COMMISSIONER OF INCOME TAX Vs. SOLOMON MOSES

JUDGEMENT

(1.) THE question of law in this reference under S. 66(1) of the Indian IT Act, 1922, is :

(2.) THE facts of the case, shortly stated, are as follows : The respondent carried on business as a commission agent and he was treated as agent of two non -resident principals, respectively, being M/s Shoba Menahim and Mesha Berin Cohen. The respondent purchased goods in India on behalf of these two non -residents and exported the same for delivery to them. For the year 1943 -44, the tax liability of the respondent in respect of the non -resident, Shoba Menahim, was determined at Rs. 1,863. For the years 1943 -44 to 1947 -48 (inclusive) the respondent's tax liability on behalf of Mesha Berin Cohen was determined at Rs. 10,978. In the accounting year 1950, the respondent contended that these two non -residents had failed to pay to the respondent the above two respective amounts aggregating to Rs. 12,841. He wrote off these amounts as bad debts and claimed allowance in respect of these amounts on the ground of business loss under ss. 10(1) and 10(2)(xi) of the Act. The ITO rejected that claim on the ground that the loss had not arisen from business, profession or vocation or from carrying on of any business of moneylending or loans. The AAC rejected the respondent's appeal, but the Tribunal, by its order dated October 5, 1956, held that the assessee's attempt to recover the debt had failed and that the loss was incidental to the respondent's business and allowed the claim.

(3.) MR . Joshi is right in his submission that, on the facts in this case, the decision of the Supreme Court in the case of CIT vs. Abdullabhai Abdulkadar (supra) is applicable. In that case, the assessee -firm carried on business as commission agent and exported goods from India to a non - resident principal. The IT authorities had treated the assessee as the agent of the non - resident principal under S. 43 of the IT Act and the assessee had, therefore, to pay and discharge tax liability amounting to Rs. 3,78,491. In the year of account, the assessee wrote off the amount which could not be recovered from the foreign principal and claimed it as a bad debt or a trading loss. The Supreme Court set aside the decision of this Court that the amount was liable to be treated as business loss. The Supreme Court held that, in order that a loss might be deductible, it must be a loss in the business of the assessee and not a payment relating to the business of somebody which under the provisions of the Act was deemed to be and became the liability of the assessee. The loss which the assessee had incurred was not in its own business but arose because of the business of another person and it was, therefore, not a permissible deduction under S. 10(1) of the Act. The Supreme Court further held that under cl. (xi) of S. 10(2) a debt was only allowable when it was a debt and arose out of and as an incident to the trade. The debt had not arisen as a result of the trade and was not allowable under S. 10(2)(xi) as a bad debt. It was not an incident to the assessee's business.