COMMISSIONER OF INCOME TAX DELHI Vs. DELHI SAFE DEPOSIT COMPANY LIMITED
SUPREME COURT OF INDIA (FROM: DELHI)
COMMISSIONER OF INCOME TAX,DELHI
DELHI SAFE DEPOSIT COMPANY LIMITED
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E. S. Venkataramiah, J. -
(1.) This appeal by special leave is directed against the judgment and order dated March 22, 1973 of the Delhi High Court in Income-tax Reference No. 65 of 1968 made by the Income-tax Appellate Tribunal, Delhi pursuant to an order made by the High Court under S. 256 (2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act').
(2.) The facts of the case are these:The assessee (the respondent herein) is a public limited company. The assessee was a partner of a firm of managing agents known as M/s. Morari Lal Batra and Co. (hereinafter referred to as 'the managing agency firm') which was managing another public limited company called M/s. Bharat Carbon and Ribbon Manufacturing Co. Ltd. (hereinafter referred to as 'the managed company'). There were in all three partners in the managing agency firm, the two other partners being V. K. Batra and Lal Balwant Roy who held 50% share and 25% share respectively in that firm. The assessee held the remaining 25% share. At the instance of V. K. Batra who held the major share in the managing agency firm, a large sum was advanced by the managed company to a firm known as M/s. H. K. Sinha and Sons at Calcutta. When a demand for repayment was made, M/s. H. K. Sinha and Sons repudiated the claim except to the extent of Rs. 11,409 and ultimately the managed company suffered a loss to the extent of Rs. 1,90,092 on account of the said transaction. Consequently it became necessary for the managing agency firm to make good the said loss. Thereupon the assessee and Lal Balwant Roy together undertook to pay to the managed company Rs. 95,092 out of which the share of the assessee was Rs. 47,500. The balance of the amount was undertaken to be paid by R. K. Batra, brother of V. K. Batra. The managing agency firm was also reconstituted with the assessee, Lal Balwant Roy and R. K. Batra as partners, R. K. Batra taking the place of V. K. Batra. During the previous year corresponding to the assessment year 1962-63, the assessee paid a sum of Rs. 9,500 to the managed company in partial discharge of its liability of Rs. 47,500 referred to above and claimed it by way of deduction in the assessment year in question in the assessment. proceedings under the Act before the Income-tax Officer. The Income-tax Officer disallowed the said claim on the ground that the assessee was not legally bound to make the payment and hence it was not a business expense that could be allowed under the Act. The Appellate Assistant Commissioner of Income-tax before whom the order of assessment was questioned by the assessee affirmed the order of assessment on the above question on three grounds:(a) The amount in question was 'actually the loss of a firm which was no more in existence; (b) the loss in question had been home by the assessee on personal considerations and (c) the loss was the loss of the managing agency firm and not of the partners concerned and since the managing, agency firm had not claimed that loss in its return, none of its partners could claim it. When the matter was taken up in appeal before the Income-tax Appellate Tribunal, the claim of the assessee was accepted. The Tribunal held inter alia that even if there was a change in the constitution of the managing agency firm, the liability of the assessee as a partner had not ceased the assessee being a company, the payment could not be treated as one made on personal considerations and that the assessee had made the payment in question purely on business considerations with the sole object of maintaining its business connection which was yielding profit. The Tribunal was also of the view that there was no bar to the assessee claiming the loss in question in its own assessment even though it could have been first claimed by the firm and then in the hands of the partner. An application under S. 256 (1) of the Act having been rejected by the Tribunal, the appellant moved the High Court under S. 256 (2) of the Act. The High Court thereupon passed an order directing the Tribunal to refer the following question for its consideration:
"Whether, on the facts and in the circumstances of the case, the assessee was entitled to any allowance on account of the share of loss made good by it to the managed company -
(3.) After the reference was made to it, the High Court answered the question in the affirmative and in favour of the assessee. Dissatisfied with the judgment of the High Court, the appellant has come up in appeal to this Court by special leave, as stated above.;
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