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Issues Involved:
1. Whether the loss suffered by the assessee in transactions of hessian and B-Twill was a business loss. 2. Whether the sums forgone by the assessee-company on account of managing agency commission were admissible expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922. Detailed Analysis: 1. Business Loss in Transactions of Hessian and B-Twill: The primary issue was whether the speculative losses incurred by the assessee in transactions of hessian and B-Twill could be classified as business losses. The Tribunal initially held that these activities were within the objects of the assessee's memorandum of association and were part of the business. However, the court found that these transactions were ultra vires the memorandum of association. Despite this, it was noted that the relevance of whether an activity is within the memorandum for income assessability is minimal, as established in Commissioner of Inland Revenue v. Hyndland Investment Company Ltd. and Kishan Prasad & Co. Ltd. v. Commissioner of Income-tax. The court had to determine if these transactions were adventures in the nature of trade. The speculative activities were detailed, showing significant purchases and sales intended for profit, indicating a business nature. The Supreme Court in G. Venkataswami Naidu & Co. v. Commissioner of Income-tax emphasized that even isolated transactions could be considered adventures in the nature of trade if they bear essential features of trade. The court concluded that the large quantities and nature of transactions pointed to an intention to resell for profit, thus classifying them as adventures in the nature of trade. Supporting cases like Rutledge v. Commissioners of Inland Revenue and Commissioner of Inland Revenue v. Fraser affirmed that isolated transactions with profit motives are adventures in trade. Therefore, the speculative losses were deemed business losses. 2. Admissibility of Forgone Managing Agency Commission as Expenses: The second issue was whether the sums forgone by the assessee on account of managing agency commission were admissible expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal found that the forgoing of commission was for commercial expediency, thus deductible. However, the court scrutinized the timing and nature of these transactions. The assessee received the full commission during the relevant accounting years and decided to forgo portions after the accounting years had expired. The Appellate Assistant Commissioner noted that the commission was received during the accounting years, and subsequent surrender does not change the character of the original receipt. This principle was supported by cases like Californian Copper Syndicate Ltd. v. Harris and Commissioner of Inland Revenue v. Anglo Brewing Co. Ltd., where post-receipt decisions to forgo or reinvest profits do not alter their taxable nature. The court emphasized that the commissions were received during the accounting years, and decisions to forgo them were made later, thus not deductible as expenses for those years. The case was distinguished from Commissioner of Income-tax v. Chandulal Keshavlal & Co., where the decision to accept a lower commission was made within the same accounting year. The court concluded that the sums forgone were not admissible expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922. Conclusion: 1. The loss suffered by the assessee in transactions of hessian and B-Twill was a business loss as these were adventures in the nature of trade. 2. The sums forgone by the assessee-company on account of managing agency commission were not admissible expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922. Each party was ordered to bear its own costs of the reference.
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