POONJABHAI VARMALIDAS versus COMMISSIONER OF INCOME TAX, AHMEDABAD

Citation: [1990] SUPP. 2 S.C.R. 206 · Decided: 09-10-1990 · Supreme Court of India · Bench: T.K. THOMMEN · Disposal: Dismissed

Judgment (excerpt)

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POONJABHAI VARMALIDAS 
v. 
COMMISSIONER OF INCOME TAX, AHMEDABAD 
OCTOBER 9. 1990. 
[T.K. THOMMEN AND R.M. SAHA!. JJ.] 
Income Tax Act, 1922: S. !0(2)(xi)!lncome Tax Act, 1961: 
"" 36( /)(vii), 36(2) and 41(4): Bad debts written off subsequentlv 
recovered-Business discontinued-Amounts whether assessable to tax. 
Section 10(2)(xi) of the Income Tax Act, 1922 provided for deduc-
tion of bad and doubtful debts. The proviso thereto laid down that if the 
amount ultimately recovered on any such debt was greater than the 
difference between the whole debt and the amount allowed the excess 
shall be deemed to be a profit of the year in which it was recovered. 
These provisions were re-enacted in the Income Tax, Act, 1961 as 
s. 36(l)(vii) provides, subject to the provisions of sub-s. (2), for deduc-
tion of amount of any debt established to have become a bad debt in the 
previous year, whereas s. 41(4) provides for bringing to tax amounts of 
such bad debts, if recovered subsequently, as the income of the previous 
year in which it was recovered, -~hether the business in r~spect of which 
the deduction bad been allowed was in existence in that year or not. 
Certain amounts which bad been allowed to be written off as bad 
debts in terms of s. 10(2)(xi) of the Income Tax Act, 1922 in the year 
1959-60, but subsequently received by the assessee were sought to be 
brought to tax in the assessment years 1964-65, 1965-66 and 1967-68 
under s. 41(4) oftbe Income Tax Act, 1961. The assessee's business bad 
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discontinued prior to the relevant years of recovery of the amounts. The 
orders of assessment were confirmed by the Appellate Assistant Com-
missioner. The Tribunal, however, held that the amounts could not be 
taxed under s. 41(4) of the 1961 Act for that section bad no application 
to amounts written off in 1959-60 in terms of s. 10(2)(xi) of the 1922 Act 
when it was in force. 
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On a reference, the High Court held that the amounts in question 
were includible in computing the taxable income of the assessee in 
respect of the relevant years under s. 41(4) of the 1961 Act. It took the 
view that there was no inconsistency between the relevant provisions of 
the two enactments and that s. 24 of the General Clauses Act, 1897 was 
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attracted as a result of which the order in terms of which the amounts 
206 
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P. "v ARMALIDAS v. C.I.T. 
207 
had been written off was deemed to have been made under the re-
enacted provisions, as contained ins. 36(l)(vii). 
In these appeals by certificate, it was contended for the appellant 
that the relevant provisions of the 1922 Act and 1961 Act were not in 
pari materia, that s. 41(4) would he attracted only where the had debt 
had been written off in terms of s. 36(l)(vii), and that what has been 
allowed as a deduction in terms of s. 10(2)(xi) of the 1922 Act could not 
on recovery he brought to tax under s. 41(4) of the 1961 Act, unless the 
business itself had continued to exist at the time of recovery. 
Dismissing the appeals, the Court, 
HELD: I. If the amounts had been received prior to the repeal of 
the 1922 Act the entire transaction would have been covered by the 
provisions of section 10(2)(xi) of the Act, and the business having been 
discontinued prior to the relevant years of receipt, these amounts would 
not have been taxable. [209H; 210A] 
Commissioner of Income Tax, Madras v. Express Newspapers 
Ltd., 53 ITR 250 referred to. 
2.1 The effect of section 24 of the General Clauses Act, 1897, in so 
far as it is material, is that where the repealed and re-enacted provi-
sions are not inconsistent with each other, any order made under the 
repealed provisions wonld be deemed to be an order made under the 
re-enacted provisions. [212B] 
2.2 Section 10(2)(xi) of the 1922 Act is equivalent to sections 
36(1)(vii), 36(2) and 41(4) of the 1961 Act. The repealed section 10(2)(xi) 
is thus a composite section containing the ingredients of the re-enacted 
sections 36(1)(vii), 36(2) and 41(4), Consequently, when a debt is writ-
ten off by an order in terms of section 10(2)(xi) 'of the 1922 Act, the 
Income Tax Officer exercises the same power as he would have exercised 
on the enactment of section 36(l)(vii) of the 1961 Act. These two provi-
sions are, therefore, consistent with each other. Section 36(l)(vii) is 
subject to the provisions of sub-section (2) of that section. Therefore, 
both sections 36(1)(vii) and 36(2) of the 1961 Act, being two of the 
ingredients of 

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