1960 PLP 861 (PTD)

"Whether on the facts and in the circumstances of the case the claim of the assessee to deduction of Rs. 6,125 as a bad debt is allowable." We shall, therefore, confine ourselves as far as possible to the facts relevant to that question.

2. This reference arises out of the assessment made on R. K. Kamakshi Chettiar, the karta of the Hindu undivided family for the assessment year 1950‑51 for which the "previous year" is the official year ending 31st March 1950. The assessee claimed to deduct a sum of Rs. 6,125 towards bad debt. The circumstances under which, the claim arose are as under.

3. The assessee from time to time made certain advances to one Mannadiar. The advances finally aggregated to Rs. 35,000 on 29th January 1944, when they were consolidated and secured by an usufructuary mortgage of 195 acres of agricultural land. The assessee leased out the land for Rs. 2,300 per annum and collected revenue on that basis which was not subject to income‑tax. According to section 9‑A (which was inserted by Act (XXIII of 1948) of the Madras Agriculturists Debt Relief Act, 1938, if a usufructuary mortgage was in subsistence and the creditor was in possession of the land for a period of 30 years, the debt should be deemed to have been completely wiped out. In case, the period of possession was less than that, certain clauses in that section laid down that the debt would be reduced in the same proportion as the number of years of possession bore to the period of 30 years. In this case after the debt was in existence for 5J years, the assessee (creditor) scaled it down according to the provisions of the above mentioned Madras Agriculturists Debt Relief Act. According to his working the scaling down was by Rs. 6,125 and the balance remaining to be paid was Rs. 28,

875. For this sum of Rs. 28,875 the assessee received cash of Rs. 12,875 and for the balance of Rs. 16,000 a fresh promissory note was taken. Thus the original debt of Rs. 35,000 was wiped out by receiving cash of Rs. 12,875, a fresh promissory note of Rs. 16,000 and scaling down by Rs, 6,

125. The assessee claimed this sum of Rs. 6,125 as a bad debt. The Tribunal negatived the contention on the ground that when the provisions of a particular piece of legislation laid down that the debt should be deemed to have been fully discharged, there could be no question of any bad debt. If the usufructuary mortgagee was in possession for 30 years the debt would be completely wiped out and proportionately for a lesser number of years. These, in the opinion of the ,Tribunal, extinguish the debt and not make the debt a bad one. The Tribunal also held that the money was not lent at any definite rate of interest, but in lieu of the assessee's money being utilised by the mortgagor, he (the mortgagor) allowed the mortgagee (the assessee) to be in possession of the land. That Tribunal's order in this respect is marked annexure "A" and forms part of the case.

4. Out of the above facts the question of law as stated in paragraph 1 is referred to the High Court of Judicature at Madras. S. Swaminathan for the Assessee. C. S. Rama Rao Sahib and S. Ramanathan for the Commissioner. RAJAGOPALAN, J.‑We answer the question in the affirmative and in favour of the assessee. Under the terms of the contract between himself and the debtor, the assessee was entitled to the sum of Rs. 35,000, which was secured by a usufructuary mortgage ; that was the principal of the debt advanced. That the debt was advanced in the course of the money‑lending business of the assessee does not appear to have been seriously at issue at any stage between the Department and the assessee. The usufructuary mortgage was effected on January 29, 1944. After section 9‑A of the Madras Agriculturists Debt Relief Act (IV of 1938) came into force, the parties entered into an agreement in the course of the accounting year, 1949‑50, which was to this effect : on the basis that the debtor would be entitled to proportionate reduction of the principal in proportion to the period during which the mortgagee assessee had already been in possession, the amount due from the debtor was worked out. The assessee accepted Rs. 12,875 in cash and a promissory note for Rs. 16,

000. These were taken in full discharge of the liability of the debtor‑mortgagor under the deed of mortgage of 1944. The principal amount, it should be remembered, was Rs. 35,

000. Actually under this arrangement of 1949, the assessee got only Rs. 28,

875. The balance of Rs. 6,125 the assessee wrote off as an irrecoverable bad debt, and claimed it as a deduction under section 10 (2) (xi) in the course of the assessment proceedings for 1950‑

51. The genuineness of the transaction of 1949 was never in issue. It was not really a case of the operation of the statute alone being pleaded to justify the write‑off. The write‑off was really based on a fresh agreement between the parties superseding the old contract. Under the fresh agreement, the assessee became entitled to receive Rs. 6,125 less, and it was this sum that was treated as irrecoverable. There can be no doubt that after the fresh contract was concluded, the old contract was not enforceable, and in that sense Rs. 6,125 was irrecoverable. The irrecoverability having been established independently of the solvency or otherwise of the debtor and the genuineness of the transaction not being in issue, we fail to see how the assessee's right based on section 10 (2) (xi) of the Act could be denied. The requirements of the section the assessee satisfied in this case ; and it is apparently on a wrong view of the scope of section 9‑A of Act IV of . 1938 that the claim appears to have been ultimately decided by the Tribunal. As we stated before, we answer the question in the affirmative, and in view of the assessee having succeeded, the assessee is entitled to costs. Counsel's fee Rs.

250. Question answered in the affirmative.