1982 (5) TMI 107 - AT - Income Tax

Tribunal allows deduction for partnership loss, distinguishing capital nature, precedent rulings

The Tribunal partially allowed the appeal, granting the deduction of Rs. 22,193 in the computation of the assessee's income for the relevant year. The ... - Issues:Claim of loss arising in business, nature of loss, deduction of claimed sum in income computation.Analysis:In this appeal, the assessee initially claimed a sum of Rs. 32,377 as loss arising in the business but later restricted the claim to Rs. 22,193. The loss was related to a partnership firm, and the claim was limited to the amount written off during the relevant accounting year. The firm faced a suit for settlement of accounts, which was dismissed by the Civil Court. The assessee contended that the written-off amount should be deductible in computing income. The revenue authorities argued that the loss was capital in nature, not arising from money-lending activities.The Tribunal examined the partnership deed and found that the business involved a commission agency. The deed specified that partners would contribute capital as required, with interest on such investments. The revenue contended that the loss represented capital contribution, not money-lending. However, the Tribunal disagreed, citing a previous High Court judgment that recognized partners advancing money to the firm as creditors entitled to interest. The Tribunal noted that the advances were recorded as cash advances, not capital contributions, and the interest and share income had been taxed in previous years. As the amount was deemed irrecoverable after the court dismissal, the Tribunal allowed the deduction.The Tribunal distinguished the revenue's cited rulings, emphasizing the specific facts of the case. Ultimately, the appeal was partially allowed, granting the deduction of Rs. 22,193 in the computation of the assessee's income for the relevant year.