TaxTMI 
TaxTMI 
TaxTMI 
1972 (9) TMI 28
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....After supplying certain quantity of ore as per the agreement, due to the non-availability of the specified quality either in the mines or in the market, the assessee could not supply the balance of the quantity and quality of ore to the said American firm. The assessee-firm, therefore wrote to the American company expressing its inability to fulfil the contracts and requesting the company to cancel the contracts in respect of the balance of the quantity of ore yet to be supplied. The American firm declined to accede to the request, but instead proposed certain modifications in the terms of the original contracts, both with regard to the quality and quantity of the ore to be supplied and also offered to extend the time for fulfilling the contracts, subject however to the assessee executing promissory notes of the value of $32,500 in its favour as security for the faithful performance of the contracts by the assessee under the modified terms. This was accepted by the assessee and three promissory notes were executed by the assessee as required by the American firm. Even as per the, terms of the modified contracts, the assessee could not supply the required quantity and quality of ore....
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....ts and that the payment did not come under the category of capital expenditure. The Tribunal then proceeded to consider the assessee's claim for allowance of this amount under section 10(2)(xv) of the Indian Income-tax Act, 1922, (hereinafter called "the Act"). In the view that the promissory note amounts were not paid by the assessee in order to earn any profits from the fulfilment of the contracts, but were paid,by way of damages for the breach of contract, the Tribunal held that the assessee's claim cannot be allowed under section 10(2)(xv) of the Act. The assessee's claim under section 10(1) of the Act for deduction of the amount was then considered. Relying on the decision in Narandas Mathuradas & Co. v. Commissioner of Income-tax and Hind Mercantile Corporation Ltd. v. Commissioner of Income-tax the Tribunal held that the assessee was entitled to a deduction of a sum of Rs. 1,18,875 in computing its business income under section 10(1) of the Act. The Commissioner of Income-tax filed an application under section 66(1) requiring the Tribunal to refer the first question of law set out above. In its reply the assessee objected to the reference of the question suggested by the Co....
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....issioner of Income-tax has also been quoted : The result is that when a claim is made for deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act. The argument of Thiru Balasubrahmanian, the learned counsel for the revenue, was that the three promissory notes in question were not executed by the assessee for the purpose of earning profits, but they were executed for the purpose of securing the business itself. It was for the purpose of ensuring the contract which is the very source of the assessee's export business. The execution of the promissory notes is antecedent to and de hors the export business which the assessee carried on and not incidental to its business of export and that the loss, if any, incurred by the forfeiture. and payment was, therefore, not incurred in the course of business and, hence, it c....
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....s and in the course of its business it submitted tenders to the B.B. & C.I. Railway and undertook to supply certain commodities. In accordance with the terms of the tender, it had deposited a sum of Rs. 4,419 as security for carrying out the contract. This amount was forfeited, due to non-fulfilment of the contract, by the railways. The assessee claimed this sum as a trading loss. It was held that submitting of tenders was in the course of its business and that, therefore, the making of the deposit was incidental to the business which the assessee was carrying on. The forfeiture was, therefore, a trading loss deductible under section 10(1) of the Act. Hind Mercantile Corporation Ltd. v. Commissioner of Income-tax was a case in which the assessee entered into a contract with a Belgium company for export of groundnut oil. The contract could not be fulfilled due to change in the policy of the Government with regard to export of groundnut oil. When a demand was made for damages for breach of contract by the Belgium company, the matter was referred to arbitration and, as per the award of the arbitrator, the assessee had to pay a sum of Rs. 2,35,758 as damages and incurred a sum of Rs. ....