POONJABHAI VARMALIDASversusCOMMISSIONER OF INCOME TAX, AHMEDABAD

                       POONJABHAI VARMALIDAS
A
                                         v.
         COMMISSIONER OF INCOME TAX, AHMEDABAD

                               OCTOBER 9. 1990.

B               [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.


c tion ofSection 10(2)(xi) of the Income Tax Act, 1922 provided for deduc-
          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
D   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.
E
         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
F   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.
G
          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
H   attracted as a result of which the order in terms of which the amounts

                                        206                                       (,
                         P. "v ARMALIDAS v. C.I.T.                     207

had been written off was deemed to have been made under the re-
                                                                              A
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        B
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         c
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]
                                                                              D
      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 section 10(2)(xi) of the 1922 Act, must be read together
with reference to an order under which debts had been written off.
Accordingly, in the light of section 24 of the General Clause Act, 1897,
the relevant order made under section 10(2)(xi) of the 1922 Act with
reference to which the debt in question had been written off, would be
    208         · SUPREME COURT REPORTS               [ 1990] Supp. 2 S.C.R.

    deemed to be an order made nnder section 36(l)(vii) of the 1%1 Act and
A
    such order is what is contemplated under section 41(4) of that Act. Any
    amount which is recovered on any such debt is attracted by the provi-
    sions of section 41(4) of the 1961 Act and is, therefore, chargeable to tax
    in terms of that sub-section to the extent of the 'excess' specified
    therein. [212C-G]
B
          CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
    143 I-33(NT) of 1976.

           Appeals by Certificate from the Judgment and Order dated
    7.7.2.1976 of· the Ahmedabad High Court in Income Tax Reference
    Nos. 129 and 168 of 1974.
c
        J.H. Parekh, P.H. Parekh            and Ms. Shalini Soni, for the
    Appellant.

        S.C. Manchanda. K.P. Bhatnagar and Ms. A. Subhashini for the
D   Respondent. '

          The Judgment of the Court was delivered by

          THOMMEN, J. These appeals under certificate arise from the
    common judgment of the High Court of Gujarat in the Commissioner
E   of Income Tax, Gujarat Ill v. Poonjabhai Vamna/idas, 105 ITR 388
    Gu j. The assessee is the same in all the cases. The assessment years in
    question are 1964-65. 1965-66 and 1967-68. In the relevant previous
    vears. the assessee received certain amounts and thev were assessed
    ~nder section 4 I( 4) of the Income Tax Act, 1961 (her~inafter referred
    to as the .. 1961 Act"). The contention of the assessee was that he was
F   not assessable under section 41(4) of the 1961 Act because these
    amounts had been written off as bad debts in the•year 1959-60 and his
    claim for deduction, though initially disallowed by the Income Tax
    Officer. was subsequently allowed by the Income Tax Appellate Tri-
    bunal in l.T.A. Nos. 673-676 (AHD) dated 12.7. 1963. The business of
    the assessee had discontinued prior to the previous year in which any
G   part of the amount was received, and consequently, it was contended.
    these amounts when received were not assessable to income-tax under
    section 41(4) of the 1961 Act as that section was not in pari materia
    with section I0(2)(xi) of the Income Tax Act, 1922 (' 1922 Act') in
    terms of which the amounts had been written off as bad detbts. This
    contention was rejected by the Income Tax Officer and the amounts
H   were brought to,tax. The orders of assessment were confirmed by the
                P. VARMALIDAS v. C.I.T. ITHOMMEN, J.]               209

Appellate Assistant Commissioner. On further appeal by the assessee,
                                                                          A
the Tribunal held, accepting the assessee's contention, that the
amounts could not be taxed under section 41(4) of the 1~61 Act, for
that section had no application to amounts written off in 1959-60 in
terms of section 10(2)(xi) of the 1922 Act when it was in force. On a
reference, the High Court held that the amounts in question were
includible in computing the taxable income of the assessee in respect     B
of the relevant years under section 41(4) of the 1961 Act. The ques-
tions referred were ·accordingly answered by the High Court against
the assessee and in favour of the Revenue. Hence the present appeals.

