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TMI Blog1966 (2) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... chandra Kothari. Out of ₹ 1 lakh borrowed from the Bank of India, the assessee-firm took ₹ 50,000 and the remaining ₹ 50,000 were taken by Sadasukh Gambhirchand. The said firm, Sadasukh Gambhirchand, failed to meet its obligation and the assessee, therefore, had to pay the entire amount of ₹ 1,00,739-11-0 on account of the said loan. In the books of account of the assessee-firm the half share of it, viz., ₹ 50,369-13-6 has been shown as the amount due from the said firm, Sadasukh Gambhirchand. In the year 1950 the assessee then filed two suits on the original side of this court for recovery of the said amount from the two partners of Sadasukh Gambhirchand and the suits were decreed against the said partners on June 15, 1953, and September 23, 1953. The expenses of the litigation and the interest amounting to ₹ 2,031-9-0 were also debited by the assessee to the account of the said partnership, Sadasukh Gambhirchand. The balance standing to the debit of the said partnership, Sadasukh Gambhirchand, amounted to ₹ 54,989-6-0. The whole of said amount was written off by the assessee at the end of the Samvat year 2011. In the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght in allowing the deduction. The Tribunal, in the alternative, further held that the payment to the bank was on 8th February, 1950. The assessee, therefore, was not entitled in any case to claim deduction in respect of the said amount in the assessment year 1956-57 either under section 10(1) or section 10(2)(xv). It is in this view of the matter that the Tribunal allowed the appeal. On an application made by the assessee under sub-section (1) of section 66, the Tribunal has stated the case referring the following question of law to this court: Whether ₹ 54,989 is a proper deduction as a trade loss incurred on the ground of commercial expediency under section 10(1) or an expenditure under section 10(2)(xv)? Mr. Mehta, learned counsel for the assessee, has stated before us that he was only pressing the claim under sub-section (1) of section 10 as a trading loss on the ground of commercial expediency. Facts of this case are similar to the facts in Jagannath Kissonlal's case** except in one respect, to which we will presently advert. The decision of this court in Jagannath Kissonlal's case [1956] 30 I.T.R. 654 has been confirmed in appeal by their Lordship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to pay the amount to the bank. The amount was paid by the assessee to the bank on 8th February, 1950. The deduction has been claimed in the assessment year 1956-57 on the ground that in that year the assessee lost all hopes of recovering the amount from the partners of Sadasukh Gambhirchand. Mr. Joshi, learned counsel for the department, has not adopted the line of reasoning adopted by the Tribunal. He frankly conceded that the decision in Bagla's case.[1956] 30 I.T.R. 174; [1956] S.C.R. 551, on which the Tribunal had placed reliance, would have no application to the facts of the present case. He also frankly conceded that the decision of their Lordships in Jagannath Kissonlal's case* would have governed the decision of this case had the assessee claimed deduction in respect of the said amount of ₹ 50,369-13-6, which it had to pay on behalf of the Sadasukh Gambhirchand firm in the year in which it had paid the amount to the bank. The assessee, however, has chosen not to do so. The assessee, on the other hand, debited the said amount in his books of account in the khata of Sadasukh Gambhirchand and thereby accepting Sadasukh Gambhirchand as its debtors. The deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, having paid the said amount of ₹ 50,369-13-6 to the bank, had become entitled to recover that amount from the partners of Sadasukh Gambhirchand. The entry in the books of account only indicates that position. The entry does not mean that the assessee was treating as if he had advanced any amount on that date to Sadasukh Gambhirchand. The entry itself makes the position clear and it shows that the debit was in respect of the half share of the joint loan taken from the Bank of India Limited and not paid by Sadasukh Gambhirchand to the bank and it, therefore, was required to be paid by it and it is for this reason that the amount was shown to have been debited in the books of account to the khata of Sadasukh Gambhirchand. The entry itself shows that the assessee had continued to treat it as a trading loss suffered by it in the course of its business. We have also not come across any provision of the Indian Income-tax Act, nor any has been pointed out to us that a trading loss of the nature, with which we are here dealing, if not claimed in the year of account, ceases to be a trading loss. On the other hand, certain decisions of their Lordships of the Supreme Court ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense arises when there is no reasonable chance or possibility to recover the loss from the person who has occasioned the loss to the assessee. Mr. Joshi tried to distinguish this case on the ground that in the case before their Lordships of the Supreme Court, the trading loss was caused by an employee, who was engaged for the purpose of business. In the case before us, the trading loss has been caused by a person, who was not an employee. We hardly fail to see what difference the distinguishing feature makes in principle. Facts in the present case indicate that right from the year 1950, the assessee had been making all possible efforts to recover the amount from the partners of Sadasukh Gambhirchand by a process of law. In the year 1950 itself, the assessee had filed a suit against the said partners. On obtaining a decree, the assessee in its letter of February 20, 1957, had stated that it had sent its employee to Calcutta to find out whether there were any properties from which the amount could be recovered. The decree of the Bombay High Court was sent to Calcutta for execution. The work was entrusted to Messrs. M.G. Poddar and Co. It is only when reports were received from rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2,587-15-6 has been claimed by way of litigation expenses. Mr. Mehta frankly conceded that the assessee is not entitled to claim any deduction in respect of the aforesaid amount of interest. He, however, contended that the assessee is entitled to legal expenses. According to Mr. Mehta, expenditure on legal expenses was a permissible deduction under section 10(2)(xv) of the Act. The expenditure that is permissible under section 10(2)(xv) is an expenditure laid out or expended wholly and exclusively for the purpose of business. The business of the assessee is that of a wholesale dealer in cloth. The amount, which the assessee was seeking to recover from the partners of the firm, Sadasukh Gambhirchand, was not a trading debt owed by the Sadasukh Gambhirchand firm. The expenditure incurred over the litigation to recover the amount from Sadasukh Gambhirchand, therefore, cannot be said to be an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. It is true that the assessee and the partnership firm of Sadasukh Gambhirchand had jointly borrowed the amount of ₹ 1 lakh from the bank and the borrowings to the extent of half w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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