S.C.Sen, J. - (1.) The following question of law under Section 256(1) of the Income-tax Act, 1961 ("the Act"), has been referred by the Tribunal: "Whether, on the facts and in the circumstances of the case, and on the correct interpretation of the agreement dated March 29, 1961, between the assessee and New Central Jute Mills Co. Ltd., the Tribunal was right in holding that the assessee was entitled to the deduction of the loss of Rs. 72,141 as business loss in the assessment year 1961-62"
(2.) The assessment is in respect of the assessment year 1961-62, for which the relevant accounting year was the year ended on March 31, 1961. The facts found by the Tribunal, as stated in its order, are as follows : "One of the activities of the assessee was acting as principal broker for the supply of jute to jute mills. The assessee entered into contracts with the jute mills in that respect. One of the jute mills was New Central Jute Mills Co. According to the contracts with the said jute mills, the assessee agreed to shoulder the loss which the said jute mills might incur on account of the failure of the suppliers of raw jute to the said mills for whom the assessee had acted as broker. In the year under consideration, six parties, namely, (i) Sumermal Koshar, (ii) Sarkar Bailing, (iii) Anandilal Omprakash, (iv) Ramjidas Prahlajrai, (v) Ramjidas Jagannath and (vi) Suraj Prasanna Chowdhary, failed to supply raw jute to the New Central Jute Mills Co. at the stipulated rates. The said jute mills purchased raw jute at higher rates and suffered losses on that account. The assessee later on entered into an agreement on March 29, 1961, with the New Central Jute Mills Co. According to that agreement, the assessee agreed to pay 50 per cent, of the losses suffered by the New Central Jute Mills Co. on account of non-performance of the contracts by the said six parties. This agreement to bear 50 per cent, of the loss was also subject to certain other conditions one of which was in case the New Central Jute Mills realised any amount from the said six parties, the realisation was to be shared equally by the assessee and the New Central Jute Mills. The assessee's share of 50 per cent, loss in respect of six parties amounted to Rs. 79,139, Subsequently, the New Central Jute Mills Co. was able to make recoveries from Sarkar Bailing and Anandilal Omprakash and the assessee's share out of those realisations was Rs. 6,948. These realisations were made in the succeeding assessment years."
(3.) The Income-tax Officer disallowed the claim of the assessee for deduction of loss, amounting to Rs. 79,139 paid by it to the New Central Jute Mills Co. The assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, however, affirmed the order of the Income-tax Officer on this point. The assessee thereupon came up in appeal to the Tribunal. The Tribunal, after considering the agreement by which the assessee had agreed to bear the losses suffered by jute company on account of failure of the suppliers to supply raw jute for whom the assessee had acted as a broker and after considering the subsequent agreement dated March 29, 1961, held that none of the six parties who had agreed to supply raw jute to the New Central Jute Mills Co. could be treated as debtors in respect of the losses suffered by the New Central Jute Mills Co. The Tribunal further held that the provisions of section 36(1)(vii) of the 1961 Act, or the provisions of Section 10(2)(xi) of the Indian Income-tax Act, 1922, could not be invoked. The Tribunal held that the income-tax authorities were wrong in their respective approaches not only factually but also legally. The Tribunal remanded the case to the Appellate Assistant Commissioner for reconsideration and passing a fresh order.;