      Section 10(2)(xi) of the 1922 Act reads:

           "10. Business:-( 1) ................................. .        c
                (2) Such profits or gains shall be computed after
           making the following allowances. namely:

                                                                          D
                 (xi) when the assessees's accounts in respect of any
           part of his business, profession or vocation are not kept on
           the cash basis, such sum, in respect of bad and doubtful
           debts, due to the assessee in respect of the part of his
           business, profession or vocation, and in the case of an
           assessee carrying on a banking or money-lending business.      E
           such sum in respect of loans made in the ordinary course of
           such business as the Income-tax Officer may estimate to be
           irrecoverable but not exceeding the amount actually writ-
           ten off as irrecoverable in the books of assessee:

                Provided that if the amount ultimately recovered on       F
           any such debt or Joan is greater than the difference bet-
           ween the whole debt or Joan and the amount so allowed,
           the excess shall be deemed to be a profit of the year in
           which it is recovered and if Jess, the deficiency shall be
           deemed to be a business expense of that year;
                                                                          G

      There is no dispute that the assessee's accounts were not kept on
cash basis. There is also no dispute that the assessee's business had
discontinued prior to the year of recovery of the amounts in question.
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       H
    210        SUPREME COURT REPORTS                [ 1990] Supp. 2 S.C.R.

    section 10(2)(xi) of that Act, and the business having been discon-
A
    tinued prior to the relevant years of receipt, these amounts would not
    have been taxable. See Commissioner of Income Tax, Madras v.
    Express Newspapers Ltd., 53 ITR 250. But the amounts in question
    here were recovered after the coming into force of the 1961 Act which
    repealed the 1922 Act. The question, therefore, is whether the
B   amounts which had been written off in terms of section 10(2)(xi) of the
    1922 Act, but subsequently received after the repeal of that provision.
    could be brought to tax in terms of the relevant re-enacted provisions.
    Tax is sought to be levied under the 1961 Act in terms of section 41(4)
    which reads:

                "41. Profits chargeable to tax.-
c
                       4. Where a deduction has been allowed in respect of
                a bad debt or part of debt under the provisions of clause
                (vii) of sub-section (!)of section 36, then, if the amount
                subsequently recovered on any such debt or part is greater
D
                than the difference between the debt or part of debt and
                the amount so allowed, the excess shall be deemed to be
                profits and gains of business or profession, and accordingly
                chargeable to income-tax as the income of the previous
                year in which it is recovered, whether the business or pro-
                fession in respect of which the deduction has been allowed
E               is in existence in that year or not.



    This sub-section refers to the deduction allowed in respect of a bad
    debt under the provisions of section 36(l)(vii) of the 1961 Act which
F   reads as follows:

                "36. Other deductions-( I). The deductions provided for
                in the following clauses shall be allowed in respect of the
                matters dealt with therein, in computing the income refer-
                red to in section 28-
G


                     (vii) subject to the provisions of sub-section (2), the
                amount of any debt, or part thereof, which is established to
                have become a bad debt in the previous year:
H
                                                                           ,,
                    P. VARMALIDAS v. C.l.T. ITHOMMEN, J.]                 211

    Significantly sub-section (4) of section 41 of the 1961 Act specifically
                                                                                A
    states that tax is attracted whether or not the business or profession in
    respect of which the deductions had been allowed continued to be in
    existence in the year of receipt. This is a fUndameiltal deviation from
    the earlier provision contained in section 10(2)(xi) of the 1922 Act.
    Furthermore, sub-section (4) of section 41 specifically says that the
    deductions should have been allowed in respect of a bad debt under          B
    the provisions of section 36( !)(vii) in order to attract section 41(4).

