COMMISSIONER OF INCOME TAX Vs. SREENIVASA MURTHY Y V
LAWS(KAR)-1966-6-4
HIGH COURT OF KARNATAKA
Decided on June 03,1966

COMMISSIONER OF INCOME TAX Appellant
VERSUS
Y.V.SREENIVASA MURTHY Respondents





Cited Judgements :-

SATYANARAYANA P VS. COMMISSIONER OF INCOME TAX [LAWS(APH)-1978-2-49] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. COIMBATORE PICTURES P LIMITED [LAWS(MAD)-1972-7-27] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. K KR RM SWAMINATHAN CHETTIAR [LAWS(MAD)-1988-2-3] [REFERRED TO]


JUDGEMENT

A.R. SOMNATH IYER, J. - (1.)THIS is a reference under s. 66(1) of the Indian IT Act, 1922, sought by the CIT, Bangalore, in the following circumstances :
(2.)THE assessee was carrying on a business as distributor and exhibitor of pictures. According to the statement of the case, the ordinary mode of carrying on the business was to advance monies to the producers of pictures and to obtain from them, in consideration of the monies advanced, rights of distribution in specified areas. THEre was an agreement on 13th June, 1951, between the assessee and a certain Thyagaraja Bhagavathar under which there was an acquisition of the rights of distribution of a picture known as Shyamala in the districts of Trichy and Coimbatore. Under that agreement, a sum of Rs. 50,000 was advanced by the assessee to Thyagaraja Bhagavathar. THE condition regulating the distribution of the picture was that the assessee should first reimburse himself to the extent of the sum of Rs. 50,000 advanced and become entitled to a commission on a progressive scale in respect of realisations over and above that sum of money. It was also agreed that in the event of the realisations less the commission falling short of a sum of Rs. 50,000, advanced to the producer, the producer should pay back the amount advanced to the assessee.
On 1st Sept., 1951, the assessee entered into an agreement for sub-distribution with a concern known as the Rajshri Pictures on conditions similar to those which were recorded in the agreement between the producer and the assessee, although the commission for sub-distribution was payable on a different basis.

The picture failed, and so the assessee had to pay back the Rajshri Pictures the amount advanced by them ; and similarly, the producer had to return a sum of Rs. 50,000 to the assessee. That not having been done, Rajshri Pictures instituted a suit against the assessee for the recovery of Rs. 44,634 and the assessee was defendant No. 1 and the producer was defendant No. 2. There was a consent decree in that suit on 19th Sept., 1957, under which the assessee agreed to pay Rs. 37,800 to Rajshri Pictures and Thyagaraja Bhagavathar had to pay a like amount to the assessee. On 31st March, 1957 a sum of Rs. 41,915 was payable by Thyagaraja Bhagavathar to the assessee and in the previous year ending on 31st March, 1957, the assessee debited his profit and loss account with that sum of money and credited it to a bad debt reserve account.

(3.)THIS sum of Rs. 41,915 was, according to the assessee, a trading loss but the ITO disallowed it. But the AAC allowed the deduction of a sum of Rs. 36,300 in respect of that matter.
The assessee claimed a deduction of another sum of Rs. 2,500 as the expenses incurred in the litigation, and, here again, it was disallowed by the ITO but allowed by the AAC. From this decision of the AAC, there was an appeal to the Tribunal by the ITO which was dismissed. Both the Tribunal and the AAC were of the view that, while the sum of Rs. 2,500 was an expenditure incurred for the conduct of the litigation and was deductible, a sum of Rs. 36,300, allowed by the AAC, was a trade loss. The question referred to us in this reference reads :

"Whether, on the facts and in the circumstances of the case, the two sums of Rs. 36,300 and Rs. 2,500 are allowable deductions in the computation of the assessee's business income as trade losses ?"



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