TMI Blog1959 (1) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant? 2. Whether under the circumstances of this case the claim of ₹ 1,15,449 was admissible as a bad debt under section 10(2)(xi) or otherwise as a loss qua money-lending business of the applicant? 3. Whether under the circumstances of the case the claim of ₹ 1,15,449 is admissible as a business deduction under section 10(2)(xv) or in general terms of the Income-tax Act? The assessee in this case is a firm named Messrs. Brij Mohan Laxmi Narain. The assessment year is 1947-48. The assessment was made in respect of several sources of income consisting of: (1) interest on securities; (2) income derived from property; (3) money-lending and banking business; and (4) remuneration received as director of various co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssrs. Kapurson Co. with this amount. The debt was written off as a bad debt, and the assessee claimed that this amount was not subject to tax because it amounted to losses in business. The appellant's claim, therefore, is that the giving of the guarantee to the bank arose out of his money-lending business, and when it became a bad debt, he was entitled to seek shelter under section 10(2)(xi) of the Indian Income-tax Act and also under section 10(2)(xv) or under the general terms of the Income-tax Act. It has already been stated that the ordinary business of the assessee was money-lending. The giving of a guarantee can by no stretch of imagination be classed as a loan advanced to the bank or to the person on whose behalf the guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... none of these really helps him. In Commissioner of Income-tax v. Khemchand Ramdas [1933] 1 I.T.R. 309 , the assessee had a partner who resided outside India. The business resulted in losses and the partner executed a document whereby he agreed to pay his share of the losses in certain instalments. There was default in payment of the instalments and the assessee claimed a deduction of ₹ 10,229, representing the amount which was due to him from his partner and had not been paid. This amount had to be written off as a bad debt, and it was held that the assessee was entitled to claim exemption from it. The view taken by the Sind Judicial Commissioner was that the amount which the partner did not pay was loss for which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction was a simple one between the debtor and creditor. The creditor was unable to realise a debt due to him in the ordinary course of his business. In Commissioner of Income-tax and Excess Profits Tax v. Sankara Ayyar [1951] 20 I.T.R. 597 , the assessee was the manager of a Hindu undivided family and was carrying on a partnership business with another person. The business of the partnership firm was money-lending. The partnership was discontinued except for the purpose of realising the outstanding dues. Money was due from a debtor to the firm and on the termination of the partnership this amount was debited to M in the books of the new firm consisting of the assessee. It was held that the amount related to the ordinary business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding out at higher rates of interest. The assessee was a Chettiar, and in pursuance of this custom he stood surety for a loan. The loan was not repaid and the assessee had to make good the amount under terms of his guarantee. It was held that the assessee was entitled to deduction of this amount. It was clear that the giving of the guarantee was a part of the ordinary business of the assessee, and, therefore, the enforcement of the guarantee caused him loss in the ordinary course of business. Similarly in Commissioner of Income-tax v. Jagannath Kisonlal [1956] 30 I.T.R. 654 the giving of the guarantee was the usual commercial practice in the business of the assessee. This was a case in which the assessee borrowed money jointly and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he money-lending business of the assessee and the giving of the guarantee to the bank. The guarantee was not on behalf of himself and his partner but on behalf of the firm in which he held some shares and of which he was a director. This connection, in my view, is too remote to warrant the assumption that the guarantee was given in the ordinary course of the assessee's business. The advantage which he gained by the giving of the guarantee was indirect and it cannot, therefore, be said that the enforcement of the guarantee amounted to losses in business. It was nothing more than a loss in capital. Therefore the assessee is not entitled to claim exemption either under section 10(2)(xi) or 10(2)(xv) or in general terms of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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