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Issues Involved:
1. Allowability of Rs. 27,500 as a deduction under section 10(2)(xi) of the Income Tax Act. 2. Allowability of Rs. 6,000 as a deduction under section 10(2)(xi) of the Income Tax Act. Detailed Analysis: Issue 1: Allowability of Rs. 27,500 as a Deduction under Section 10(2)(xi) of the Income Tax Act The assessee, a partnership firm later turned proprietory concern, acted as a freight broker for various shipping lines, including Ashoka Lines Ltd. A firm named Inden Biselers needed a vessel for transporting tiles, and a charter-party was entered into with Ashoka Lines Ltd., which agreed to provide a vessel named Menaka (later Manek Prasad). Due to financial constraints, Ashoka Lines Ltd. required an advance of Rs. 25,000 from Inden Biselers, which was guaranteed by the assessee. The vessel was delayed and became unfit after the first voyage, leading to a breach of the charter-party by Ashoka Lines Ltd. Consequently, the assessee paid Rs. 27,500 to Inden Biselers and wrote off this amount as a loss, claiming it as a deduction under section 10(2)(xi) of the Income Tax Act. The Income-tax Officer disallowed the claim, stating the loss did not arise in the normal course of the assessee's trade. The Appellate Assistant Commissioner and the Tribunal upheld this decision, considering the loss as a capital loss. The Tribunal was directed to state a case, and the question posed was whether the sums of Rs. 27,500 and Rs. 6,000 were allowable as deductions in computing the assessee's profits. The court examined whether the assessee's involvement in the transaction was part of his regular business as a freight broker. The guarantee provided by the assessee was not a customary practice in the freight brokerage business, and the transaction was not incidental to the assessee's business. The court referred to several precedents, including *Commissioner of Income-tax v. Subramanya Pillai* and *Madan Gopal Bagla v. Commissioner of Income-tax*, which established that losses not connected with the trade or business operations are capital losses and not deductible under section 10(2)(xi). The court concluded that the transaction was not a necessary part of the assessee's business and was not closely inter-linked with his line of business. Therefore, the sum of Rs. 27,500 could not be treated as a bad debt arising in the normal course of the assessee's business. Issue 2: Allowability of Rs. 6,000 as a Deduction under Section 10(2)(xi) of the Income Tax Act In addition to the Rs. 27,500 transaction, the assessee also paid Rs. 6,000 to Inden Biselers due to another advance made by the charterers to procure an alternative vessel, M.V. Jehangir, after the delay in making Manek Prasad available. This amount was also written off as a loss and claimed as a deduction under section 10(2)(xi). The court found that there was no written guarantee for this advance, and the reasons for disallowing the Rs. 27,500 claim applied equally to the Rs. 6,000 claim. The transaction was not incidental to the assessee's freight brokerage business and did not arise in the normal course of business operations. Conclusion: The court answered the question in the negative, ruling against the assessee. The sums of Rs. 27,500 and Rs. 6,000 were not allowable as deductions under section 10(2)(xi) of the Income Tax Act. The assessee was ordered to pay the costs of the department.
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