COMMISSIONER OF INCOME TAX Vs. INDEN BISELERS

JUDGEMENT

(1.) THE following two questions have been referred for decision:

(2.) THE assessee is a registered firm carrying on business in export of manganese and iron ore. It entered into four contracts with M/s. M. Golodetz & Co., New York, undertaking to supply certain quantities of manganese ore of a specified quality within a specified period. After supplying certain quantity of ore as per the agreement, due to the nonavailability 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 terras of the modified contracts, the assessee could not supply the required quantity and quality of ore in spite of its best efforts and, therefore, the American firm forfeited an amount of $25,000 equivalent to Rs. 1,18,875 as per the terms of the contracts. THE assessee-firm paid the amount during the accounting year relevant to the assessment year 1957-58 and claimed 'this amount as a business loss in that year.

(3.) IT is now well settled that the list of allowances under Section 10(2) of the Act is not exhaustive of all allowances which could be made in ascertaining profits taxable under Section 10(1) and that if there was any loss which, from the commercial point of view, can be considered a trading loss that loss ought to be deducted under Section 10(1) before the true profits of the business are ascertained. In this connection, reference may be made to the decision of the Supreme Court in Calcutta Co. Ltd. v. Commissioner of Income' tax, wherein their Lordships, held that the expression " profits or gains " in Section 10(1) of the Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom. In this decision, the following passage in Badridas Daga v. Commissioner of Income-tax, has also been quoted: