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TMI Blog1956 (3) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed the balance of ₹ 31,740 for the assessment year 1951-52, after taking into consideration certain interest and insolvency expenses and the Tribunal held that this was a permissible deduction under section 10(2)(xv) or in any event it was a business loss which was allowable as a deduction in computing the profits of the assessee's business. Certain specific findings which are given by the Tribunal must be looked at in order to arrive at a proper conclusion in this reference. The sum of ₹ 50,000 was borrowed by the assessee for the purpose of his business and he used to borrow moneys on joint and several liability from the banks. The Tribunal finds that it is a commercial practice in the business which the assessee does to borrow money from bank on joint and several liability. The Tribunal has also found that the bank would not advance ₹ 50,000 to the assessee and to Kishorilal on their individual security, but they would only be prepared to advance ₹ 1,00,000 on joint and several liability of the assessee an Kishorilal. The Tribunal further points out that the assessee could have borrowed ₹ 50,000 from a money-lender on this own security bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not something out of the ordinary, but in borrowing this money on joint and several liability he was following a practice which was established as a commercial practice. Therefore, the transaction was clearly in the course of the business and incidental to the business and it is this transaction which was necessary for the business which resulted in loss to the assessee, he having to pay the liability of the surety. Various decisions have been referred to by the Advocate-General for the proposition that an expenditure of the nature we have before us has not been permitted by the other High Court as deduction which properly falls within the ambit of section 10(2)(xv). In the first place, reference is made to two decision of the Madras High Court. The first is Commissioner of Income-tax Madras, v. S.A.S. Ramaswamy Chettiar [1946] 14 I.T.R. 236. That was case where the assessee was carrying on a money-lending business and he a guaranteed a loan granted by a bank in Rangoon to a Chettiar firm. As the loan was not repaid by the borrow, the assessee was called upon to make good a certain amount under his agreement of guarantee, and the assessee sought to deduct this sum as a busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly goes to show that if a commercial practice had been established in that case, the decision would have been different. The third decision relied upon by the Advocate-General is a decision of the Calcutta High Court reported in Commissioner of Income-tax West Bengal v. Madan Gopal Bagla [1952] 21 I.T.R. 142. In that case the assessee, who was a timber merchant, obtained a loan of ₹ 1,00,000 from the Bank of India. Bombay, on the joint security of himself and another man called Mamraj. On the same day Mamraj obtained a loan of ₹ 1,00,000 from the Imperial Bank of Indian, Bombay, on the joint security of himself and the assessee. The assessee paid off his debt to the Bank of India in due time, but Mamraj failed to pay his. The Imperial Bank realised from the assessee the debt which he owed jointly with Mamraj. Later on Mamraj became an insolvent and the assessee claimed the amount which he had to pay less the dividends received from the estate of Mamraj as a permissible deduction, and the Calcutta High Court rejected the contention of the assessee. The Advocate-General has rightly pointed out that in this case the Tribunal which decided in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not the business of the assessee to engage in financial operations and it is to their proper business that the assessee had to look for their earnings, and the learned law Lord point out at page 5: Out course, like other business people they must have capital to enable them to conduct their enterprises, but their financial arrangements are quite distinct from the activities by which they earn their income. The advocate-General says that here too the assessee was indulging in a financial operation for the purpose of this business, but his real business was commission agency business, and therefore the moneys expended for this financial transaction should not be allowed as a permissible deduction under section 10(2)(xv) or as a business loss. Now, the Privy Council in that case was considering the Income-tax Act as applicable to Canada at the relevant time and what was sought to be deducted was a deduction in respect of disbursements or expenses wholly and necessarily laid out and expended for the purpose of earning the income. Whereas under our law the expenditure has to be for the purpose of the business, the provision that the Privy Council was considering was a very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed upon a different provision of the law, cannot be of much assistance to us in construing the language of our own section. In answer to this the Advocate-General relied on an earlier decision of the House of Lords reported in Smith's Potato Estates Ltd. v. Bolland [1949] 17 I.T.R. (Suppl.) 1, where legal and accountancy expenses incurred by a taxpayer with a view to reducing the assessment made upon him were not held to be admissible deductions, and what is relied upon is a passage in the judgment of Lord Simonds at page 12 : But it is, I think, important to emphasise that the words 'for the purposes of the trade' in their context, i.e., where a computation of 'profits' for the ascertainment of taxable income is being made, must mean 'for the purpose of enabling a person to carry on an earn profits in the trade'. These similar words I cite from Lord Davey's speech in Strong Co. of Romsey v. Woodifield [1906] A.C. 448. They have been cited and applied over and over again, and, if they are kept firmly in mind, they dispose in limine of the argument..... The Advocate-General Says that even the prevision for the purpose for the trade or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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