MOOTHAM, J. - (1.) IN the year 1947 a reference was made to this Court under section 66(I) of the INdian INcome-tax Act and the question referred to us was as follows :-
(2.) WHETHER in the circumstances of this case the loss of Rs. 10,000 arising out of the loss of title and possession of the house under the High Court decree dated 26th October, 1943, during the accounting year was a revenue loss admissible under the provisions of section 10(2)(xi) or a capital loss. The reference came up before a Bench of this Court on the 17th of December, 1951, and, in view of the provisions of section 10(2)(xi), the Bench asked for a further statement of the case. On the 13th of October, 1952, the Tribunal sent up a further statement of the case and it has now re-framed the question as follows :- Whether on the facts and in the circumstances of this case the loss of Rs. 10,000 arising out of the loss of title and possession of the house property under the High Court decree dated 26th October, 1943, was a business loss, which the assessee was entitled to set off against his business profits for the assessment year 1944-45.
(3.) THE assessee carried on business in speculation and ran a flour mill. This appears from the statement of the case. He did not carry on any money lending or banking business. In the books of the assessee of the accounting year, samvat 1988-89, a sum of Rs. 15,202-15 appeared to be due to him from Messrs. Dhaunkal Ram Mani Ram. This amount was due in respect of hundis and the price of goods. On the 29th of August, 1932, a sale deed was executed by Kanhaiya Lal and Bisheswar Prasad, proprietors of Dhaunkal Ram Mani Ram, in favour of the assessee and a house valued at Rs. 10,000 was transferred to him. THE assessee wrote off the balance of Rs. 5,202-15 as a bad debt and this amount was allowed by the Income-tax Officer as an allowable deduction in the assessment year 1933-34. THE assessee obtained possession of the house and entered it in his books in the property account. THEre was some litigation started in the year 1934 and as a result of that decision the assessee lost the house as it was held that the transferors had no right to transfer the same. THE decision of the High Court is dated the 26th of October, 1943. THE assessee claimed the amount of Rs. 10,000 as a bad debt and wanted the amount to be deducted out of the taxable income of the assessment year 1944-45. THE Appellate Tribunal decided the point in this way : The last objection about the loss of the house due to the High Court decree does not appeal to us as sound. The loss arose in the following circumstances :- Rs. 15,000 were due to the assessee from one Dhaunkal Ram Mani Ram. The debtor transferred a house to him for a sum of Rs. 10,000 in the year 1932. The balance of Rs. 5,000 was written off as a bad debt, and is said to have been allowed by the department in the appropriate assessment, i.e., in 1933-34. The assessee in this manner got the house for a sum of Rs. 10,000 which was due to him. The acquisition of the house in 1932, became a capital asset and its loss due to the defective title of the vendor must be treated as a capital loss and not a revenue loss. Section 10(2)(xi) deals with two distint types of cases, one, where an assessee carries on banking or money-lending business, and the order, where the assessee does not carry on banking or money-lending business but maintains his accounts on the mercantile basis. The facts were not set out in the statement of the case whether the assessee was carrying on money-lending business and whether his accounts were kept on a mercantile or cash basis. In the previous order of this Court dated the 17th of December, 1951, the Tribunal was asked to make a further statement. In the statement of the case now made the Tribunal has materially altered the question referred to us for our decision. From the question that had been previously referred to us for decision it appeared that the deduction was claimed under section 10(2)(xi). Now it is claimed as a business loss. Mr. Pathak, on behalf of the assessee, has also urged that it was a business loss and that the question of the applicability of section 10(2)(xi) did not, therefore, arise. ;