Business loss deduction allowed where customer default under a selling agency arrangement crystallised the assessee's liability.

An amount debited to an assessee under a selling agency arrangement was held to be deductible from business income because the business terms made the assessee liable for payment of the goods sold, and the customer's default therefore crystallised a business loss in the course of commission trading. The expenditure was directly connected with the assessee's cloth-selling operations and was properly relatable to the income-earning business activity. The deduction was accordingly accepted as either a business loss or business expenditure, and the issue was answered in favour of the assessee.

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Issues: Whether the amount of Rs. 38,686, debited to the assessee's account on account of non-payment by a customer under the selling agency arrangement, was an admissible deduction from business income for the relevant assessment year.

Analysis: Under the terms governing the assessee's business relationship with Delhi Cloth and General Mills Ltd., the assessee was responsible for payment for the goods sold, and the customer's default consequently fastened the liability on the assessee. The amount arose in the course of the assessee's business of selling cloth on commission and was, therefore, properly relatable to the business operations from which commission income was earned.

Conclusion: The amount was an admissible deduction as a business loss, or alternatively as business expenditure, and the question was answered in favour of the assessee.

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