TMI Blog1954 (3) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ne from Java. After working the machinery for two years the company resolved to sell the machinery. On 30th of August, 1938, a contract was executed between the company and Lakshmi Sugar Mills. It was agreed that the machinery would be sold for a sum of ₹ 5,15,000 and that half of the amount will be paid by 31st of March, 1939, and the other half will be paid in equal instalments on 31st of March, 1940, and on 31st of March, 1941. There was a clause in the contract that these two instalments would carry interest at the rate of 5 per cent. Lakshmiji Sugar Mills also agreed that for these two instalments they would furnish a guarantee or execute a mortgage bond. On 31st of March, 1939, Lakshmiji Sugar Mills paid half the sale price as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10(2)(xi) of the Income-tax Act. The claim was rejected by the Income-tax Officer on the ground that the debt had not arisen in the course of the assessee's business. An appeal was taken on behalf of the assessee before the Appellate Assistant Commissioner who allowed the appeal holding that the amount of ₹ 33,343 should be allowed as a bad debt for the purpose of assessment of income- tax. The Income-tax Department preferred an appeal to the Income- tax Appellate Tribunal who set aside the order of the Appellate Assistant Commissioner and held that the assessee was not entitled to any deduction under Section 10(2)(xi) of the Act. The reason given by the Appellate Tribunal was that the transaction of the sale of machinery was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. . The argument of Mr. Dutt is that the transaction was a business transaction and the assessee was entitled to a deduction under Section 10(2)(xi) and the remission of ₹ 33,343 should be treated as a bad and doubtful debt due to the assessee in respect of a portion of his business. In my opinion the argument of Mr. Dutt must be accepted as valid. The assessee had purchased sugar manufacturing machinery in 1936 from Java in order to increase its business capacity and to make more profits. The machinery was used for two years and in 1938 the assessee decided to sell the machinery to Lakshmiji Sugar Mills. The reason which induced the assessee to sell the machinery was that Government had introduced zoning system in Muzaffarpore and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required upon such securities and in such manner as may from time to time be determined. Article 3(20) provides: To do in any part of the whole either as principals, agents, trustees, or otherwise, and either alone or in conjunction with others and by or through agents, subcontractors, trustees or otherwise, all such other things as may appear to be incidental or conducive to the attainment of the above objects or any of them, and so that the various objects shall be regarded as independent and in no wise restricted by reference to the name of the company or to the business or objects contained in any other paragraph. In my opinion the sale of the Java machinery is a proper trading transaction which is expressly authorised by articles 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but is a transaction performed in the normal course of the company's business. The amount of ₹ 33,343 remitted by the assessee is therefore in the nature of a commercial loss and the assessee is entitled to a deduction of this amount under Section 10(2)(xi) of the Income-tax Act. This view is borne out by a decision of the English Court in Commissioners of Inland Revenue v. Dale Steamship Co. Ltd. [1921] 12 Tax Cas. 181. In that case the assessee company was formed, inter alia, (a) to acquire steamships and other vessels, (b) to build, charter, let out on hire and trade with ships, (c) to carry on business as ship-owners, merchants, etc., and (d) to invest and deal with the moneys of the company not immediately required as migh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt and it was held that the assessee bought and sold the shares in the course of doing its business. In the course of argument standing counsel relied upon Mohsin Rehman Penkar v. Commissioner of Income-tax [1948] 16 I.T.R. 183. But that case is not of much assistance to the Income-tax Department. In that case the assessee had mortgaged certain properties with one Dharkar for a sum of ₹ 17,500. The interest payable to Dharkar was allowed as an admissible item of expenditure under Section 10(2)(iii) of the Act in computing the assessee's income from business. No interest was actually paid to Dharkar but he assessee had kept his accounts on mercantile basis and for this reason deduction was allowed by the Income-tax authorities u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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