follows (p. 297) :

"It thus follows that a debt, which had in fact become a bad debt before the commencement of a particular year, could not properly be deducted in ascertaining the profits of that year, because the loss had not been sustained in that year."

Their Lordships further observe (p. 297) :

"Whether a debt is a bad debt, and, if so, at what point of time it became a bad debt, are questions which, in their Lordships view, are questions of fact, to be decided in the event of dispute by an appropriate tribunal, and no by the ipse dixit of any one else."

2. Now, in the light of these observations let us look at the facts of this case. The assessee does money-lending business and on 28-10-1936, he agreed to advance to one Niranjan Prakash a sum not exceeding Rs. 40,000 for the completion of