Sabyasachi Mukharji, J.
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 gaveup 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 :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 58,312 written off against P.J. Doshi at the end of the relevant previous year was allowable under Section 10(1) of the Indian Income-tax Act, 1922, in the assessment for the year 1953-54?'
It is true, as counsel for the revenue contended before us, that in respect of this business the basis of accounting was cash. It was, therefore, urged that in a cash system of accounting, as this amount had been advanced to Shri Doshi in the years prior to the previous year, it could not be claimed as deduction or loss in the relevant assessment year. It was submitted that each year should be considered as a separate entity and the advances made on account of the years prior to the previous year could not be allowed to the assessee. Counsel submitted that deduction could be permitted in respect of the expenses and losses which were incurred in the relevant accounting year. Losses and expenses incurred before the commencement of the year could not be deducted. Counsel drew our attention to the observations of Lord Russell in the case of Commissioner of Income-tax v. S. M. Chitnavis,  2 Comp Cas 464; LR 59 IA 290, It was further submitted that if the assessee failed to debit a particular item of expenses in the account of the year in which it was incurred but kept the item in suspense account and after some years the amount of the expenses could not be permitted as deduction in the subsequent years unless such deduction was warranted by the system ofaccounting regularly followed by the assessee. The fact that in a case of this nature under-brokers were necessary and the fact that in such cases advances to under-brokers were customary and as such commercially prudent to do cannot be disputed. Therefore, in a case of this nature, the fact that the employment of Doshi and payment to him sprang out of business or incidental to it as observed by the Supreme Court in the case of Badridas Daga v. Commissioner of Income-tax, : 34ITR10(SC) cannot be disputed. The question,, however, is whether in the relevant year the assessee was entitled to this amount to be debited under Section 10(1). It is true that the assessee followed a cash system of accounting in respect of this transaction. But the assessee was not claiming this item as under-brokerage paid or advances, made to the under-broker. It was not claimed as business expenditure. It was being claimed because this amount was a loss in the business in the relevant year. The loss is stated to have arisen as a result of the death of Shri Doshi; because of the death of Shri Doshi this amount became irrecoverable and was a loss to the assessee. There is, however, no definite finding that Doshi died in the relevant year but no oblique motive is being suggested to the assessee. It has not been suggested by the revenue and there is no finding relied on by the revenue that Shri Doshi had died long prior thereto. The fact that there was no improper motive in treating this as being lost to the business in the year in question has not been challenged and disputed.
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.
4. I agree.