IRON TRADERS PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following three questions have been referred to this Court by the Tribunal, Delhi Bench (hereinafter referred to as " the Tribunal"), in compliance with the direction of this Court under s. 66(2) of the Indian IT Act, 1922 (hereinafter called as "the Act") :

(2.) THE facts which are relevant to the first question, which can be gathered from the statement of the case and the supplementary statement of the case and the annexures thereto, may be briefly stated. The assessee in this case is M/s Iron Traders (P) Ltd., and the assessment year under reference is the year 1957 - 58, for which the relevant previous year is the financial year ending 31st March, 1957. The assessee along with other registered stockholders of iron and steel formed themselves into an association called the Iron & Steel Stockists (Civil Supplies) Association, Delhi, for the purpose of purchase and sale of disposal goods from the Government of India. This association (hereinafter called as the association) was formed in the year 1947. The members of this association contributed various sums according to their classification as A, B and C class of registered stockholders to the association and the assessee contributed Rs. 77,506 to the association. The association deposited a sum of Rs. 8.39 lakhs with the Government of India for the purchase of the disposal goods. But on account of the partition of the country, no allotment could be made to the association of any disposal goods and the amount deposited by the association was refunded to it by the Government subsequently subject to certain deductions. Out of the amount contributed by the assessee to the association, a sum of Rs. 72,244 was returned to it. The balance of Rs. 5,256 was deducted out of the assessee's contribution on account of its share of expenses or interest. The amount of Rs. 72,244 was paid to the assessee during the previous year relevant to the asst. year 1957 -58. The assessee claimed that in computing its income for this year, it was entitled to the deduction of Rs. 5,256 as a business expense. The ITO disallowed the assessee's claim on two grounds, namely :

(3.) THE AAC confirmed this disallowance ; according to him, what the association refunded to the assessee was the amount of capital contributed by it after deducting the expenses incurred and that, therefore, it was clearly a loss of capital invested by the assessee in the association. The disallowance was again confirmed by the Tribunal on the ground that it was a loss of capital. The learned counsel for the assessee has raised two contentions in support of the assessee's claim for the deduction of the amount of Rs. 5,256, namely :