| 22/5/2012 |
HOME
FSS
Downloads
|
| Board of Special Commissioners - Cases |
| Case No. 19/86 |
Decided: 19 September, 1988 |
   |
|
Bad debts incurred in trade or business to be proved to the satisfaction of the Commissioner; recovery of bad debts to be treated as receipts of the trade - article 10, now 14, Income Tax Act
|
Appellant had written off as bad a portion (about one-third) of the debt due to it by another company. Appellant claimed that the debtor company had been encountering problems in the recovery of payments due to it by overseas clients and had become insolvent.
About two years later a foreigner bought all the shares in the debtor company and agreed to settle the whole debt (including the remaining two-thirds) due to appellant.
The Commissioner, with the benefit of hindsight, disallowed the claim for bad debts completely. On the other hand, appellant insisted that the one-third originally claimed as bad by appellant should continue to be treated as bad while the payment received in respect of the remaining two-thirds from the foreigner was not to be treated as a recovery of bad debts. The debtor company had received the said payment fortuitously, therefore such amount did not form part of its trading income.
The Board held that the way the Commissioner had exercised his discretion under article 10 justly and fairly. Before issuing the assessments he had requested appellant company to provide information regarding the said debts. It was established that although appellant had issued frequent reminders to the debtor company, it had never taken any legal action for the recovery of the debt. Quoting from a contract entered into by appellant, the Board held that the payment made by the foreigner had been made "in settlement of the debt due (by the debtor company) to appellant", consequently the debtor company could not be considered to have been insolvent. Besides, the foreigner would not have invested such a significant amount of money in debtor company if it were truly insolvent. Consequently the Board did not consider any portion of the said debt to have become bad.
|
|
|
|
|