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TMI Blog1972 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... to 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 of a sum of Rs. 38,000 (thirty-eight thousand only) as deposit and the same is payable as follows: (a) Rs. 10,000 (ten thousand only) on signing the agreement. (b) Rs. 5,000 (five thousand only) on or before 9th February, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The total collections credited to his account up to June 30, 1961, amounted to Rs. 21,110 leaving a balance of Rs. 10,457. In the year ending June 30, 1961, the assessee claimed a deduction of a sum of Rs. 10,457 as a bad debt. The Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 irrecoverable in the year of account and that it was a business loss and that, therefore, the assessee was entitled to the deduction claimed. At the instance of the revenue the above question has been referred. Before we discuss the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 for a reference on the question whether the sum in dispute is allowable as a deduction under section 36(2). The question as framed does not also include the applicability of section 36(2). It is, therefore, not open to the assessee to raise that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agreement. The return of the money is not dependent on the performance or non-performance of the agreement. The advance is in the nature of an amount deposited for acquisition of a business, a sort of a temporary investment necessary for getting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 are unable to agree that advances made by distributors to film producers while entering into agreements for distribution rights of pictures should necessarily be an advance on revenue account incurred in the course of business. In order to entitle a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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