High Court allows deduction of liquor purchase deficiency as trading loss for 1968-69 assessment year

The High Court allowed the deduction of Rs. 2,04,006 as a trading loss for the assessment year 1968-69. The Court considered the deficiency in liquor purchase as directly related to the firm's business activities, making it an allowable trading loss. This decision aligned with a previous ruling where a similar deficiency was accepted as a trading loss. The Court ruled in favor of the assessee, directing each party to bear their own costs.

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Issues:
Whether the sum of Rs. 2,04,006 was an admissible deduction in the computation of the assessee's total income for the assessment year 1968-69.

Analysis:
The case involved a firm engaged in the purchase and sale of liquor under a license issued by the Government of Rajasthan. The firm was required to lift country liquor of a specified value during the accounting period, failing which it would be liable to make good the deficiency. The firm only took delivery of liquor worth Rs. 2,98,014, resulting in a shortfall of Rs. 2,04,006, which was claimed as a trading loss. The Income-tax Officer initially rejected the claim, stating it was not a business loss. The Appellate Assistant Commissioner also disallowed the claim. However, the Tribunal upheld the claim, considering the deficiency as a trading loss directly related to the firm's business activities.

The Tribunal referred the question of the admissibility of the deduction to the High Court. The High Court noted a previous decision where a similar issue was considered, and a deficiency between guaranteed amount and actual purchase was allowed as a trading loss. The High Court held that the liability to pay the deficiency directly arose from the firm's business activities and was thus an allowable trading loss. Therefore, based on the precedent set by the previous decision, the High Court answered the question in favor of the assessee and against the Revenue, allowing the deduction of Rs. 2,04,006 as a trading loss for the assessment year 1968-69. The parties were directed to bear their own costs of the reference.

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