COMMISSIONER OF INCOME TAX Vs. CHUNNILAL TAK SHRI

JUDGEMENT

(1.) : The Tribunal, Jaipur Bench, Jaipur, has referred to the following question for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the difference of Rs. 20,967 between the guaranteed amount and the actual purchase of country liquor was allowable as a trading loss in the computation of the assessee's total income for the asst. yr. 1968-69 ?"

(2.) WE may succinctly state the facts. The non-petitioner is a HUF. The source of income of the assessee, amongst others, is from purchase and sale of country liquor. It did not maintain accounts for its business. It declared purchases of 7,556 litres of country liquor of the value of Rs. 56,791. The assessee worked out its profit by adopting a rate of Rs. 1.50 per gallon, which came to Rs. 2,550. Against the amount of the net profit, the assessee claimed a sum of Rs. 23,608 as a trading loss on account of the deficiency between the minimum guaranteed amount of Rs. 80,400 and the actual purchase of Rs. 56,901. The assessee claimed this deficiency in accordance with the stipulations contained in the licence issued to the assessee, enabling it to sell the country liquor during the accounting period which commenced from 1st April, 1967, and ended on 31st March, 1968. The ITO in his order dt. 30th March, 1972, did not accept the assessee's claim of deficiency as a trading loss, for, according to him, the minimum guarantee was given by the assessee to acquire the right of carrying on business in a particular area and as such it constituted capital expenditure. The ITO has observed as under : ``First of all, regarding the loss, the position is that the shortfall in guarantee which is not a revenue loss cannot be allowed. Assessee agrees to pay the minimum guarantee amount for acquisition of a right to carry on the business in a particular area and, therefore, in fact, the amount agreed to be paid as guarantee money or in other words to lift the goods worth a certain minimum amount is for securing of this valuable right and the actual business started only after that and thus the shortfall in guarantee has no bearing on the business as such so far as its income is concerned."

(3.) ACCORDING to the stipulations contained in the licence- deed, the assessee in case of failure to lift the country liquor of the minimum amount of guarantee, was liable to make good the loss to the State Government. The liability to make good the loss to the Government of Rajasthan arose from carrying on of the assessee's business. It is not disputed by the learned counsel for the Revenue that the assessee was under an obligation to make good the deficiency if it fails to lift the country liquor of the minimum amount of guarantee and to make good the loss to the Government of Rajasthan in regard to the deficiency. This arose directly from the stipulations contained in the licence. ACCORDING to s. 37(1) of the Act, this amount has been laid out wholly and exclusively for the purpose of business of the assessee, namely, the sale of the country liquor of the amount of guarantee stipulated in the licence-deed from 1st April, 1967, to 31st March, 1968, and so such loss is an allowable deduction being a trading loss.