The main legal point established in the judgment is that the Income-tax Officer has the discretion to estimate irrecoverable debts, with a maximum limit not exceeding the amount actually written off by the assessee. An actual writing off in the books of the previous years was not deemed necessary for allowing a deduction as a bad debt.

( 1 ) THIS is a reference under Section 21, Excess Profits Tax Act, read with Section 66 (1), Income-tax Act, of a short question of law under Section 10 (2) (xi) of the latter Act. The reference has been made by the Calcutta Bench of the Income-tax Appellate Tribunal. In order to appreciate the true import of the question referred, it is necessary to state first the facts out of which it has arisen.

( 2 ) THE assessee, Messrs. Begg Dunlop and Co. , Ltd. , are, or rather were the managing agents of two other companies, namely, Craig Jute Mills Limited and Waverly Jute Mills Limited. It appears that as such managing agents they had made advances to each of the managed companies having lent a sum of Rs. 10,00,000/- to the Waverly Jute Mills Limited and a little less than Rs. 10,00,000/-to the Craig Jute Mills Limited. The companies apparently did not flourish and as early as the assessment year 1934-35, the assessee company began a practice which has formed the subject of much debate at our Bar. The practice was that interest amounts due on the loans advanced to the two managed companies were credited to an account called the Interest Reserve Account and they were not taken to the credit of the Profit and Loss Account. The Interest Reserve Account, it is not disputed, was treated as a Suspense Account and the amounts credited to it were kept to meet bad debts which might or seemed likely to come into existence. The amount so credited to the Interest Reserve Account totalled a sum of Rs. 1,88,579/- during the assessment years 1934-35 to 1937-38 and those credited during the assessment years 1938-39 to 1939-40 totalled Rs. 2,01,368/ -.

( 3 ) IT appears that in 1940 schemes of reconstruction were framed and approved of by the High Court in respect of both the managed companies and one of the provisions of the schemes was that the managing agents would write off their dues to the extent of Rs. 5,00,000/- in the case of each company. An amount of Rs. 10,00,000/- was therefore, written off during the chargeable accounting period which was April 1, 1940 to March 31, 1941, and the manner in which it was done was that the sum of Rs. 3,89,948/- which was the total of the two sums I have already mentioned was first adjusted against the amount of Rs. 10,00,000/- and only the balance of Rs. 6,10,052/-was adjusted against the profit of the chargeable accounting period. The question in the present case is whether the assessee is entitled to deduction as a had debt, against the profits of the chargeable accounting period, of the whole amount of Rs. 10,00,000/- as claimed by it or whether it was-rightly allowed only a sum of Rs. 6,10,052/- by the departmental authorities.

( 4 ) A few other facts remain to be mentioned. It appears that in the relevant income-tax assessments, the interest amounts credited year after year to the Interest Reserve Account during the years 1934-35 to 1937-38 were not treated as the income of the assessee company in accordance with submissions made by the company itself. With respect to the amounts credited in the later years,, namely, the amounts credited during the years 1938-39 to 1939-40, the Income-tax Officer took a different view and treated the amounts as the income of the assessee company and brought them under assessment. The position, therefore, is that out of the disputed amount of Rs. 3,89,948/- a sum of Rs, 2,01,368/- had suffered assessment for income-tax purposes, whereas the balance of Rs. 1,88,579/-had not been so assessed.

( 5 ) IT appears further that in the Income-tax assessment for 1941-42 which is the previous year relative to the chargeable accounting period, the-assessee company admitted that the amount of bad debts chargeable against its profits for that year was-Rs. 10,00,000/- less Rs. 1,88,579/- which, as 1 have said, had not suffered assessment previously. The Tribunal has pointed out that even in the Excess Profits Tax assessment, the assessee took up the same pos