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Issues:
1. Admissibility of a loss of Rs. 9,720 in computing total income for the assessment year 1948-49. Detailed Analysis: Issue 1: Admissibility of Loss in Computing Total Income 1. The case involves a firm engaged in the manufacture and sale of handloom cloth, facing a reference under section 66(1) of the Income Tax Act regarding the admissibility of a loss of Rs. 9,720 for the assessment year 1948-49. 2. The firm, in contravention of a permit, sold 9762 yards of cloth to a party in Amritsar, leading to the seizure of goods by textile authorities. The Magistrate convicted the partners and ordered confiscation of the cloth, with a portion to be sold by the Textile Commissioner. 3. The firm received Rs. 7,086-14-0 after the sale, leading to a claimed loss of Rs. 9,720 based on the difference between the sale price credited in the previous year and the amount received. The Income Tax Officer disallowed the loss, deeming it a result of illegal action. 4. The Appellate Assistant Commissioner and Tribunal upheld the disallowance, citing the Mask and Co. case precedent. The court considered whether the loss was connected to trade and incidental to it, as per legal principles. 5. The court analyzed previous judgments regarding commercial losses and penalties imposed for breaches of the law. It deliberated on whether the loss claimed by the firm could be disallowed based on the principle established in the Mask case. 6. The court determined that the firm could not claim the entirety of the loss due to the confiscation ordered, reducing the potential loss claim to Rs. 8,844. It examined whether this loss was a "contemplable" loss in the course of trade. 7. The court emphasized that previous judgments did not directly address the specific loss on goods not confiscated, necessitating a principled determination of the admissibility of the loss. 8. It was argued that the loss resulted from a sale conducted invictum, but the court found this argument insufficient to determine the nature of the transaction. The court focused on whether the money received from the Government was a business receipt and part of the trade. 9. The court concluded that the receipt from the sale was a business receipt, and the loss incurred was a trading loss satisfying the tests for commercial losses. It differentiated between the confiscation of goods and the sale proceeds in determining the nature of the loss. 10. Ultimately, the court held that the loss of Rs. 8,844 was a trading loss deductible in computing the firm's income for the assessment year, ruling in favor of the assessee and awarding costs. This detailed analysis provides a comprehensive overview of the judgment, addressing the issues involved and the court's reasoning in determining the admissibility of the claimed loss in the firm's income tax assessment for the specified year.
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