          The assessee, therefore, contends that the relevant provisions of
    the two enactments are not in pari materia, and what has been allowed
    as a deduction in terms of section 10(2)(xi) of the 1922 Act annot be
    brought to tax under section 41(4) of the 1961 Act. Any order made
    under section 10(2)(xi) of the 1922 Act under which a debt-was wlitten      c
    off would not attract tax on recovery of the whole or part of such
    amount unless the business itself continued to exist at the time of the
    recovery. Furthermore, the assessee contends that sub-section (4) of
    section 41 of the 1961 Act is attracted only where the bad debt was
    written off in terms of section 36(1)(vii) of tjiat Act, and not in terms   D
    of section 10(2)(xi) of the 1922 Act, the provisions of which are not in
    pari materia with either section 36(l)(vii) or section 41( 4).
           .           -·
I         Rejecting the contentions of tke assessee, the High Court held
    that there was no inconsistency between the relevant provisions of the
    two enactments and that section 24 of the General Clauses Act, 1897         E
    was attracted as a result of which the order in terms of which the
    amounts had been written off was deemed to have been made under
    the re-enacted provisions, as contained in section 36(l)(vii), and con-
    sequently the amounts recovered on any such debt were chargeable
    under section 41(4).
                                                                                F
          Section 25 of the General Clauses Act, 1897, in so far as it is
    material, reads:

                "24. Continuation of orders, etc., issued-under10enactme-nts
                repealed and re-enacted-Where any Central AC! or Regu-
                lation is, after the commencement of this Act, repealed and     G
                re-enacted with or without modification, then, unless it is
                otherwise expressly provided, any appointment, notifica-
                tion, order, scheme, rllle, forin or bye:law~ made or issued
                under the repealed Act or Regulation, shall, so far as it is
                not inconsistent with the provisions re-enacted, continue in
                force, and be deemed to have been made or issued under          H
    212          SUPREME COURT REPORTS                 {1990] Supp. 2 S.C.R.

A                  the provisions so re-enacted, unless and until it is superse-
                   ded by any appointment, notification, order, scheme, rule,
               t · form or bye-law made or issued under the provisions. so
                   re-enacted ...... "

          The effect of section 24 of the General Clauses Act. 1897, in so
B
    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 is deemed to be an order made under 'the re-
    enacted provisions. The question, iherefore, is whether the provisi~ns'
    of the repealed section 10(2)(xi), under which the bad debts were
    written off as irrecoverable in the books of the assessee, are in terms
c   re-enacted by the repealing Act. A comparative table furnished in The
    Law and Practice of Income Tax, Kanga and Palkiwala (Seventh
    Edition-Volume II) shows that section 10(2)(xi) of the 1922 Act is
    equivalent to sections 36( !)(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-enancted sections 36(1)(vii), 36(2) and 41(4).
D   Consequently when a debt is written 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(1)(vii) of the 1961 Act. These two provisions are, therefore, consis-
    tent with each other. Section 36(1)(vii) is subject to the provisions of
    sub-section (2) of that section. Therefore, both sections 36( !)(vii) and
E   36(2) of the 1961 Act, being two of the ingredients of section 10(2)(xi)
    of the 1922 Act, must be read together with reference to an order
    under wh.ich debts had been written off. Accordingly, in the light of
    section 24 of the General Clauses Act, 1897, the relevant order made
    under section 10(2)(xi) of the 1922 Act with reference to which the
    debt in question had been written off, is deemed to be an order made
F   under section 36(1)(vii) of the 1961 Act and such order is what is
    contemplated under section 41(4) of that Act. Any amount which is
    recovered on any such debt is attracted by the provisions of section
    41(4) of the 1961 Act and is, therefore, chargeable to tax in terms of
    that sub-se.ction to the extent of the 'excess' specified therein.

G        The contentions of the assessee thus fail, and the appeals are
    accordingly dismissed. No order as to costs.

    P.S.S. ;                                                Appeals dismissed.