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Issues Involved:
1. Whether the sum of Rs. 2,09,768 was allowable as a deduction for the purpose of determining the total income of the assessee for the assessment year 1963-64. Summary: Issue 1: Deduction as Business Expenditure, Bad Debt, or Trading Loss The assessee, a firm exporting minerals and ores, entered into a contract with the State Trading Corporation for the supply of iron ore and engaged Central Mining Corporation for transportation. Due to financial difficulties faced by the Corporation, the assessee advanced money to facilitate the transport operations. The Income-tax Officer disallowed the deduction, stating it did not meet the conditions of section 36(2) and was not incurred in the course of the assessee's business, thus not allowable u/s 37. The Appellate Assistant Commissioner upheld this view but allowed minor deductions for interest and legal charges. On appeal, the Tribunal's Accountant Member allowed the deduction on all grounds'u/s 37(1) as business expenditure, u/s 36(1)(vii) as a bad debt, and as a trading loss u/s 28(1). The Judicial Member agreed only on the trading loss aspect. The Tribunal thus allowed the deduction, leading to the Revenue's appeal. Legal Precedents and Principles: The court referred to several precedents, including Badridas Daga v. CIT and CIT v. Mysore Sugar Co. Ltd., establishing that losses incidental to business operations, even if not specifically covered under sections 36 or 37, can be deductible u/s 28(1) as trading losses. The court emphasized that the loss must arise directly from the business operations and be incidental to it. Court's Analysis and Conclusion: The court noted that the advances made by the assessee were essential for maintaining the supply chain of iron ore, integral to its business operations. The financial strain on the Corporation necessitated these advances, which were adjusted against freight charges. The court concluded that the loss was incidental to the assessee's business and thus allowable as a trading loss. The court did not delve into the arguments regarding the claim as a bad debt or business expenditure, as the conclusion on trading loss was sufficient to resolve the issue. Consequently, the court answered the reference in favor of the assessee, allowing the deduction of Rs. 2,09,768 from the total income for the assessment year 1963-64. The Revenue was directed to pay the costs of the assessee, with counsel's fee set at Rs. 500.
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