TMI Blog1993 (3) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... . By virtue of the said agreement, the assessee agreed to advance loan of Rs. 40 lakhs, to the debtor company during the period from 24th March, 1983 to 31st Dec,, 1984 on interest @ 13 per cent per annum. It was also agreed that the debtor company would repay the loan in monthly instalments of Rs. 75,000 each and the first instalment would be payable on 1st April, 1985. Interest was agreed to be computed at the first instance upto 31st March, 1985 and would be paid by 30th April, 1985. In addition, it was also agreed between the parties that the debtor company would sell its entire production of paper to the assessee, which the latter would sell to the others at 3per cent commission. 3. The assessee observed calendar year as its accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on business of money lending. In the opinion of the AO, the transaction entered into by the assessee with the debtor-company did not amount to that of money lending. He was also of the view that in the Deed of Partnership of the assessee firm, the business agreed to be done by the partners was that of the distribution of Dholak Bidis and sale of tobacco products and there was no mention of carrying on business of money lending. In the said transaction of money lending, according to the AO, the assessee should have some direct income, namely, that the assessee should have borrowed money at a lesser rate of interest and advanced loan at a higher rate of interest. The AO further went to the extent of observing that the entire transaction was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that of the Revenue is that the amount of Rs. 6,02,314 should not have been allowed as a bad debt. 6. Learned Representative of the parties are heard at length. 7. It is contended by the learned counsel for the assessee that the tax authorities below failed to appreciate the facts in proper perspective. According to him, the assessee firm had, no doubt, business of distributor of Dholak Bidi and other tobacco products, but the assessee wanted to extend its business and the assessee advanced the loan to the debtor company not only for interest but also for getting business of paper and earning commission thereon. It is contended by him that it is misfortune of the assessee that the paper manufactured by the debtor company did not prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof has been taken into account in computing the income of the assessee of that previous year or an earlier previous year and that it has also been written off as irrecoverable in the accounts of the assessee for that previous year. In the present case, the debt was taken into account in the income of the assessee for the asst. yr. 1963-64 when the interest income accruing thereon was taxed in the hands of the assessee. The interest was taxed as income because it represented an accretion accruing during the earlier year on money owed to the assessee by the debtor. The item constituted income because it represented interest on a loan. The nature of the income indicated the transaction from which it emerged. The transaction was the debt an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the parties. It is obvious from the facts narrated above that the transaction was not in the nature of investment. The agreement itself mentions that the debtor company had taken a loan from the assessee. The assessee had advanced the loan for interest obviously with an intent to earn good commission income on sale of paper. The assessee had nothing to do with the investment with the debtor company. Moreover, this debt was liable to be taken into account while computing the income of the assessee for the earlier two asst. yrs. 1984-85 and 1985-86 and as a matter of fact, the AO did make addition of Rs. 4,61,980, to the income of the assessee for the asst. yrs. 1985-86 on account of interest accrued on this debt. It was deleted by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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