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On Mon, Mar 1, 2010 at 1:49 PM, Raj: <[email protected]> wrote: > Supreme Court Ruling: After 1 April 1989 the Taxpayer is not required to > demonstrate that the debt has become bad debt once it is written off in the > books of account [TRF Ltd. v. CIT (2010-TIOL-15-SC-IT)] > > *Supreme Court Ruling:* > > In order to claim a bad debt as a deduction under section 36(1)(vii) of the > Income tax Act (Act) it has been a long drawn controversy between the > Taxpayer and the Revenue whether in addition to write-off the debt in the > books of account, it is obligatory on the Taxpayer to establish that such > debt has become a bad debt, especially after the amendment brought in by the > Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1 April 1989. > > This controversy has now been put to rest by the Supreme Court in the case > of TRF Ltd. v. CIT wherein it has been held that after 1 April 1989 it is > not necessary for the Taxpayer to establish that the debt, in fact, has > become irrecoverable. It is enough if the bad debt is written off as > irrecoverable in the accounts of the Taxpayer. > > *Our View:* > > The Direct Tax Laws (Amendment) Act, 1987 substituted the words “any bad > debt or part thereof” in place of “any debt, or part thereof, which is > established to have become a bad debt in the previous year” in section > 36(1)(vii) of the Act w.e.f. 1 April 1989. Subsequent to the above amendment > the Central Board of Direct Taxes (CBDT) has issued Circular 551 dated 23 > January 1990. The issue pertaining to bad debt is set out in para. 6.6. and > the relevant portion reads as under :- > > *“In order to eliminate the disputes in the matter of determining the year > in which a bad debt can be allowed and also to rationalise the provisions, > the Amending Act, 1987 has amended clause (vii) of sub-section (1) and > clause (i) of sub-section (2) of the section to provide that the claim for > bad debt will be allowed in the year in which such a bad debt has been > written off as irrecoverable in the accounts of the assessee.”* > > The Circular of the CBDT clearly spells out that the amendment is to > eliminate the disputes in the matter of determining the year in which the > bad debt is written off as irrecoverable. If we apply the Rule of > interpretation as spelt out in Hyden’s case, it would lead to an > irresistible conclusion, that the Legislature by the amendment has sought to > exclude the burden on the Taxpayer to prove that the debt is bad debt and > leaves it to the commercial wisdom of the Taxpayer to treat the debt as bad, > once it is written off as irrecoverable in the accounts of the Taxpayer. > Inspite of this clear provision the Taxpayer was again called upon to > establish that the debt has become bad debt. > > The Supreme Court has now given a ruling in favour of the Taxpayer that it > is not obligatory on the Taxpayer to prove whether the debt has become bad > debt once such debt has been written off in the books of account. This is a > welcome decision and would give a substantial relief to the Taxpayer. It > seems that the judgement of the Rajasthan High Court in the case of Kashmir > Trading Co. v. DCIT (291 ITR 228) is overruled, while judgements of High > Courts in the case of DIT v. Oman International Bank (313 ITR 128)(Bom) and > CIT v. Global Capital Ltd. (306 ITR 332) (Del) are approved. > > Although the aforesaid judgement of the Supreme Court does not clearly > spell out, we believe that after the amendment, though it is neither > obligatory nor is there burden on the Taxpayer to prove that the debt > written off by him is indeed a bad debt; the write-off needs to be *bona > fide **and should be based on commercial wisdom or expediency.* > > Read more: > http://www.taxguru.in/income-tax-case-laws/taxpayer-not-required-to-demonstrate-that-the-debt-has-become-bad-debt-once-it-is-written-off-in-the-books-of-account-sc.html#ixzz0gohLKPbS > > > -- > Me on net : > > >>>>>>>>>>>>>>>>>>>>> > http://rajkumaratthenet.blogspot.com/ > > Virus Warning: Although the I have taken reasonable precautions to ensure > no viruses are present in his email, sender (I) cannot accept responsibility > for any loss or damage arising from the use of this email or attachment." > > -- > You received this message because you are subscribed to the Google Groups > "Skorydov MyTaxAssistant Member Group" group. > To post to this group, send email to > [email protected]. > To unsubscribe from this group, send email to > [email protected]<skorydovmytaxassistant%[email protected]> > . > For more options, visit this group at > http://groups.google.com/group/skorydovmytaxassistant?hl=en. > -- You received this message because you are subscribed to the Google Groups "Skorydov MyTaxAssistant Member Group" group. 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