R.M. Sahai, J.
1. The following question has been referred by theIncome-tax Appellate Tribunal, Allahabad Bench, Allahabad.
'Whether, on the facts and circumstances of the case, the sum ofRs. 44,234 was allowable as a bad debt or as a business loss ?'
2. The assessee claimed a deduction of Rs. 44,234 on account of a bad debt in proceedings for assessment year 1965-66. It was stated that the assessee had advanced a sum of Rs. 5 lakhs to Sri J. P. Srivastava on February 19, 1942, and on it the assessee had charged interest till Samvat 2007-2008 (corresponding to the year ending 1st July, 1942) amounting to Rs. 64,234. The assessee was thus to receive Rs. 5,64,234 from Sri J. P. Srivastava and this remained outstanding for a number of years. In the previous year relevant to the assessment year 1965-66, the assessee had in full settlement of this accepted from Sri J. P. Srivastava 1,200 preference shares of Rs. 100 each and 40,000 ordinary shares also of Rs. 100 each of a company styled New Bhopal Textiles, Bhopal. It was claimed on behalf of the assessee that, as the face value of these shares was Rs. 5,20,000, the difference between Rs. 5,64,234 and Rs. 5,20,000, i.e., Rs. 44,234, was a bad debt. The Income-tax Officer did not agree and held that it was in consideration of the full amount of Rs. 5,64,234 that these shares were transferred to the assessee and the difference of Rs. 44,234 between the amount that was actually due from Sri J. P. Srivastava and the face value represents the premium paid by the assessee for acquisition of these shares which is capital payment. Aggrieved by this order, the assessee filed an appeal and the Appellate Assistant Commissioner determined the value of the shares on the date of transfer and found that, as a matter of fact, against a loan of Rs. 5,64,234 the appellant has received shares valued at Rs. 6,31,473. On this finding he dismissed the appeal as, in his opinion, there could be no question of any bad debt. Feeling dissatisfied, the assessee approached the Income-tax Appellate Tribunal. The assessee reiterated his contention before the Tribunal that the amount of Rs. 44,234 was a bad debt and it should be granted as deduction under Section 10(2)(xv). It was further urged that, in any case, it was a business loss and, therefore, deduction should be allowed under Section 10(1). The Tribunal accepted both the arguments advanced on behalf of the assessee and recorded the following finding:
'After going through the copy of the assessee's accounts with M/s. Anand Ram Pooranmal, M/s. Shital Prasad Shyam Lal, Sardar Ranjit Singh, M/s. Modi Spg. & Wvg. Ltd., etc., Sardool Textiles, Sir J. P. Srivastava, etc., as given in pages 2 to 10 of the paper book and also looking into the interest statement of the assessee for the last five years we are inclined to accept that the assessee had also been a money-lender.'
3. Tax is payable by an assessee in respect of the profits or gains of any business carried on by him but its computation shall be after making allowance of any loss. The assessee was the sole selling agent of Bhopal Industries. It has been found by the Tribunal that it used to derive considerable income from the business of sole selling agency. It was, therefore, in its interestto advance the loan of Rs. 5 lakhs and this was done through the good offices of Sri J. P. Srivastava. The advancement of loan was intimately connected with the assessee's business and, therefore, any loss which occurred in this connection would be a business loss. In our opinion, the Tribunal rightly accepted the petitioner's contention that the amount of Rs. 44,234 was a business loss.
4. In view of our conclusions that this was a business loss, we do not consider it necessary to decide the question whether it was a bad debt.
5. For the reasons stated above we answer the reference by saying that the sum of Rs. 44,234 was allowable as a business loss. As the reference is answered' against the department and in favour of the assessee, the assessee shall be entitled to his costs which is assessed at Rs. 200. Counsel's fee is assessed at the same figure.