V.K.SINGHAL, J. - (1.) THE Tribunal, Jaipur Bench, Jaipur, has referred the following question of law arising out of its order dt. 20th May, 1985, in respect of the asst. year 1980 81 under S. 256(1) of the IT Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the deduction of Rs. 45,634 as claimed by the assessee as a business loss for the amount charged by the principals is not allowable as loss incidental to the business of the assessee ?"
(2.) THE brief facts of the case are that the assessee is assessed as an individual and derives income from commission. During the course of the assessment proceedings in respect of the period ending Diwali, 1979, the ITO found that a sum of Rs. 52,758 has been claimed as a bad debt. The assessee has filed the list. The statement of the proprietor, Shri Mohandass, was recorded and he stated that he is the sole selling agent of M/s Atma Ram & Sons, Jodhpur, and has earned income by way of commission for a sum of Rs. 50,990. There was an employee by the name of Kishan Chand with Atma Ram & Sons, who used to collect the amount form the debtors of Atma Ram & Sons. A sum of Rs. 55,634 was collected by him and not paid to the firm, M/s Atma Ram & Sons, which was considered as an embezzlement by Shri Kishan Chand. A sum of Rs. 10,000 was recovered from him on 20th Oct., 1979, and the balance amount of Rs. 45,634 was not recovered and, therefore, was claimed as a bad debt. The assessee, on being required to produce Kishan Chand, neither produced him nor furnished his address nor was any suit filed and even an FIR for alleged embezzlement was not filed. The ITO found that Kishan Chand was not a debtor and, hence, the amount cannot be allowed as a bad debt. In appeal, before the AAC, it was contended that the assessee had to make payment of this amount to Atma Ram & Sons in accordance with the terms and conditions of the agreement, and, as such, the amount is an allowable deduction. According to the submission of the assessee before the AAC, the assessee was entitled to fix the percentage of commission on the sales by Atma Ram & Sons. If any debt turned into a bad debt, the assessee was responsible for it. The AAC found that Kishan Chand was an employee of the principal and, in the normal course of business, he was authorised to collect the amounts from the persons to whom goods were supplied and deposited the sum with the principal. Accordingly, it was held that the claim of the appellant has to be allowed as it arises in the normal course of business.
(3.) THE Revenue challenged in appeal the order of the AAC, where it was contended that the assessee is the agent and gets the commission at one per cent from Atma Ram & Sons and Kishan Chand was an employee of Atma Ram & Sons. Therefore, it was not a case of bad debt at all. Alternatively, it was submitted that it was not a case of business trading loss by the assessee but, at best, it could be a trading loss in the hands of the employer, namely, M/s Atma Ram & Sons and the agent has nothing to do with it. The Tribunal found that Kishan Chand used to collect amounts on behalf of Atma Ram & Sons. The fact that neither any FIR was filed nor any suit was instituted was also taken into consideration besides the fact that the assessee failed to furnish his address. The relationship of employer employee was between Kishan Chand and Atma Ram & Sons and, therefore, if the amount has been collected by Kishan Chand and not paid or deposited with the principal, Atma Ram & Sons, then, it is for the employer, Atma Ram & Sons, to recover it from its employee and to claim it as a trading loss on the ground of embezzlement of amount in dispute. Since there was no relationship of employer and employee between Atma Ram & Sons and Kishan Chand, the amount could not have been considered as a trading loss on account of embezzlement by Kishan Chand. The most important finding which has been recorded by the Tribunal is that there is no material available to show that Atma Ram & Sons were demanding the money from the assessee and, as such, no question arises for making a claim on the part of the assessee as trading loss in respect of the amount in dispute. The failure of the assessee to produce Kishan Chand and to give his address was taken as a fact by which a conclusion was drawn that the assessee was avoiding the true facts of the case to come on record. The Tribunal has also taken into consideration the fact that the moment the amount was collected by Kishan Chand who was authorised to collect the money on behalf of Atma Ram & Sons, then the liability of the assessee in accordance with the agreement stands discharged. Since Atma Ram & Sons has not asked the assessee to pay the amount in dispute, it cannot be claimed as a trading loss at all. In respect of the question as to whether the assessee was entitled to claim it as a bad debt, it was found by the Tribunal that the relationship as a creditor and debtor has not been established. The assessee was not a debtor. Atma Ram & Sons was a creditor and, as such, the amount cannot be claimed by the assessee as a bad debt. The relationship between the assessee and Kishan Chand can also not be considered as a creditor and debtor and on that ground also the amount cannot be claimed as a bad debt. The various debtors from whom the collection was made by Kishan Chand were debtors of Atma Ram & Sons. Therefore, it could have been a bad debt in the hands of Atma Ram & Sons.;