PADGIRWAR BROTHERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred by the Tribunal is as follows :

(2.) THE statement of the case leading to this reference is as follows : The assessee -firm has been carrying on business as a commission agent for the sale of the products of M/s. Kirloskar Bros. Ltd., M/s. American Springs and Pressing Works (P) Ltd., and M/s. Tata Fizon Ltd., for the Vidarbha region, besides selling hardware goods, agricultural implements and accessories. In an earlier year the assessee -firm had advanced a sum of Rs. 12,000 to one Nagayya, film producer and an artist of Madras, under an agreement of joint venture to purchase dismantled building material consisting of canvas, iron angles, wooden structures, ceiling sheets, etc., used in the industrial exhibition held in Madras in January, 1960. Shri V. Nagayya was stated to be a member of the exhibition committee. The assessee lent the said amount to Shri V. Nagayya and the latter executed a hundi for the same in favour of the assessee. It was found by the AAC that the advance made by the assessee -firm was of a capital nature. Shri V. Nagayya neither purchased the dismantled building materials nor returned the said amount. The assessee claimed deduction of the said sum of Rs. 12,000 against its business income, on the ground that it was a debt and had become bad and irrecoverable in the relevant accounting year. The ITO disallowed the assessee's claim on the following grounds :

(3.) ON appeal the AAC upheld the disallowance of the claim holding that the said advance was in the nature of a loan on a friendly basis and nothing beyond, that at best it was an advance of a capital nature, with the intention of entering into a business adventure and the inability of the assessee to recover the amount could never be termed as a bad debt. Since the assessee was not carrying on money -lending business, the loan in question was neither a bad debt nor a loss of stock -in -trade. A copy of the order passed by the AAC forms part of the statement of the case as annexure 'D'."