Revenue loss from business expediency is deductible when liability arises, with later recoveries taxed on receipt.

A payment made under a commercial arrangement linked to the assessee's brokerage business was treated as a revenue loss because the liability arose when the introduced suppliers defaulted, not when decrees were obtained against them. The reduction of exposure to 50% was regarded as a business expediency, and the deductible loss was allowable in the year the liability crystallised. Any later recoveries from the defaulting parties were to be taxed in the year of receipt and did not affect deductibility in the relevant assessment year.

---

---

Issues: Whether the assessee was entitled to deduct, as business loss, the amount paid to the jute mill under the agreement dated 29 March 1961 in the assessment year 1961-62.

Analysis: The payment arose out of the assessee's brokerage business and the default of suppliers introduced by it. The liability to bear the loss arose when the suppliers failed to perform their contracts, and it did not depend on the obtaining of decrees against the defaulting parties. The agreement reducing the assessee's exposure to 50% was a commercial arrangement entered into for business expediency. Any later recoveries from the defaulting parties were to be dealt with in the year of receipt and did not affect the deductibility of the loss in the year in question.

Conclusion: The amount was a revenue loss incurred in the course of business and was allowable as a deduction; the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: A loss or payment incurred in the ordinary course of carrying on a business, pursuant to a commercial arrangement made for business expediency, is deductible as revenue loss in the year in which the liability arises, and later recoveries are taxable when received.

---