9911796707
TMI Blog1970 (4) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation Ltd. as its selling agent. The assessee claimed to have stood guarantee for a loan of Rs. 6 lakhs which was advanced to the U.P. Sales Corporation Ltd., by the Gwalior Industrial Bank Ltd. The borrower failed to pay the loan which on August 2, 1948, stood at Rs. 5,60,199. This amount was paid by the assessee pursuant to the guarantee. Thereafter, the assessee treated the U.P. Sales Corporation Ltd. as its debtor for the aforesaid amount. That Company went into liquidation and, as the assessee could not recover anything from it, a sum of Rs. 5,60,199 was written off in the books of the assessee-company. The claim was not entertained either by the Income-tax Officer or by the Appellate Assistant Commissioner. Before the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of commercial expediency, did not represent an advance made in the normal course of the assessee's business. Such an advance could have been made only if it had been made to the company managed by the assessee under a contractual obligation to guarantee the finances of the managed-company. According to him, the claim for irrecoverable loan would have been also admissible if the assessee could establish that the loan represented an interest bearing advance made in the course of the assessee's money-leading business but that was not the case of the assessee. And, since the loan had been advanced to assist a concern having trade relations with one of the managed companies it could not be allowed as a permissible deduction. The Appellate Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom was in our opinion germane to the assessee's business. It is now well established that a sum of money extended not of necessity and with a view to give a direct and immediate benefit to the trade but voluntarily and on the ground of commercial expediency and in order to indirectly facilitate the carrying on of the business, may yet be an allowable deduction in computing the profits and gains of the business. " The Tribunal held that the assessee's claim for the loss of Rs. 5,60,199 was an admissible deduction. At the instance of the Commissioner of Income-tax, the Tribunal referred the following question of law to the High Court : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,60,199 was an admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the case of an assessee carrying on a banking or money-lending business, of such sum in respect of loans made in the ordinary course of such business, as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee. Now a bad debt means a debt which would have gone into the balance-sheet as a trading debt in the business or trade. It must arise in the course of and as a result of the assessee's business. The deduction claimed should not be too remote from the business carried on by the assessee. In Madan Gopal Bagla v. Commissioner of Income-tax, the principle which was accepted was that the debt in order to fall within section 10(2)(xi) must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on business as a managing agent of several concerns. Pursuant to the agreement with one of the companies managed by it, it advanced large sums of money to the managed company and also guaranteed a loan of Rs. 2 lakhs obtained by that company from a bank. The managed-company failed in its business and upon the bank pressing for payment the appellant in accordance with its guarantee made certain payments to that bank. The assessee had ultimately to write off certain sums in its books as bad debts and it claimed that allowance under section 10(2)(xi). The Tribunal found that the advances to the managed company and the agreement guaranteeing the loan to the managed-company were in pursuance of its objects and were made in the course of its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the guarantee was given. There was even no material to establish that the managed-company was under any legal obligation to finance the selling agent or to guarantee any loans advanced to the selling agent by a third party. It is incomprehensible in what manner the guaranteeing of the loan advanced to the selling agent indirectly facilitated the carrying on of the assessee's business. It is equally difficult to appreciate the observations of the High Court that it was in the larger interest of the assessee's business that the guarantee was given. In our opinion the view of the Appellate Tribunal was based on a complete misapprehension of the true legal position. The High Court also fell into the same error. The allowance which was cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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