TMI Blog1972 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... 57 was a business loss deductible in the computation of the assessee's income ? " The assessee is a private limited company and carries on business as distributor of talkie films. On January 9, 1956, the assessee entered into an agreement with one Joseph Pallipat, a film producer. The following are the relevant clauses of the agreement: " 1. The producers entrust the distribution of the said picture Verum Pechulla' to the distributors for the territories comprising the revenue districts of Coimbatore and Nilgiris for a period of five years from the date of its first release in the above territory along with simultaneous release in Tamil Nadu. 2. In consideration of the above, the distributors agree to pay an advance to the producers o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the picture, then the producers shall be liable to pay the distributors whatever the amount that may then fall due. 16. The producers agree to supply the said picture for release during February, 1956, subject to censors. In case of any delay, the producers shall pay the distributors interest at the rate of 12% (twelve per cent. only) per annum on the amounts advanced by the distributors from the date of delivery of prints to the actual date of delivery of prints and publicities." It appears that the picture was not released as expected in February, 1956, but it was released after a few months. The assessee had advanced various sums and incurred some expenses on behalf of the producer. This amounted to Rs. 31,567 up to June, 1956. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was nothing in section 36(2) which precluded the allowance of the debt. Alternatively, it was contended that the advance made to the producer was in the course of the business of the assessee and since that amount has become impossible of recovery it had become a loss and that loss was a business loss for which he was entitled to a deduction. The revenue objected to the alternative ground of the assessee on the basis that the assessee had not put forward such a claim before the Income-tax Officer and the Appellate Assistant Commissioner. The Tribunal held that the assessee was entitled to put forward the claim as a business loss as no fresh facts are required to be gone into and ultimately held that the sum of Rs. 10,457 became irrecov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible or not will depend on whether, having regard to accepted commercial practice and trading principle, it can be said to arise out of the carrying on the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act." Thus, it is seen that the list of allowances enumerated in sections 30 to 43A is not exhaustive and an item of business loss could be deducted in computing the profits and gains of the business if it is deductible on ordinary commercial principles of accounting. There is no definite finding by the Tribunal that the claim of the assessee is allowable under section 36(2). The assessee had not asked f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable was the return for the services rendered in distributing the picture. There is no evidence to show that the assessee was lending advances or that it was part of the business. In fact, it was not the assessee's case that the money was lent in the ordinary course of business of money-lending which was carried on by the assessee. The business of the assessee was distribution of cine films. Having regard to these facts, we are of opinion that the loss cannot be treated as a revenue loss. It may be that the advance was made in the course of carrying on business. But, it was paid for the purpose of ensuring the contract which is the very source of its business. The advance is not incidental to the contract or agreement. It is de hors the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, corresponding to section 10(2)(xi) does not arise for our consideration directly on the wording of the question of law referred for our decision. But, the decision of the Mysore High Court did not stop with the finding that the debt there in question was a bad debt within the meaning of section 10(2)(xi). It further held that it was a debt in respect of the assessee's business and, since the debt has become irrecoverable, there could be no computation of the assessee's business income, except after the deduction of the amount of that loss from the gross profits. In that view, the Mysore High Court answered the reference holding that the amount in question is deductible as trade loss. With great respect to the learned judges, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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