JOKHIRAM RAMCHANDRA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under sub -section (1) of section 66 of the Indian Income -tax Act at the instance of the assessee. The assessee is a partnership firm registered for purposes of income -tax under the Income -tax Act, and carrying on wholesale cloth business. We are here concerned with the assessment year 1956 -57, the relevant accounting period being October 27, 1954, to November 14, 1955 (S. Y. 2011). In the course of its business, the assessee had, from time to time, borrowed money from banks jointly by way of mutual accommodation. On December 10, 1949, the assessee had borrowed a sum of Rs. 1 lakh jointly with another firm, Sadasukh Gambhirchand of Calcutta. The said firm, Sadasukh Gambhirchand, consisted of two partners : Sadasukh Gambhirchand and Dawood Dayal Ramchandra Kothari. Out of Rs. 1 lakh borrowed form the Bank of India, the assessee -firm took Rs. 50,000 and remaining Rs. 50,000 were taken by Sadasukh Gambhirchand. The said firm, Sadasukh Gambhirchand, failed to meet its obligation and the assessee, therefore, had to pay to entire amount of Rs. 1,00,739 -11 -0 on account of the said loan. In the books of the account of the assessee -firm the half share of it, viz., Rs. 50,369 -13 -6 had been shown as the amount as the amount due from the said firm, Sadasukh Gambhirchand.

(2.) IN the year 1950 the assessee then filed two suits on the original side of this court for recovery of the said amount from the two partners of Sadasukh Gambhirchand and the suits were decreed against the said partners on June 15, 1953, and September 23, 1953. The expenses of the litigation and the interest amounting to Rs. 2,0031 -9 -0 were also debited by the assessee to the account of the said partnership, Sadasukh Gambhirchand. The balance standing to the debit of the said partnership, Sadasukh Gambhirchand, amounted to Rs. 54,989 -6 -0. The whole of said amount was assessee at the end of the samvat year 2011. In the assessment year 1956 -57 the assessee claimed deduction for the aforesaid amount of Rs. 54,989 -6 -0 under various provisions of section 10. It may, however, be stated that the only claim now pressed before us is one under] sub -section (1) of section 10 of the Act. In the course of the proceedings, the assessee furnished information relating to all the steps taken by it for the recovery of the said amount from the partners of the firm, Sadasukh Gambhirchand. The Income -tax Officer, disallowed the claim. On appeal, the Appellate Assistant Commissioner, relying on a decision of this court in Commissioner of Income -tax v. Jagannath Kissonlal, allowed the appeal. The material part of his reasoning is in the following terms :

(3.) ON an application made by the assessee under sub -section (1) of section 66, the Tribunal has stated the case referring the following question of the law to this court :