{"id":1126,"date":"2009-11-10T09:05:51","date_gmt":"2009-11-10T09:05:51","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=1126"},"modified":"2009-11-10T09:05:51","modified_gmt":"2009-11-10T09:05:51","slug":"cit-vs-bonanza-portfolio-delhi-high-court-share-broker-is-eligible-to-claim-bad-debts-us-36-1-vii-36-2","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/cit-vs-bonanza-portfolio-delhi-high-court-share-broker-is-eligible-to-claim-bad-debts-us-36-1-vii-36-2\/","title":{"rendered":"CIT vs. Bonanza Portfolio (Delhi High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (bonanza_portfolio_broker_bad_debt.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n

Share broker is eligible to claim “bad debts” u\/s 36 (1) (vii) \/ 36 (2) <\/strong><\/p>\n

The assessee, a share broker, purchased shares on behalf of its client and paid for them. The brokerage on the said transaction was offered to tax. As the client did not pay for the shares, the assessee wrote off the amount due and claimed the same as a bad debt u\/s 36 (1) (vii). The AO rejected the claim on the ground that as the said \u201cdebt\u201d had not \u201cbeen taken into account in computing the income\u201d, the conditions of s. 36 (2) (i) were not satisfied<\/strong>. This was confirmed by the CIT (A). On appeal, the Tribunal upheld the claim on the ground that s. 36 (2) (i) required \u201csuch debt or part thereof\u201d to be taken into account in computing the income and as the brokerage had been offered to tax, s. 36 (2) (i) was satisfied<\/strong>. On appeal by the Revenue, HELD dismissing the appeal:<\/p>\n

(i) The assessee being a broker, the fact that it paid for the shares did not make it an \u201cinvestment\u201d for the assessee. The transaction was one of brokerage on purchase \/ sale on behalf of the client;<\/p>\n

(ii) The money receivable from the client for the said shares was a \u201cdebt\u201d and since it became bad, it was rightly treated as a \u201cbad debt\u201d;<\/p>\n

(iii) Since the brokerage payable by the client was a part of the debt and that debt had been taken into account in computing the income, the conditions of s. 36 (2) (i) read with s. 36 (1) (viii) were satisfied and the entire bad debt was allowable as a deduction<\/strong>. <\/p>\n

\nNote: See also CIT vs. DB (India) Securities<\/a><\/strong> (Delhi High Court) where the same view was taken. <\/p>\n

The issue as to whether a share broker can claim the irrecoverable amounts due from clients as a “bad debt” u\/ss 36 (1) (vii) r.w.s. 36 (2) is pending before the Special Bench<\/strong>, Mumbai in Shri Shreyas S. Morakhia<\/strong><\/a>. For other judgements on whether a broker can claim a “bad debt” or a “trading loss” see the Consolidated Digest of Case Laws<\/a><\/strong>.\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Since the brokerage payable by the client to the broker was a part of the debt and that debt had been taken into account in computing the income, the conditions of s. 36 (2) (i) read with s. 36 (1) (viii) were satisfied and the bad debt was allowable as a deduction<\/p>\n

Read more ›<\/a><\/div>\n

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