TaxTMI 
TaxTMI 
1939 (11) TMI 13
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....-tax Act, 1922. The question of law is as to the admissibility of a deduction of Rs. 39,500 in computing the profits of the assessees' business. The year of assessment in respect of which the question arises is the year 1933-34 and as it is not contested that the sum in question was expended or lost in the "previous year" 1932-33, the deduction, if permissible, is claimed for the proper year. By the terms of Section 10 of the Act, the profits or gains of a business are to be computed after making certain allowances, one of which is provided for by the terms of clause (ix) of Sub-section 2 as follows:- "(ix) any expenditure (not being in the nature of capital expenditure) incurred solely for the purposes of earning such profits or ....
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....uary, 1931, they should deposit a further Rs. 25,000. "The said sum of Rs. 50,000 shall remain at the disposal of the company for the purposes of the company's business and shall carry interest at the rate of 7 per cent. per annum until the deposit is returned by the company to organising agents out of the selling agents' deposits as hereinafter provided." The assessees undertook the duty of finding suitable selling agents for the company's goods in the territory in question. These agents were to be recommended by the assessees but were to be appointed by the company, and were to enter into agreements with the company under which they should make deposits with the company which the latter could use for the purposes of its ....
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..... Appropriate terms of commission were specified for such business. The commission account was to be made out every three months and the assessees were to be paid their commission within a fortnight of the adjustment of the account. The company was to provide the assessees with certain staff and office accommodation and to make certain allowances for the remuneration of a representative of the assessees at Hinganghat. The assessees duly completed the deposit of Rs. 50,000 as provided for by Clause 4 of the agreement, but the scheme was shortlived as the company in 1931 became insolvent before the assessees had recovered more than Rs. 10,500 from deposits made by selling agents. The sum of Rs. 39,500 was outstanding and repayable by the c....
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....gment on 30th September, 1935, Subhedar, A.J.C., being in favour of the assessees and Pollock, A.J.C., being against them. On 6th November, 1936, after the High Court of Judicature at Nagpur had been established, Gruer, J., as third Judge agreed with Subhedar, A.J.C. The judgment appealed from is thus a judgment answering the question referred in the negative by a majority of two Judges to one. The view taken by Subhedar, A.J.C., was that the deposit was made by the assessees in the course of their money-lending business and Gruer, J., also concluded "that the transaction should be looked upon as a variation or extension of the assessees' money-lending business". POLLOCK, A.J.C., on the other hand, considered that "the deposit ....
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..... They were entering upon the business of organising agents for a firm of importers-a business different in character from that of money-lender. They had undertaken to find suitable persons to be appointed as selling agents, and to guarantee the fulfilment of all obligations incurred towards the Company by such selling agents, some of whom might be working on a salary basis without having given security. The nature of the deposit of Rs. 50,000 must be considered in relation to this business. Both of the learned Judges who found in favour of the assessees appear to have considered that the course of business indicated in the agreement of 17th December, 1930, bore analogy to the case of a proprietor of an estate borrowing money and appoint....
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....ition to the interest of 7 per cent., but it was not so laid out with reference to any particular transaction carried out in the course of such business. It was in one aspect a loan made to the company, but it was not a loan made in the course of carrying on the business of organising agents or in the course of the business of a money-lender. It was not a recurring expenditure. On the other hand, it was contemplated that in whole or in part the deposit should be returned to the assessees by the receipt of deposit from selling agents; so that if the Rs. 50,000 does fall to be regarded as invested in a business of organising agents, it was invested with a prospect that it might be a temporary investment and not a permanent one-in other words ....