BURLAP DEALERS LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee entered into an agreement with H. Manory Ltd., hereinafter referred to as the company, on 5th May, 1948, whereby the assessee agreed to finance the company in its business and the latter agreed to pay the assessee 50 per cent of the profits to be earned in that business. THE assessee was short of funds and entered into an agreement in writing with Ratiram Tansukhroy on 7th Oct., 1948. THE agreement between the assessee and M/s Ratiram Tansukhroy, hereinafter referred to as the financier, provided that the financier would advance moneys to the assessee for the purpose of financing the business of H. Manory Ltd. and further that the financier would render services and help as might be required by the assessee in connection with the business. THE agreement further provided that in consideration of help to be rendered by way of arranging finance and/or further services the assessee would pay to the financier interest at the rate of 4= per cent. per annum on all the amounts that might be advanced by the financier together with 50 per cent. of the share of the net profits which would be received by the assessee from H. Manory Ltd., that is to say, that such profits would be shared between the assessee and the financier in the following manner :

(2.) BEFORE the execution of the 7th Oct., 1948, agreement between the assessee and the financier, the assessee had obtained an advance of Rs. 50,000 and Rs. 17,500 on 24th May, 1948, and 7th June, 1948, respectively, in order to pay the said amounts to the company. The financier negotiated a loan of Rs. 1,00,000 advanced to the assessee by Premier Stores Supplying Co., in the month of June, 1948, and the said amount was advanced by the assessee to H. Manory Ltd.

(3.) THE Tribunal found that it was not a joint venture. THE Tribunal held that only the interest payable by the assessee to Ratiram Tansukhroy was admissible under s. 10(2)(iii) of the Act but the payment of a moiety of the profits was only a diversion of the profits after they were earned by the assessee and as such was not allowable as a deduction under s. 10(2)(xv).