TMI Blog1967 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. The appellant is an individual having income from house property, Government securities, cinema exhibition and financing film producers and distributors. During the period from March 3, 1952, to November 5, 1952, the appellant advanced a sum of Rs. 40,000 to a firm of film distributors known as Tarachand Pictures. The appellant thereafter entered into an agreement dated January 5, 1953, with Tarachand Pictures under which the appellant advanced a further sum of Rs. 60,000 in respect of the distribution, exploitation and exhibition of a picture called Shabab. According to clause 2 of the agreement the distributors were to pay a lump sum of Rs. 1,750 by way of interest on the initial advance of Rs. 40,000. Clause 3 of the agreement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors to the financier with interest @ 9% per annum. " It appears that the distributors were not in a position to exhibit the film in Bombay within the stipulated time. When the film was ultimately released for exhibition it proved to be unsuccessful. The matter was taken to the City Civil Court and ultimately a consent decree was obtained in Suit No. 2061 of 1954 in the Bombay City Civil Court. In the end the appellant found that there was a balance of Rs. 80,759 which was irrecoverable and he accordingly wrote it off as a bad debt on December 31, 1955, in the ledger account. For the assessment year 1956-57, the corresponding previous year being the calendar year 1955, the appellant claimed a loss of Rs. 80,759 which he had written off a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act on the following question of law : "Whether the aforesaid loss of Rs. 80,759 is deductible under any of the provisions of the Act ?" By its judgment dated August 27, 1962, the High Court answered the reference in the negative and against the appellant. On behalf of the respondent it was submitted that the High Court was right in taking the view that the appellant had advanced a sum of Rs. 1,00,000 not with a view to earn interest thereon but with a view to making an investment in the business of Tarachand Pictures and get a return on the said investment by way of a share of profits in the said business. It was contended that the money was not lent for any definite term and no rate of interest had been fixed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the moneys so far advanced to them by the appellant together with interest thereon @ 9% per annum. It is the admitted position in the present case that the picture was not released by the distributors till the stipulated date, namely, April 4, 1954, but it was released on May 28, 1954, and clause 7 of the agreement therefore came into operation. The result therefore is that on and from April 4, 1954, there was a contract of loan between the parties in terms of clause 7 of the agreement and the principal amount became repayable from that date to the appellant with interest thereon @ 9 per cent. per annum. It follows therefore that the appellant is entitled to claim the amount of Rs. 80,759 as a bad debt under section 10(2)(xi) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." In the present case, the conditions for the grant of the allowance under section 10(2)(xi) of the Income-tax Act are satisfied. In the first place, the debt is in respect of the business which is carried on by the appellant in the relevant accounting year and accounts of the business are admittedly kept on mercantile basis. In the second place, the debt is in respect of and incidental to the business of the appellant. It has also been found that the debt had become irrecoverable in the relevant accounting year and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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