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Issues:
1. Whether the assessee-firm is entitled to deduct a sum of Rs. 31,820 as an admissible expenditure for the assessment year 1953-1954. Detailed Analysis: The judgment of the High Court of Madras, delivered by Judge Veeraswami J., pertains to the assessment year 1953-1954 involving an assessee who was a partnership with two business items - S.V.O.C. agency and country craft route agency. The firm faced a situation where a consignment of rice was lost due to a sinking country craft, resulting in a decree against the assessee to pay Rs. 31,820. The assessee sought to set off this sum as expenditure against the profits of the S.V.O.C. agency business, as the route agency business was discontinued in 1947. However, both the revenue and the Tribunal held that the two businesses were independent, and the expenditure could not be deducted from the profits of the other business. The primary question was whether the assessee was entitled to claim the deduction under section 10 of the Indian Income-tax Act, 1922. The judgment referred to a Supreme Court decision stating that if a business is discontinued before the accounting year, the income attributable to that business cannot be taxed, and the expenditure incurred for that business cannot be set off against other income. The judgment emphasized that each distinct business activity must be treated as a separate unit for profit ascertainment purposes, irrespective of whether they fall under the same head of business. Expenditure under section 10(1) is considered as an inherent component in the process of profit ascertainment, directly related to the particular business activity. The judgment highlighted that the source of profit, i.e., the specific business activity, should align with the expenditure claimed for deduction. The court concluded that aggregating profits from different independent business activities does not alter the fundamental principle of ascertaining profits from each business activity separately. In conclusion, the High Court of Madras ruled against the assessee, stating that the expenditure of Rs. 31,820 could not be deducted from the profits of the S.V.O.C. agency business, as it was not incurred in respect of any agency business carried on during the assessment year. The judgment emphasized the need to treat each business activity as a distinct unit for profit calculation purposes, disallowing the deduction claimed by the assessee. The court awarded costs and counsel's fee of Rs. 250 to be paid by the assessee.
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