COMMISSIONER OF INCOME TAX Vs. BALDEORAM BEHARILAL

JUDGEMENT

(1.) This reference relates to the assessment year 1953-54, the relevant previous year being the calendar year 1952. The assessee had a branch business styled as Girdhari Lal & Co., dealing in gunny and jute goods at Calcutta. One P. J. Doshi was a registered under-broker under the assessee-firm which was a member of the Gunny Traders Association, Calcutta. The said P.J. Doshi had business connection with the assessee-firm since 1937, and thereafter he joined the firm as a registered under-broker. In lieu of salary, P.J. Doshi was allowed brokerage in respect of transactions which passed through him. As the brokerage was adjusted only periodically, Doshi used to draw advances from the assessee-firm every month in anticipation of accruing brokerage. Doshi fell ill and could not submit his bill for adjustment of brokerage for a few years as he was lying ill for a long time. Ultimately he died. In the circumstances, the assessee thought if fit that the advances which had been paid to Doshi in anticipation of accruing brokerage, which amounted to Rs. 58,312, be written off in the relevant previous year. The assessee, accordingly, claimed this amount as a bad debt under Section 10(2)(xi) of the Indian Income-tax Act, 1922. The Income-tax Officer disallowed the claim. He held that, as the method of accounting followed by the assessee was cash in respect of its branch business, there could not be any question of any bad debt being allowed. The assessee appealed from the order of the Income-tax Officer to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld this order. The assessee thereafter preferred another appeal before the Tribunal. Before the Tribunal the assessee gave up the claim of bad debt under Section 10(2)(xi) and made an additional ground that the claim be allowed as business loss under Section 10(1) of the Act.

(2.) It was stated before the Tribunal and it was accepted by the Tribunal that the nature of the assessee's business, namely, dealing in gunny and jute goods, was such that the employment of brokers was essential and customary. It was further stated and accepted by the Tribunal that the brokerage income of the assessee-firm was quite considerable. In the relevant previous year the total amount of brokerage received was Rs. 12,59,562 out of which a sum of Rs. 7,94,345 had been paid to brokers and under-brokers. The Tribunal also accepted and there was no evidence to the contrary that it was customary to give advances to under-brokers in anticipation of accruing brokerages as the brokerages were credited to under-brokers1 accounts only periodically. Therefore, the Tribunal accepted the assessee's case that as a matter of commercial expediency the claim for the sum of Rs. 58,312 should be allowed under Section 10(1) of the Indian Income-tax Act, 1922. On an application being made by the revenue the Tribunal has referred the following question to this court under Section 66(1) of the Indian Income-tax Act, 1922 :

(3.) In the aforesaid view of the matter we are of the opinion that the Tribunal came to the correct conclusion and the question referred must be answered in the affirmative and in favour of the assessee. The assessee is entitled to the costs of the reference.