1978 (2) TMI 60 - HC - Income Tax

Summary

Issues Involved:

1. Entitlement to claim Rs. 39,449 as a business loss u/s 28 of the I.T. Act, 1961.
2. Alternative claim as a bad debt deductible u/s 36(2) of the I.T. Act, 1961.

Summary:

Issue 1: Entitlement to Claim Rs. 39,449 as Business Loss u/s 28 of the I.T. Act, 1961

The assessee, a film distributor, entered into agreements with film producers, advancing Rs. 1,68,000 and Rs. 43,000 for distribution rights. Due to the failure of the films, the assessee could only recover Rs. 90,000 and Rs. 12,500 respectively, writing off a total of Rs. 39,448. The Income Tax Officer (ITO) disallowed the deduction, but the Appellate Assistant Commissioner (AAC) allowed it as bad debts. The Tribunal, however, ruled against the assessee, stating the advances were not trading losses but capital losses.

The High Court referenced several Supreme Court decisions, including CIT v. South India Pictures Ltd. [1956] 29 ITR 910 and Badridas Daga v. CIT [1958] 34 ITR 10, which clarified that losses arising from business activities and accepted commercial practices are deductible. The court concluded that the loss sustained by the assessee was incidental to the business of film distribution and thus constituted a trading loss.

Issue 2: Alternative Claim as a Bad Debt Deductible u/s 36(2) of the I.T. Act, 1961

The assessee also claimed the amount as a bad debt deductible u/s 36(2). However, the court noted that the assessee's counsel conceded this point, focusing instead on the claim u/s 28.

Conclusion:

The High Court held that the loss of Rs. 39,449 was a trading loss incurred in the course of the assessee's business and was incidental to it. Therefore, the assessee was entitled to claim the amount as a business loss u/s 28 of the I.T. Act, 1961. The question was answered in the affirmative and in favor of the assessee, with no order as to costs.