COMMISSIONER OF INCOME TAX Vs. ESSEN PRIVATE LIMITED

JUDGEMENT

(1.) -

(2.) AT the instance of the Commissioner of Income-tax, Madras, the following question has been referred to us under section 66 of the Indian Income-tax Act : "Whether there are materials for the Tribunal to hold that the debt in question was incurred in the course of the business so as to make its loss deductible under section 10(2)(xi) ?"

(3.) WE shall first consider the question of the nature of the loss sustained by the assessee, whether it was of a capital or a revenue nature, as the answer to that question would practically decide the admissibility or otherwise of the assessees claim under section 10(2) (xi). Is it a trade or business debt that is written off is really the crucial question. The purpose for which the assessee lent or advanced moneys from time to time to the managed company is not known and has not been divulged by the assessee. WE gather from the statement of the case by the Tribunal that large sums of money were advanced on "current account" to the managed company. Of course we know that the assessee guaranteed the borrowing from the Indian Overseas Bank Ltd. by the company and sustained loss by fulfilling the terms of the guarantee. It is however clear that the company was needy and the assessee put them in funds. This, in our opinion, is a very slender foundation to constitute a trade liability of the assessee incurred in relation to the managing agency business. The terms of the managing agency agreement do not compel or make it obligatory on the part of the assessee to finance the company with a view to continue its effective existence. Clause 14 which has been referred to in the order of the Appellate Assistant Commissioner is only permissive. It provides :