JAGADISAN J.

Messrs. Devi Films (Pte.) Ltd., referred to as the assessee in this judgment, is the applicant in these two petitions filed under section 66(2) of the Indian Income-tax Act. It is carrying on business as financier of production of motion pictures and as dealer in cinematographic machines and spare parts. Before setting out the question of law sought to be referred, the facts giving rise to these petitions will have to be stated. They are as follows

The assessee entered into an agreement on 6th July, 1955, with a certain Dinshaw K. Tehrani who had ventured upon the production of a cinema film called Raja Rani. Under this agreement the assessee agreed to lend Tehrani a sum of Rs. 3, 80, 000. The money was lent as per the terms of the agreement, but Tehrani could not complete the production due to lack of funds. The assessee entered into a further agreement with Tehrani on 31st January, 1956, and agreed to provide him with further funds to the extent of Rs. 1, 50, 000. In all, the assessee advanced to Tehrani the sum of Rs. 5, 57, 022-10-1 in pursuance of the two agreements aforesaid. The picture, after release, proved to be a flop and the expectations of the assessee to make profit out of the financing agreements failed. The assessee was, however, able to realise by collections from exhibitions and by sale of distribution rights, in all a sum of Rs. 4, 91, 071-12-3. There remained a balance of Rs. 65, 950-13-10 due and payable by Tehrani to the assessee. It appears that this Tehrani was not a person of large means. He had a house in the city of Madras, purchased in the name of his wife. He held 100 shares in Newtone Studios Ltd., of the face value of Rs. 10, 000. Notwithstanding the indebtedness of Tehrani to the assessee and possibly to several others, his resourcefulness and enthusiasm to produce pictures did not come to an end. The assessee entered into an arrangement with Tehrani on 1st April, 1957, by which Tehrani pledged his shares in Newtone Studios as security for a sum of Rs. 10, 000, on condition of the assessee waiving the balance of Rs. 55, 950-13-10. As stated already, Tehrani's total liability to the assessee on that date was Rs. 65, 950-13-10In the year of assessment 1957-58, in respect of the previous year ended 12th April, 1957, the assessee wrote off this sum of Rs. 55, 950-13-10 as bad and doubtful debts and claimed it as a proper deduction under section 10(2)(xi) of the Indian Income-tax Act in computing his income. The Income-tax Officer rejected the assessee's claim holding that the assessee had not taken any legal proceedings for the recovery of the amount, that he had not exhausted his remedies for the recovery of the debt and that it was premature to write off the debt as a bad debt. The assessee, nevertheless, reiterated his claim for deduction of this amount as a bad debt for the subsequent assessment year 1958-59. Again, the officer rejected his claim. He observed as follows

"The gross collections from the picture over which the assessee holds right indefinitely for a number of years is Rs. 5, 586. Since the collections are coming in and are not absolutely stopped and since the security on the basis of which the loan was granted has not become quite useless, I consider that the claim for bad debt is premature." *

The assessee preferred appeals to the Appellate Assistant Commissioner from the disallowance in respect of both the years. The appeals were heard together and disposed of by a common order. It is not necessary to refer to the reasoning of the Appellate Assistant Commissioner; suffice it to say that he found himself in agreement with the view taken by the Income-tax Officer. There were further appeals by the assessee to the Income-tax Appellate Tribunal. These appeals were also unsuccessful

In the view of the Tribunal there was no satisfactory proof that the debtor (Tehrani) was completely devoid of means to pay the debt and that there was evidence to show that the assess