TMI Blog1964 (9) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... few more facts have to be mentioned. The assessee-firm, at the material time, consisted of two major partners and two minors, who had been admitted to the benefits of the partnership. One of the major partners and the two minors are the sons of one S. Amarchand, and all of them put together have a 11/16 share in the assessee-firm. S. Amarchand was a partner in Messrs. Bojaji Sobhachand, to be referred hereafter as the Bombay firm; his share in that firm was 16 per cent. The Bombay firm was acting as the adatia for the assessee for a considerable time. They cleared the goods indented by the assessee from foreign parts. They also ordered for goods on behalf of the assessee and paid for them. They represented the assessee in the speculative transactions entered into by them in their forward dealings in art silk yarn. Moneys were sent by the assessee to the Bombay firm for the purposes aforesaid; there were also advances to the firm. There were occasions when the Bombay firm had advanced sums of money to the assessee. The account between them was a single running account, where the balance shifted in favour of one party or the other. The manner of keeping the accounts does indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys which could legitimately be stated to have been advanced as loans, but also several sums advanced to the Bombay firm as the agent of the assessee-firm. The Income-tax Officer disallowed the claim of the assessee to write off ₹ 2,68,385-1-3, on the ground that the advances to the Bombay firm were only in the nature of accommodation and had no connection with the business which the assessee-firm had with it. In coming to that conclusion the officer was influenced by the fact that S. Amarchand, whose sons had a substantial interest in the assessee-firm, was himself a partner in the Bombay firm, and that, therefore, it was more likely that the remittances to the Bombay firm were made with a view to save the crashing firm rather than as advances for the carrying on of the assessee's business with it. An appeal to the Appellate Assistant Commissioner was unsuccessful. He held that the advances were made only as an accommodation by reason of the long-standing relationship between the two firms. He referred to the fact that no interest was charged for the outstanding balances as against the Bombay firm during the last two years. The assessee then filed an appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the event of success, of a sum of ₹ 21,000 in addition to the litigation expenses to be advanced by the assessee. But, if the case were to be lost, the assessee was to receive nothing. The case was won, and the assessee obtained a sum of ₹ 15,000 in addition to the return of the sums he had expended. The former sum was sought to be assessed to tax. The Allahabad High Court held that the sum of ₹ 15,000 was assessable as profits from business. Niamatullah J. observed: In the case before us there can be little doubt that the assessee embarked upon a transaction of loan in which unusual conditions were stipulated. He agreed to advance such sums as were needed by Kanhaiya Lal for the prosecution of his appeal and stipulated for its return together with profits on the sums advanced. The profits were not calculated at a given rate of interest, but in a lump sum. It may be, as the learned advocate for the assessee argues, that there was an element of speculation in the transactions. At the same time, it cannot be gainsaid that the transaction was one of loan from which the lender expected to derive considerable pecuniary profit. Relying on this observation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a money-lender writing off a bad and irrecoverable debt. In Reid's Brewery Co. Ltd. v. Male[1891] 3 Tax Cas. 279, 285.a brewery company made loans to its customers on taking security. When the security was found insufficient to cover the loans, the assessee proceeded to write off the loans as a bad debt; it was held that they were entitled to do so, as in arriving at the profit, for purposes of assessment to income-tax, the assessee would be entitled to deduct the amount of such losses or bad debts. Pollock B., holding that the moneys lent were capital investments in the business, observed: What it is is this. It is capital used by the appellants, but used only in the sense that all money which is laid out by persons who are traders, whether it be in the purchase of goods be they traders alone, whether it be in the purchase of raw material be they manufacturers, or in the case of money-lenders, be they pawnbrokers or money-lenders, whether it be money lent in the course of their trade, it is used and it comes out of capital, but it is not an investment in the ordinary sense of the word. The money-lending in that business being found to be an adjunct to the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, unnecessary to consider whether this could be done at this stage, as we are of opinion that the learned counsel is well- founded in his contention that the question referred to us must be reframed to include within its ambit, trade or business loss as well. While it is undoubted law that the High Court can dispose of under section 66 only those questions which are referred to it and that it cannot raise and answer new questions which have not been so referred, it can, without raising a new and different question, reframe the question once formulated so as to bring out the real controversy between the department and the assessee, on the materials disclosed. In the present case it is plain that the assessee claimed the deduction as loss in his entire business it had with the Bombay firm. Paragraph 5 of the statement of the case submitted by the Tribunal refers to this when it states: The applicant submitted that they were having business transactions over several years with the Bombay firm, that the debt owed by the Bombay firm was a consolidated debt arising out of a running account and not in respect of any individual transaction of business and neither the applicant nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the firm started making some profits in the beginning of S.Y. 2008 cannot necessarily mean that it was not declining and that the assessee advanced the moneys knowing it was so declining but hoping that it might, by reason of the financial help, recover. The Tribunal has found that the advances made by the assessee were purely by way of accommodation. It is however unfortunate that the Tribunal should have used this expression as the word accommodation sometimes connotes an idea of a loan. Learned counsel for the assessee was not slow to take advantage of the use of this expression by the Tribunal and he contended that as the Tribunal has found that the moneys were given by way of accommodation, they should be regarded as accepting the advances as loans. We are, however, unable to accept that contention. The word accommodation in the context can only mean that the moneys were given as a favour with a view to oblige the Bombay firm and not in the course of the regular business of the assessee or as a part of the financial arrangement between the two firms. That this must be so is plain from the order of the Income-tax Officer as well as the Appellate Assistant Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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