TaxTMI 
TaxTMI 
1960 (12) TMI 5
X X X X Extracts X X X X
X X X X Extracts X X X X
....e-tax Act ? " which was amended by the High Court as follows : " Whether on the facts and in the circumstances of the case the amount of Rs. 3,20,162 is an allowable deduction ? " and was answered in the affirmative and against the appellant. The facts of the case shortly stated are these : The respondent is a registered firm carrying on business as commission agents. It was treated as the agent of a non-resident principal, Haji Mohomed Syed Al Barbari of Port Sudan (hereinafter referred to as the " non-resident principal "). It was carrying on the business of export of cloth and kariana (i.e., miscellaneous goods) to Aden, Saudi Arabia and Sudan. It used to supply goods from India to the non-resident principal, who, on his part, wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cidental to the business of the respondent the amount was a deductible loss ; and even if it was not a debt, then also the amount could be claimed by the assessee as a business or trading loss, because in arriving at the true profit of the respondent's business that loss had to be deducted. The High Court thus applied section 10(1) of the Act to the amount claimed by the respondent. The allowability of the amount in dispute depends upon the nature of the liability imposed upon the respondent firm. The contention of the respondent's counsel was that it was carrying on foreign trade and had dealings with a foreign merchant and in the course of the business there were imports and exports and, therefore, the inter-connection between the respo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C., " is the amount of profits and gains. The word 'profits' I think is to be understood in its natural and proper sense-i-n a sense which no commercial man would misunderstand " : Gresham Life Assurance Society v. Styles. Hence even if a deduction is not specifically enumerated in sub-section (2) of section 10 it would still be a debatable item to reflect the taxable profits. The Privy Council in Commissioner of Income-tax v. Sir S. M. Chitnavis held that although the Act nowhere authorises the deduction of bad debts of a business, such a deduction is necessarily allowable because what is chargeable to income-tax in respect of a business are the profits and gains of a year and in assessing the amount of profits and gains of that year accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld that it was not allowable under section 10(2)(xi) or 10(2)(xv) of the Act but it was loss deductible in computing the profits under section 10(1) of the Act as a loss incidental to the carrying on of his business. Counsel relied on the following observation of Venkatarama Ayyar, J., at page 15 : " The result is that when a claim is made for a 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." That passage has to be read in the circumstances of that case where the employment of agents was incidental to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted as an agent within the meaning of section 42(1) of the Act and the liability was imposed because of the deeming provision in sub-section (2) of section 42 of the Act. Can it be said, in the present case, that the liability imposed upon the respondent firm was a business debt arising out of the business of the respondent or to use the words of Venkatarama Ayyar, J., " springs directly from the carrying on of the business and is incidental to it or is a trading debt in the business of the respondent firm. " As we have said above, that condition has not been fulfilled and the loss which the appellant has incurred is not in its own business but the liability arose because of the business of another person and that is not a permissible deduc....