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Commissioner of Income-tax, Bombay City I Vs. Solomon Moses - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 70 of 1963
Judge
Reported in[1971]81ITR30(Bom)
ActsIncome Tax Act, 1922- Sections 10(1) and 10(2)(XI)
AppellantCommissioner of Income-tax, Bombay City I
RespondentSolomon Moses
Appellant AdvocateR.J. Joshi and ;G.N. Joshi, Advs.
Respondent AdvocateParty in person
Excerpt:
.....of act. the appellate assistance commissioner rejected the respondent's appeal but the income-tax appellate tribunal, by its order dated october 5, 1956, held that the assessee's attempt to recover the debt had failed and that the loss was incidental to the respondent's business and allowed the claim. 12,841 was bad debt or loss incidental to his business was not sustainable. 3,78,491. in the year of account, the assessee wrote off the amount which could not be recovered from the foreign principal and claimed it as a bad debt or a trading loss. the debt had not arisen as a result of the trade and was not allowable under section 10(2) (xi) as a bad debt......facts and in the circumstances of the case, the amount of rs. 12,841 is a proper deduction as bad debt or loss incidental to the business of the assessee ?' 2. the facts of the case, shortly stated, are as follows : the respondent carried on business as a commission agent and he was treated as agent of two non-resident principals, respectively, being messrs. shoba menahim and mesha berin cohen. the respondent purchased goods in india on behalf of these two non-residents and exported the same for delivery to them. for the year 1943-44, the tax liability of the respondent in respect of the non-resident, shoba menahim, was determined at rs. 1,863. for the years 1943-44 to 1947-48 (inclusive) the respondent's tax liability on behalf of mesha berin cohen was determined at rs. 10,978. in the.....
Judgment:

K.K. Desai, J.

1. The question of law in this reference under section 66(1) of the Indian Income-tax Act, 1922, is :

'Whether, on the facts and in the circumstances of the case, the amount of Rs. 12,841 is a proper deduction as bad debt or loss incidental to the business of the assessee ?'

2. The facts of the case, shortly stated, are as follows :

The respondent carried on business as a commission agent and he was treated as agent of two non-resident principals, respectively, being Messrs. Shoba Menahim and Mesha Berin Cohen. The respondent purchased goods in India on behalf of these two non-residents and exported the same for delivery to them. For the year 1943-44, the tax liability of the respondent in respect of the non-resident, Shoba Menahim, was determined at Rs. 1,863. For the years 1943-44 to 1947-48 (inclusive) the respondent's tax liability on behalf of Mesha Berin Cohen was determined at Rs. 10,978. In the accounting year 1950, the respondent contended that these two non-residents had failed to pay to the respondent the above two respective amounts aggregating to Rs. 12,841. He wrote off these amounts as bad debts and claimed allowance in respect of these amounts on the ground of business loss under sections 10(1) and 10(2) (xi) of Act. The Income-tax Officer rejected that claim on the ground that the loss had not arisen from business, profession or vocation or from carrying on of any business of money-lending or loans. The Appellate Assistance Commissioner rejected the respondent's appeal but the Income-tax Appellate Tribunal, by its order dated October 5, 1956, held that the assessee's attempt to recover the debt had failed and that the loss was incidental to the respondent's business and allowed the claim.

3. Mr. Joshi for the revenue has now drawn our attention to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Abdullabhai Abdulkadar and submitted that following that decision a finding should be made that the claim of the respondent that Rs. 12,841 was bad debt or loss incidental to his business was not sustainable. The respondent, who appears in person, has contended that the above two parties were in fact residents of Aden and were not non-residents. He has been wrongly subjected to payment of tax on the footing that these two parties were non-residents. He, therefore, contends that the above sum was business loss and the question in this reference should be answered in his favour.

4. Mr. Joshi is right in his submission that, on the facts in this case, the decision of the Supreme Court in the case of Commissioner of Income-tax v. Abdullabhai Abdulkadar is applicable. In that case, the assessee-firm carried on business as commission agent and exported goods from India to a non-resident principal. The income-tax authorities had treated the assessee as the agent of the non-resident principal under section 43 of the Income-tax Act and the assessee had, therefore, to pay and discharge tax liability amounting to Rs. 3,78,491. In the year of account, the assessee wrote off the amount which could not be recovered from the foreign principal and claimed it as a bad debt or a trading loss. The Supreme Court set aside the decision of this court that the amount was liable to be treated as business loss. The Supreme Court held that, in order that a loss might be deductible, it must be a loss in the business of the assessee and not a payment relating to the business of somebody which under the provisions of the Act was deemed to be and became the liability of the assessee. The loss which the assessee had incurred was not in its own business but arose because of the business of another person and it was, therefore, not a permissible deduction under section 10(1) of the Act. The Supreme Court further held that under clause (xi) of section 10(2) a debt was only allowable when it was a debt and arose out of and as an incident to the trade. The debt had not arisen as a result of the trade and was not allowable under section 10(2) (xi) as a bad debt. It was not an incident to the assessee's business.

5. The relevant facts in the present case have already been recited above. There is not distinction between the facts of the present case and the facts before the Supreme Court in the above case. The contention of the respondent that he was wrongly made to pay the debts in question is entirely irrelevant and does not arise for consideration in this reference.

6. In the result, following the decision of the Supreme Court, the answer to the question is this case is in the negative.

7. This is a proper case in which the costs may not follow the event. In the result, there will be no order as to costs.


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