9911796707
TMI Blog1962 (1) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... see and Messrs. Ratiram Tansukhroy, hereinafter referred to as the financier, provided that the financier would advance moneys to the assessee for the purpose of financing the business of H. Manory Ltd. and further that the financier would render services and help as might be required by the assessee in connection with the business. The agreement further provided that in consideration of help to be rendered by way of arranging finance and/or further services the assessee would pay to the financier interest at the rate of 4? per cent. per annum on all the amounts that might be advanced by the financier together with 50 per cent. of the share of the net profits which would be received by the assessee from H. Manory Ltd., that is to say, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s admissible as a deduction under section 10(2)(xv) of the Income-tax Act. In other words, the assessee contended that the amount was paid as an expense in the matter of finance received by the assessee from Ratiram Tansukhroy and for negotiation of the loan from Premier Stores Supplying Co. and, therefore, it was a business expense. The Tribunal found that it was not a joint venture. The Tribunal held that only the interest payable by the assessee to Ratiram Tansukhroy was admissible under section 10(2)(iii) of the Act but the payment of a moiety of the profits was only a diversion of the profits after they were earned by the assessee and as such was not allowable as a deduction under section 10(2)(xv). The question of law that has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Commissioner of Income-tax v. Chandulal KeshavIal [1960] 38 I.T.R. 601; [1960] 3 S.C.R. 38. said that in deciding an allowance under section 10(2)(xv) of the Act the test was whether it was a legitimate commercial undertaking in order to facilitate the carrying on of the business. In other words, the emphasis is on commercial expediency and commercial trading in ascertaining the nature and character of the expense claimed as an allowance in the course of the business. In Dharamvir's case* the trust advanced to Dharainvir large sums of money which ranged on an average from ₹ 1,97,000 to ₹ 3,17,000 spread over six years. It was. therefore, held that in a commercial sense the payment of 11/16th of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with half the profits in addition to paying interest on the loans. Furthermore, it has been found that Ratiram was not a genuine financier because he could not himself advance moneys. The conditions in the written agreement show the sham position of Ratiram Tansukhroy as a partner and, therefore, the case of joint venture was rejected by the Tribunal. In the case of Chandulal Keshavlal [1960] 38 I.T.R, 601; [1960] 3 S.C.R. 38. reference was made to the decision of the Supreme Court in the case of Eastern Investments Ltd. v. Commissioner of Income-tax [1951] 20 I.T.R. 1; [1951] S.C.R. 594., where a private limited company, with a share capital of ₹ 2,50,00,000 of which shares of the value of ₹ 50,00,000 were held by A and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Ratiram would take advantage of his loss and he would not be liable to pay tax and the assessee would not have to pay on the entire profits if the sum is allowed as a deduction. Counsel for the assessee contended that there was no finding by the Tribunal that the transaction is not genuine and further that the books of Ratiram showed that he in fact lent the money or arranged the loan of ₹ 1,67,500 by the month of June and the assessee by the 23rd or the 24th June advanced ₹ 2,35,898 to H. Manory Ltd., and therefore the financing by the assessee should be held to be in the carrying out of the business. The Tribunal upheld the order of the Income-tax Officer and of the Appellate Assistant Commissioner and confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have 50 per cent. of the profits. In the decision of A.W. Walker Co. v. Commissioners of Inland Revenue [1920] 3 K.B. 648, a firm borrowed a sum of ? 4,000 for the purpose of its trade and business and in consideration thereof agreed to pay to the lender the yearly sum of ? 200 and, in addition, 3/20th of the profits made by the firm each year in excess of ? 1,000 but not exceeding ? 3,000. The firm made ? 3,000 profits and, accordingly, paid the lender in addition to the ? 200 a further sum of ? 300. It was held that the ? 300 was not interest on money borrowed for the purpose of trade or business but was a distribution of the share of profits and that therefore in calculating the profits of the firm for the purpose of excess profits ..... X X X X Extracts X X X X X X X X Extracts X X X X
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