TMI Blog1962 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... with Mr. Mehra was, however, carried on between April 1, 1944, to March 27, 1947. An agreement took place on May 1, 1944, between Bharat Bank on the one hand and the assessee in his capacity as karta of the joint family and Mr. Mehra on the other, whereunder the family and Mehra agreed to become guarantee brokers of the bank upon certain terms and conditions mentioned in the said agreement. The guarantee brokers were to use all reasonable efforts to procure for the bank the greatest possible amount of business and in case the bank suffered any loss in any transaction, which had been guaranteed by the guarantee brokers either on account of nonpayment by the customer or on account of any shortfall in the realisation of its dues, the guarantee brokers agreed to make good the loss. The guarantee brokers further agreed to deposit with the bank a sum of ₹ 40,000 as security deposit for advances to the extent of ₹ 10 lakhs. They further agreed to deposit ₹ 2,500 for every additional advance of Rs. one lakh or part thereof. The bank on their part agreed to give to the guarantee brokers guarantee commission at the rate of 1/12th of the interest charged on all advances und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partial partition has been attached as annexure B to the statement of the case which shows that ₹ 79,070-13-3 had been credited to each of the three members of the joint family, and since that date, i.e., March 31, 1955, the Hindu undivided family ceased to have any connection with the money-lending business, which it had formerly carried on in partnership with Naraindas Chellaram, as well as the guarantee brokers business, which the Hindu undivided family had formerly carried on with Mr. Mehra. The assessee, however, after March 31, 1955, continued to carry on money-lending business in partnership with Naraindas Chellaram in his individual capacity. The assessee in his assessment claimed to deduct under section 10(2)(xv) the aforesaid legal expenses of ₹ 1,227 in the assessment year 1956-57 and in the assessment year 1957-58, ₹ 11,314 being half of the decretal amount of the aforesaid decree passed on November 28, 1955, against him and Mehra jointly on account of the failure of Ramsaran Somdev to pay the debt borrowed by him from the Bharat Bank. The assessee also, in addition, claimed a deduction of ₹ 510 being the legal expenses incurred during the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter, the Appellate Assistant Commissioner again reaffirmed the order of the Income-tax Officer. Besides the aforesaid two grounds, the assessee further contended before the Tribunal that as the assessee had taken over as a going concern all the assets and liabilities of the guarantee brokers business of the Hindu undivided family, the sum of ₹ 27,000 which the Hindu undivided family had deposited with the Bharat Bank as a security deposit constituted the assessee's stock-in-trade and, therefore, he was entitled to the deductions claimed by him. The Tribunal affirmed the findings of the Appellate Assistant Commissioner and held that in the hands of the assessee the assets and liabilities of the Hindu undivided family, which were received by him as a result of the partition, constituted capital assets and not stock-in-trade, because there was no material on record to show that the assessee carried on any guarantee brokers business after the said partition. The guarantee brokers business not having been carried on by the assessee, the loss incurred in respect of that business was capital in nature and on this ground it disallowed the claim of the assessee. On an applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock-in-trade of the firm, Naraindas Chellaram, and there was a direct relationship of creditor and debtor between the person borrowing and the firm, Naraindas Chellaram. The liability of the firm arose under the provisions of the Negotiable Instruments Act. In the other business, i.e., the guarantee brokers business, there was no relationship of creditor and debtor between the family and Mehra on the one hand and the debtor borrowing the money on the other; the relationship of debtor and creditor was between the Bharat Bank and the person borrowing. The liability of the assessee arose out of the contract between him and the bank, viz., the guarantee brokers contract. Mr. Khanna drew our attention to a decision in Commissioner of Income-tax v. S.A.S. Ramaswamy Chettiar [1946] 14 I.T.R. 236, in support of his contention that the guarantee broking business is a money-lending business. That decision, in our view, has hardly any application to the facts of the present case. The facts in that case were that the assessee, a Nattukottai Chetti, was carrying on a business of moneylending. He guaranteed a loan granted by a bank to another Chettiar firm. The loan was not repaid by the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was