R C JAIN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In the assessment year 1958-59, Shri R. C. Jain claimed a loss of Rs. 75,000.00 in business transactions relating to disposal pipes. He was otherwise deriving income as a director of some limited companies and was receiving income as director's salary, fees, dividends and interest. The facts set out in the statement of the case submitted by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922, show that Shri R. C. Jain (hereinafter referred to as the assessee) was previously a member of a Hindu Undivided Family doing business in pipes under the name of M/S. P. S. Jain Pipe Co. After the disruption of that firm, the assessee entered into a transaction with M/S. Laxmi Iron Stores, Calcutta, which was offering disposal pipes for sale. The assessee entered into the agreement with this firm, in his individual capacity and by a contract in writing dated 12th July, 1957, agreed to purchase 2 lacs feet of disposal pipes of 4 inch type at the rate of Rs. 2-25 np per foot. He was unable to take delivery of these pipes and the Calcutta firm informed him that because of this failure the goods had been sold on the assessee's account resulting in a loss of Rs. 75,000.00, which was payable by him in accordance with clause 4 of the aforementioned agreement. This amount was partly paid in the accounting year in question and partly in November, 1958 and February, 1960. The loss of Rs. 75,000.00 was claimed as a business loss which was disallowed by the Income Tax Officer as a speculative loss. The interest claimed on the amount borrowed to pay the loss was also disallowed.

(2.) On appeal to the Appellate Assistant Commissioner, it was held that there was no business loss as no business in pipes was ever started; the loss was accordingly treated as a capital loss and disallowed.

(3.) On appeal to the Tribunal, it was held on a consideration of the agreement that the assessee did not take delivery of the goods and, therefore, there was only a proposal to start business which never materialised and, hence, there was no allowable loss. The interest claimed was also disallowed as well as the travelling expenses, etc., incurred in connection with the transaction.