COMMISSIONER OF INCOME TAX Vs. JAGANNATH KISONLAL

JUDGEMENT

(1.) THE question that arises on this reference is whether a certain amount is an allowable deduction under Section 10(2)(xv), Income -tax Act or in any event it is a business loss which can be deducted for the purpose of ascertaining the true profits of the assessee.

(2.) THE assessee is a commission agent and lie, along with one Kisonlal borrowed a sum of Rs. 1,00,000/ - from a Bank on joint and several liability. Rupees 50,000/ - out of this sum were taken, by the assessee for his business and Rs. 50,000/ - were taken by Kisonlal. Kisonlal failed to meet his obligation and was adjudicated insolvent. Therefore under the joint and several liability the assessee had to pay to the Bank the whole amount of Rs. 1,00,000/ -. In the insolvency of Kisonlal the assessee received a sum of Rs. 18,805/ - and he therefore claimed the balance of Rs. 31,740/ - for the assessment year 1951 -52, after taking into consideration, certain interest and insolvency expenses and the Tribunal held that this was a permissible deduction under Section 10(2)(xv) or in any event it was a business loss which was allowable as a deduction in computing the profits of the assessee's business.

(3.) ON these facts the question is whether it could be said that this sum of Rs. 31,740/ - was an amount expended wholly and exclusively for the purpose of the assessee's business. The view has been consistently taken by this Court that amounts spent by a business man for commercial expediency are permissible deductions. The view has also been consistently taken that it is not for the Department to tell a business man how he should conduct his business; it must be left to the business man himself. All that the Department is concerned with is to test every expenditure made by the business man and claimed as a deduction under Section 10(2)(xv) and to determine whether the purpose of that expenditure was the furtherance of the business, because it is from the profits made by that business that the business man pays tax to the Department, and any moneys spent in the interest of the business or any moneys spent in the course of the business and which is incidental to the business must be considered as a permissible deduction. We have also taken the view that there may be cases which may not fall strictly within the ambit of Section 10(2)(xv), even so in order to ascertain the true profits of the business from a commercial point of view certain business losses must be deducted. The Advocate -General has put forward the contention that it was not absolutely necessary for the assessee to have borrowed this sum of Rs. 1,00,000/ - on the joint and several liability of himself and Kisonlal. He says that it is not established that it was absolutely impossible for the assessee to have got this money without undertaking the liability of paying for the default of his surety. Now, if the assessee required Rs. 50,000/ - for his business, it was for him to decide which was the best way of getting that money and if he came to the conclusion that he should go to a Bank rather than to a money -lender and to get a sum of Rs. 1,00,000/ - on the joint and several liability of himself and Kisonlal and take Rs. 50,000/ - for his own business, he was the best judge of the interest of his own business. The finding of the Tribunal is clear and explicit that what the assessee was doing was not something out of the ordinary, but in borrowing this money on joint and several liability he was following a practice which was established as a commercial practice. Therefore, the transaction was clearly in the course of the business and incidental to the business and it is this transaction which was necessary for the business which resulted in a loss to the assessee, he having to pay 'the liability of the surety.