TaxTMI 
TaxTMI 
1967 (3) TMI 4
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....nced a sum of Rs. 40,000 to a firm of film distributors known as Tarachand Pictures. The appellant thereafter entered into an agreement dated January 5, 1953, with Tarachand Pictures under which the appellant advanced a further sum of Rs. 60,000 in respect of the distribution, exploitation and exhibition of a picture called Shabab. According to clause 2 of the agreement the distributors were to pay a lump sum of Rs. 1,750 by way of interest on the initial advance of Rs. 40,000. Clause 3 of the agreement reads as follows: " No interest will run henceforth on this sum of Rs. 40,000 as also on the advances to be made as provided hereinabove but in lieu of interest it is agreed that the distributors will share with the financier profit and l....
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....unsuccessful. The matter was taken to the City Civil Court and ultimately a consent decree was obtained in Suit No. 2061 of 1954 in the Bombay City Civil Court. In the end the appellant found that there was a balance of Rs. 80,759 which was irrecoverable and he accordingly wrote it off as a bad debt on December 31, 1955, in the ledger account. For the assessment year 1956-57, the corresponding previous year being the calendar year 1955, the appellant claimed a loss of Rs. 80,759 which he had written off as bad debt, under section 10(2)(xi) of the Income-tax Act. By his assessment order dated July 31, 1957, the Income-tax Officer disallowed the claim on the ground that the moneys advanced by the appellant under the agreement could not be reg....
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....e negative and against the appellant. On behalf of the respondent it was submitted that the High Court was right in taking the view that the appellant had advanced a sum of Rs. 1,00,000 not with a view to earn interest thereon but with a view to making an investment in the business of Tarachand Pictures and get a return on the said investment by way of a share of profits in the said business. It was contended that the money was not lent for any definite term and no rate of interest had been fixed under clause 3. The argument was also stressed that clause 3 of the agreement stipulated that the appellant was to share with the distributors not only the profit but also the loss of the business, and in the case of no money-lending transaction....
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....l 4, 1954, but it was released on May 28, 1954, and clause 7 of the agreement therefore came into operation. The result therefore is that on and from April 4, 1954, there was a contract of loan between the parties in terms of clause 7 of the agreement and the principal amount became repayable from that date to the appellant with interest thereon @ 9 per cent. per annum. It follows therefore that the appellant is entitled to claim the amount of Rs. 80,759 as a bad debt under section 10(2)(xi) of the Income-tax Act and the loss suffered by the appellant was not a loss of capital but a revenue loss. To find out whether an expenditure is on the capital account or on revenue account, one must consider the expenditure in relation to the busine....