COMMISSIONER OF INCOME TAX BOMBAY CITY I BOMBAY Vs. JAGAIIIIATH KISSOIILAL BOMBAY
SUPREME COURT OF INDIA (FROM: BOMBAY)
COMMISSIONER OF INCOME TAX,BOMBAY CITY
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Kapur, J. -
(1.)This is an appeal by special leave against the judgment and order of the High Court of Bombay in Income-tax Reference No. 55 of 1955, in which two questions of law were stated for opinion and both were answered in favour of the assessee and against the Commissioner of Income-tax who is the appellant before us and the assessee is the respondent.
(2.)The facts of this case are these:
The respondent is a registered firm carrying on business as commission agents in Bombay. For purposes of its business it borrowed money from time to time from Banks on joint promissory notes executed by it and by others with joint and several liability. On September 26,1949, the respondent borrowed Rs. 1,00,000 from the Bank of India on a pronote executed jointly with one Kishorilal. Out of this amount a sum of Rs. 50,000 was taken by the respondent for purposes of its business and the rest by Kishorilal. Kishorilal however failed to meet his liability and became a bankrupt. The respondent had therefore to pay the Bank the whole amount, i. e., Rs. 1,00,000 with interest. Out of the amount taken by Kishorilal the respondent received in the accounting year, from the Official Assignee, a sum of Rs. 18,805/- and claimed the balance, i.e., Rs. 31,740/- as deduction. The accounting year was from August 26, 1949 to July 17, 1950 the assessment year being 1951-52. This claim was disallowed both by the Income-tax Officer as well as the Appellate Assistant Commissioner. On Appeal to the Income-tax Appellate Tribunal this sum was allowed as an allowable deduction under S. 10 (2) (xv) of the Income-tax Act and as business loss.
(3.)At the instance of the Commissioner a case was stated to the High Court of Bombay by the Income-tax Appellate Tribunal. In the statement of the case which was agreed to by both parties the Tribunal said:
"For the purpose of his business, he borrows from time to time money on joint and several liability from banks. The Commercial practice is to borrow money from banks on joint and several liability. An illustration will explain what we mean. A and B require Rs. 50,000 each. They find that the Bank would not advance Rs. 50,000/- to each on his individual security. They however, find that the Bank would be prepared to advance Rupees one lac on their joint and several liability. They take Rupees one lac on joint and several liability and then divide the money equally between themselves."
It also found that the Banks advanced monies to some constituents on their personal security also but they had to pay a higher rate of interest than when the money was borrowed on joint and several responsibility; that Rs. 1,00,000 borrowed from the Bank was in accordance with the commercial practice of Bombay.
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