also receiving interest on the amount of security deposit of ₹ 27,000 which the Hindu undivided family had made in pursuance of the guarantee contract. It may be true that the assessee is receiving interest as well as commission as claimed by him, but that cannot by itself be taken as a piece of evidence, on which it could be said that the business of guarantee broking continued after April 30, 1947. Now that business consists of some real, substantive and systematic organised course of activity or conduct with a set purpose. As already stated, the nature of activity of the assessee in the guarantee broking business was taking customers desirous of borrowing money to the Bharat Bank and getting them loans from the Bharat Bank and thereby earn commission and interest, which the bank had agreed to pay to the assessee under the agreement made on May 1, 1944. There is no evidence that this activity continued after April 30, 1947. On the other hand, there is evidence that in the notice given by the assessee to the bank on March 27, 1947, whereunder he informed the bank that as from April 30, 1947, no fresh clients would be introduced by him to the bank. That being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Revenue v. Falkirk Iron Company Ltd. [1933] 17 Tax Cas. 625, the assessee company leased certain premises at an annual rent for a period of ten years and occupied them for the purposes of its business. After a certain time but before the expiry of the said ten years, the assessee ceased to carry on any part of its business in those premises. Portions of the premises were then sublet by the assessee company for the remaining period of the lease. The difference between the amount agreed by the assessee to pay as rent and the amount which it got by subletting the premises was claimed as deduction in computing its profits assessable to income-tax. The claim was allowed. Again, it would be seen that the business of the assessee had not been discontinued. The assessee continued to carry on the business. Part of the business that was carried on by the assessee in the premises taken on lease was not any separate or distinct business as such, but was part of its business which it was carrying on. Facts in Hyett (H.M. Inspector of Taxes) v. Lennard [1940] 23 Tax Cas. 346 also are similar to the preceding case. There the assessee carried on business at several shops in London. One more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 deposited in the bank as security deposit had thus become the stock-intrade of his money-lending business. The assessee, therefore, is entitled to claim this loss. We are unable to accept this contention of Mr. Khanna. Firstly, the assessee has never at any earlier stage put forward the case that the stock-in-trade of the guarantee broking business was brought into his money-lending business by him as his stock-in-trade. Apart from it, we fail to see also how the deposit of ₹ 27,000 was the stock-in-trade of the assessee of his guarantee broking business. Money was not the commodity in which the assessee could be said to be dealing in his guarantee broking business. The guarantee broking business was discontinued and the assets and liabilities of that business, therefore, became capital in nature. Even assuming that it was the stock-in-trade of the assessee, that business having been discontinued and there being no evidence that its stock-in-trade was brought in the money-lending business of the assessee, the assets and liabilities became capital in nature on the discontinuance of the guarantee broking business. In this connection Mr. Khanna referred us to certain decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt by the joint family, had become insolvent in 1925. In the insolvency proceedings dividends continued to be paid in the years 1934, 1935 and 1936. In 1936 a final dividend was declared. The assessee firm claimed to write off the balance in the accounting year 1936-37. On these facts, it was held that the joint debts of the Hindu joint family were taken over as such by the new firm as part not of the capital but of their stock-in-trade and, therefore, the loss was the loss of the business. In Sitaram Motiram Jain v. Commissioner of Income-tax [1961] 43 I.T.R. 405, it has been held: Where an individual incurs loss in a business carried on by him as sole proprietor and a registered firm of which he is a partner takes over his business as a running business together with all its assets and liabilities, he has a right to have the loss carried forward and set off, under section 24(2) of the Indian Income-tax Act, 1922, against his share of the profits of the registered firm. There is no evidence whatsoever here that the assets and liabilities of the guarantee broking business had been taken over by the partnership business carried on by the assessee with Naraindas Chellara ..... X X X X Extracts X X X X X X X X Extracts X X X X
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