G.P. Singh, C.J.
1. This is a reference made by the Income-tax Appellate Tribunal, referring for our answer the following question of law :
'Whether, on the facts and in the circumstances of the case, the loss of Rs. 19,854 was a revenue loss ?'
2. The assessee is a firm carrying on the business of purchase and sale of tendu leaves. The relevant assessment year is 1974-75. During the relevant accounting year, the assessee along with another person took a contract for the purchase of tendu leaves from the Orissa Forest Corporation Ltd. In connection with this contract a sum of Rs. 39,350 was deposited as security. As this contract was not fulfilled, the Corporation forfeited the security. The assessee's share of the security amount comes to Rs. 19,854, and the assessee claimed a deduction of this amount as business loss in the assessment for the year 1974-75. The claim for deduction was disallowed by the ITO, but was allowed by the AAC. The Tribunal allowed the appeal and restored the order of the ITO. The reasoning of the Tribunal is that the deposit amount of Rs. 39,350 for the contract with the Corporation was in the nature of a capital expenditure for commencing the venture and, therefore, could not be deducted as a business loss in the assessment.
3. It has to be taken notice of that the business carried on by the assessee was purchase and sale of tendu leaves. The contract with the Orissa Forest Corporation was also for purchase of tendu leaves. This contract was in the course of the same business which was then carried on by the assessee and could not be said to be the commencement of a new business. The deposit of security amount in such a case was made as a business expenditure in the course of business and the loss was a business loss. It has generally been held that forfeiture of security deposited under a contract is a business loss and not a capital loss. The security amount deposited under a contract is not for obtaining the contract but for the due performance of its terms. Moreover, as earlier stated, here the contract with the Orissa Forest Corporation was not a new business started by the assessee but it was only a venture in the course of business which the assessee was already carrying on and, therefore, it could in no sense be held that the deposit of security was made for acquiring a business: [See Narandas Mathuradas Co. v. CIT : 35ITR461(Bom) ; JwalaPrasad Radha Kishan v. CIT : 79ITR530(All) and CIT v. Sugar Dealers : 100ITR424(All) ].
4. For the reasons given above, we answer the question referred in favour of the assessee as follows :
'On the facts and circumstances of the case the loss of Rs. 19,854 was revenue loss.'
5. There will be no order as to costs of this reference.