TMI Blog1973 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... du undivided family doing business in pipes under the name of M/s. P. S. Jain Pipe Co. After the disruption of that firm, the assessee entered into a transaction with M/s. Laxmi Iron Stores, Calcutta, which was offering disposal pipes for sale. The assessee entered into the agreement with this firm, in his individual capacity and by a contract in writing dated 12th July, 1957, agreed to purchase 2 lakhs feet of disposal pipes of 4 inch type at the rate of ₹ 2.25 per foot. He was unable to take delivery of these pipes and the Calcutta firm informed him that because of this failure the goods had been sold on the assessee's account resulting in a loss of ₹ 75,000 which was payable by him in accordance with clause 4 of the aforementioned agreement. This amount was partly paid in the accounting year in question and partly in November, 1958, and February, 1960. The loss of ₹ 75,000 was claimed as a business loss which was disallowed by the Income-tax Officer as a speculative loss. The interest claimed on the amount borrowed to pay the loss was also disallowed. On appeal to the Appellate Assistant Commissioner, it was held that there was no business loss as no bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid for in cash upon delivery. There was also an arbitration clause with a named arbitrator, Shri Rameshwar Lal Agarwalla of Lilooah, Howrah. On 24th July, 1957, the vendor wrote to the assessee to state that 10,000 ft. of pipes were lying ready for delivery. Delivery was not taken but the vendor gave the assessee another opportunity to lift the goods. The assessee wrote on 6th August, 1957, to say that the goods should be held on his account up to 14th August, 1957, as the market was turning unfavourable. On 17th August, 1957, the vendor wrote to the assessee to say that the goods had not been taken delivery of and a last opportunity was being given to take delivery up to the 31st of the month failing which the goods would be sold on the assessee's account. On 23rd August, 1957, the assessee wrote that he could not take delivery due to a sudden fall in the market. He also said that the vendor should hold the goods for another one month. On 2nd September, 1957, the vendor wrote saying that he could only hold the goods for another seven days failing which the goods would be sold in the open market. On 18th September, 1957, the vendor again wrote to state that the goods had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's case. Although the assessee had been a member of a firm dealing in pipes, this was his sole transaction in pipes as an individual. The object of this transaction was to make profit and, hence, even though no delivery was taken, the transaction remained a business transaction, and the resultant loss was a business loss just as a profit in similar circumstances would have been a business profit. Reliance is also placed on Rutledge v. Commissioners of Inland Revenue. The assessee in that case was a money-lender who happened to be in Berlin in 1920, where he took the opportunity of purchasing a large quantity of paper very cheaply. The paper was resold at a substantial profit on the assessee's return to Scotland. It was held that the profit from the transaction was taxable as an adventure in the nature of trade. It was observed thus: An adventure it certainly was; for the appellant made himself liable for the purchase of this vast quantity of toilet paper obviously for no other conceivable purpose than that of re-selling it at a profit ; and that is just what he did. The element of adventure accordingly entered into the purchase from the first. The present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article purchased had been dealt with. Thus, there might be cases in which property was held for the purpose of investment, but on a good price being offered the property might be sold. On the other hand, there might be cases where the purchase has been made solely and exclusively with the intention to re-sell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and, unless it is offset by the presence of other factors, it would raise a, strong presumption that the transactioin is an adventure in the nature of trade . Applying this test to the present case, on has got to ask the question : What was the, object of the assessee in entering into this transaction ? Obviously, the disposal pipes were not income yielding in the sense of house property or investments like debentures or shares. The only object of such a transaction could be to either utilise the pipes in some works or construction or to re-sell them at a profit. There is no material to show that the assessee required the pipes for any works or construction or that such a huge quantity of pipes could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. This liability under the contract arose as soon as it was executed on 12th July, 1957. Thereafter, any gain or loss suffered under the contract would be from an adventure in the nature of trade. Reference is also made to Patiala Biscuit Manufacuturers P. Ltd. v. Commissioner of Income-tax. Certain preference shares of a sister firm belonging to the Dalmia group were bought by the assessee and re-sold at a loss of ₹ 4,80,985. It was held that it was a capital loss and not a loss from a trading activity. It is noticeable that the transaction was one relating to shares which are capable of being purchased both for purposes of investment or for purposes of profit, i.e., for trading purposes. It is not possible to hold that pipes can be bought for purposes of investment except in very special circumstances. A transaction relating to two lakhs feet of pipes as in the present case could not be treated as an investment and hence this authority is not at all applicable to the present case. Reference has also been made to Associated Mining Industries Ltd. v. Commissioner of lncome-tax which was the case of an assessee claiming a deduction in business on account of prospecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative, in favour of the assessee and against the department. It is urged by counsel for the revenue that the loss should be spread over the three years in which it was paid, but, there seems to be no justification for this. The liability to pay the loss arose at the time it was incurred and the manner of its repayment does not at all affect either the loss or the year in which it was incurred. The loss took place as soon as the liability to pay the same arose under the contract. It is a different matter that instalments were allowed by the arbitrator. In view of the fact that the answer to the first question is in the affirmative and in favour of the assessee, it follows that the second question whether the interest on borrowings for paying the loss is a permissible deduction has also to be in favour of the assessee and, hence, the second question has to be answered in favour of the assessee. The question of travelling expenses and bank commission which forms the subject-matter of the third question has also to be decided in favour of the assessee on the same reasoning. These expenses are allowable to the assessee under section 10(2)(xv) of the Indian Income-tax Act, 1922. The r ..... 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