Satish Chandra, C.J. - (1.) THE assessee is a partnership firm. All the nine members belonged to the same family. In the previous year relevant to 1951-52 assessment, the assessee advanced a loan of Rs. 20,00,000 to Messrs. Bengal and Assam Investors Ltd., Calcutta. On June 23, 1960, the creditor and the debtor came to a settlement whereby a sum of Rs. 4,50,000, which was outstanding on that date, was paid up, inter alia, by transferring 150 ordinary shares of Messrs. Muir Mills Co. Ltd. and 600 preference shares of Messrs. Muir Mills Co. Ltd., Kanpur. In the settlement, the ordinary shares were valued at Rs. 600 per share, while the preference shares were valued at Rs. 290 per share, on the footing that the debtor-company had purchased those shares at that rate. THE balance was to be paid in instalments.
(2.) THE market value of the ordinary and preference shares on the date of settlement was Rs. 65 and Rs. 83 per share, respectively. THE assessee in its own books credited the account of Messrs. Bengal and Assam Investors Ltd. with Rs. 9,750 being the market value of 150 ordinary shares at the rate of Rs. 65 per share and Rs. 49,800 being the market value of 600 preference shares at the rate of Rs. 83 per share. THE amount thus adjusted fell short by Rs. 2,04,450. This amount was written off in the profit and loss account. This sum includes a sum of Rs. 33,938 as interest from January 1, 1958, to June 30, 1959. In its assessment for the year 1961-62, the assessee claimed an amount of Rs. 2,04,450 as a deductible loss. The ITO repelled the claim. The finding was confirmed in appeal. The assessee took the matter to the Tribunal. There was a difference of opinion. The Judicial Member agreed with the authorities below in rejecting the assessee's claim but the Accountant Member was of a different opinion. The difference was referred to the President who agreed with the Accountant Member. The findings recorded by the majority are that the assessee's main source of income was the selling agency business from two or three mills belonging to the J.K. organization. It had received considerable sums as selling agency commission. From the year 1951-52 to 1970-71, it had received commission to the tune of Rs. 34,68,688 from the various concerns of the J.K. group. In addition, several sister concerns of the assessee-firm also drew their substantial source of income from agency commission from various J.K. group concerns.
(3.) MESSRS. Bengal and Assam Investors Ltd. was also a company controlled by the J.K. organization. This company was trying to corner the shares of the Muir Mills Co. Ltd. To achieve this end, the Singhanias who controlled most of the selling agency concerns and also MESSRS. Bengal and Assam Investors Ltd., threatened them to advance a sum of Rs. 20,00,000 to MESSRS. Bengal and Assam Investors Ltd., Calcutta. This the assessee-company did by borrowing Rs. 12,50,000 from MESSRS. National Insurance Co. Ltd., and pooling its available resources to make up the balance and ultimately they paid Rs. 20,00,000 to MESSRS. Bengal and Assam Investors Ltd., part of which was done by telegraphic transfers of moneys due to the sister concerns of the assessee-firm. The investment company repaid part of the loan but in the year 1960, it was in a bad financial condition and the assessee-company pressed for readjustment of its loan. At this stage, the J.K. organization came into the picture and pressurised and coerced the assessee-company to enter into a settlement under which part of the debt was to be repaid by purchase of the shares of the Muir Mills Co. Ltd. It has further been found that the assessee-company did not advance the loan as part of its money, lending business but since it was coerced to do so by those controlling the J.K. organization. Similarly, at the time of the recovery, the assessee-company was pressurised into the situation that it should not demand the payment of the entire balance in cash but by transfer of the shares in Muir Mills Co. Ltd. in part satisfaction of the debt. It has been found that the affidavit filed by one Ramji Agrawal, a partner of the assessee-firm, was believable because he was not subjected to cross-examination and further requiring corroboration of the allegations of coercion and pressurisation from the directors of J.K. organization was not facing reality. These allegations could not be corroborated by the directors of the J.K. organization because that would have landed them in trouble. The majority opinion chose to believe the affidavit of Ramji Agrawal and held that the advance was not as part of the money-lending business nor was the settlement with consequent transfer of shares belonging to Muir Mills Co. Ltd., an investment. Consequently, the loss which occurred in the readjustment of the books was a business loss which was allowable under Section 10(1) of the Act on grounds of commercial expediency. It was emphasized by the majority opinion that the assessee-company was pressurised into agreeing to advance the loan as well as to accept the part payment in satisfaction of the loan because its selling agency business from the various mills of the J.K. organization, was likely to be jeopardized. The advance was consequently held to be a business transaction and the loss resulting from it was not a capital loss because it was not a case of investment by the assessee in the shares of the Muir Mills Co. Ltd.;