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TMI Blog1961 (7) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... re, however, unwilling to rely solely on the owners with regard to the repayment of this sum. They accordingly required the assessee, the freight broker, to stand guarantee for the repayment of the amount. Such a guarantee was given by the assessee in a letter to the charterers. The advance was in due course paid by the charterers to the owners, who utilised the amount in the acquisition of the vessel Manek Prasad and fitted it out for the voyages in question. The understanding was that the freight payable to the owners on account of the first seven voyages was to be adjusted against the advance. In so far as the guarantee furnished by the assessee is concerned, it provided thus: In consideration of your having agreed to advance the sum of ₹ 25,000 (rupees twenty-five thousand) to our principals, Messrs. Ashoka Lines Ltd....I, K. S. Janakiraman, managing partner,. . . . . on my behalf and on behalf of the firm, guarantee the repayment of the sum of ₹ 25,000 (rupees twenty-five thousand) to you within two days of your sending me a written demand for the payment. I further state that if our principals named above do not perform the charter-party entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the other sum of ₹ 27,500 referred to. The assessee wrote off this amount as a loss and claimed to be entitled to deduct this sum under section 10(2)(xi) of the Act. The department and the Tribunal rejected this claim for the same reasons as set out earlier. On the application of the assessee, the Tribunal was directed to state a case, and the question it has submitted runs: Whether on the facts and in the circumstances of the case, the sums of ₹ 27,500 and ₹ 6,000 or any part thereof are allowable as deductions in computing the profits of the assessee to income-tax? The short question that we are called upon to determine is whether in undertaking to foot the loss which was properly that of the owners, the Ashoka Lines Ltd., in respect of a transaction which was principally between the owners, the Ashoka Lines Ltd., and the charterers, Inden Biselers, the assessee was engaging in a transaction which can be said to be in the course of his own regular business which was merely that of a freight broker. The earliest letter on record proceeding from the assessee to the owners reads: I attach hereto a copy of the charter-party that Mr. Kasi wants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture must be regarded as one incidental to his business. After giving careful consideration to the arguments advanced, we are unable to accept the contention that this can be regarded as a bad debt arising in the course of the normal business of the assessee. The assessee was a freight broker to various shipping lines including the Ashoka Lines Ltd. His business as a freight broker did not involve his engaging in transactions leading to lending monies for the purchase of vessels by or on behalf of the shipping lines. It is not contended before us that it was customary in the case of freight brokerage business for freight brokers to meet or undertake to meet such obligations of the shipping lines as in the present case. It is no doubt true that advancing money to the shipping lines to acquire a vessel for the purpose of the charter-party would enable the assessee to earn brokerage and agency commission as a freight broker in respect of the voyages on which the vessel might be engaged in pursuance of the terms of the charter-party. But what we have to consider is whether the transaction whereby the assessee discharged the obligations of the owner was a necessary part of the norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be germane to another. It appears to me .... there is evidence upon which the Commissioners could reach the conclusion which they have reached. They could decide upon the facts that both the tests required by Lord Cave are answered, and therefore it appears to me that the learned judge was not justified in overruling a decision on a question of fact, more especially as the duty of assenting to what are questions of fact and not disturbing them has been re-affirmed by the House of Lords in the Lysaght case [1928] 13 Tax Cas. 511. For these reasons I find it impossible to agree with the learned judge that this expenditure is so remote from the business of Messrs. Lawford that it could not be dealt with by the Commissioners in the way it has. We are not satisfied that the above observations support the assessee's contention. As has been pointed out, considerations must necessarily differ from business to business and what is allowable as deduction in respect of one business may not be allowable in another business. In Commissioner of Income-tax v. Subramanya Pillai [1950] 18 ITR 85, 92, 93 , the assessee, a book-seller, borrowed jointly with another person a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense that they are really incidental to the trade itself. They cannot be deducted if they are mainly incidental to some other vocation or fall on the trader in some character than that of trader. The nature of the trade is to be considered. A decision which forms a closer parallel to the facts of the present case is rendered in Madan Gopal Bagla v. Commissioner of Income-tax [1956] 30 ITR 174 (SC). In that case, the assessee carried on business in timber. He borrowed rupees one lakh from a bank on the joint security of himself and B, and B simultaneously borrowed rupees one lakh from another bank on the joint security of himself and the appellant assessee. The assessee repaid the amount but B became insolvent. The assessee had to pay the amount B had borrowed with interest to the bank and wrote off the amount of ₹ 55,000 and odd as a bad debt and claimed it as an allowable deduction. It was contended that it was the usual custom in Bombay for merchants to borrow from banks on the joint security of each other and that the loss incurred by the appellant was a loss incurred in the business. Their Lordships of the Supreme Court held that the custom set up did not mean t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vessels is far too tenuous to support the claim that it was incidental to the business of freight brokerage. No custom as such has been set up. In the light of the decisions which we have referred to, we have to hold that the Tribunal rightly came to the conclusion on the materials before it that no part of the sum advanced which was guaranteed by the assessee could be treated as a bad debt. The second part of the question relates to the loan of ₹ 6,000 which was incurred in precisely similar circumstances. In this case, however, there was no written guarantee of any description. The learned counsel for the assessee apparently relied upon the second paragraph of the gurantee extracted earlier, which reads: I further state that if our principals named above do not perform the charter-party entered into between you and them on 23rd September, 1952, I shall indemnify you against all loss or damage you may incur by such breach of the agreement. Learned counsel argues that as the vessel Manek Prasad could not be made available to the charterers on the due date, he had to undertake the responsibility of furnishing an alternative vessel. M.V. Jehangir was accordingly ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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