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TMI Blog1980 (7) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... to the relevant portion of the said agreement. The said agreement, inter alia, stated as follows : " (3) That in consideration of the financial accommodation given and/ or in lieu of interest for the advance the lender shall be entitled to fifty per cent. of the net profit of the borrower company to be determined in the following manner: (4) That the net profit mentioned above shall mean the amount of the net profit as per the annual audited profit and loss account of the company subject to the following adjustments of allowances: (a) credit shall not be given for any income which relates to an income not provided for in previous accounts or which is a realisation against bad debts written off previously or a refund of taxes paid in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proviso to that clause is significant. It stipulates " loss arising during the currency of this agreement, determined in the same manner laid down for the purposes of net profit shall first be deducted from the net profit of any subsequent period and the balance, if any, shall only be divided between the parties as laid down in clause 3 above ". It does not provide like the first clause that the assessee would be liable for the said loss. The ITO after perusal of the agreement came to the conclusion that the relationship between the assessee and M/s. Cine Films (Private) Ltd. was not that of partners but that of a lender and a borrower. During the year under appeal the business suffered a loss and the assessee's share therein was compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in other years. On behalf of the revenue, it was urged before the Tribunal that the nature of the relationship between the assessee and M/s. Cine Films (Private) Ltd. was that of partners and the agreement, in fact, had created a partnership which was not assessed and, therefore, the loss arising therefrom could not be allowed in the computation of the assessee's total income in view of the restrictions laid down in s. 77(2) of the I.T. Act, 1961. Even otherwise, it was argued, that the joint venture in law was really an unregistered firm and, therefore, the provisions of s. 77(2) of the Act were applicable to it. The Tribunal carefully considered the facts placed before it and also went through the agreement dated 19th December, 1958. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year was to be determined independently and the ITO had violated this principle While taxing the profit in the other years. The Tribunal, therefore, directed the ITO to set off the loss of Rs. 53,236 from the income of the assessee in accordance with law. On these, under s. 256(1) of the I.T. Act, 1961, the following question has been referred to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was to share and set off the loss arising to M/s. Cine Films (P.) Ltd. during the year ? " The question really depends upon the construction of the agreement, as we have mentioned hereinbefore. We have set out the relevant portion of the clauses of the agreement and we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. Normally, the expression " money due " from the borrower to the lender would include both the principal as well as the interest. But, here, as no interest was being paid, the consideration for advance " in lieu of interest " was participation in 50 per cent. of the profit. It is possible to construe the expression " money due " to mean, the money being 50 per cent. of the profit, and that is to be paid in the manner laid down in cl. 4 under the different sub-clauses thereof. In this aspect, we have also to bear in mind the difference in the language used between cl. 3 and cl. 4 thereof, which we have indicated hereinbefore. After all an agreement of this kind of lending and borrowing between business people should be construed from comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision. Therefore, the principle where two constructions are possible, one which is in consonance with justice and equity and in favour of the assessee should be preferred than the other, does not fall for our consideration. But if the principle would be wherever the facts Ind circumstances arise and the expression used is couched in ambiguous language, it should be construed in an ordinary sense, then, in our opinion, to construe an agreement of loan where there is no provision for getting any interest of the consideration for loan as the profit to be earned by the borrower, then such a profit as computed in the agreement will be the correct construction and will be more in consonance with the ordinary principle of equity and justice. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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