TMI Blog1951 (6) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... e joint security of himself and another man called Mamraj Rambhagat. On the same day Mamraj Rambhagat obtained a loan of Rupees one lakh from the Imperial Bank of India, Bombay, on the joint security of himself and the assessee. The assessee paid off his debt to the Bank of India in due time, but Mamraj Rambhagat failed to pay his. It appears that on March 24, 1930, the Imperial Bank realised from the assessee the debt owing jointly by him and Mamraj Rambhagat the amount recovered being Rupees one lakh six thousand and twenty six. Exactly a month later on April 24, 1931, Mamraj Rambhagat failed in his business and his estate went into the hands of Receivers. What kind of Receivers they were and in the what proceedings the appointment of Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al based its decision was that before the Appellate Assistant Commissioner the assessee had stated that it was the usual custom in Bombay to secure loans on joint security and the Appellate Assistant Commissioner had not held that such custom had not been proved. In the opinion of the Tribunal, if such a custom existed it would be sufficient to make the loss which the assessee had suffered an allowable deduction in the computation of his profits. It was said that although the Madras case had been distinguished by the Appellate Assistant Commissioner on the ground that the parties in that case were money-lenders whereas the assessee in the present case was a timber merchant that difference in facts did not affect the applicability of the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any expenditure or loss may properly be set off against business profits, it is elementary that the expenditure must be one laid out in the course of the trade or business concerned for the purpose of earning the profits thereof and similarly the loss must be one incurred in the course of carrying on the operations of the same business. That is emphasised by the language of clause (xi) of Section 10(2) itself under which the deduction was claimed in the present case for it speaks of bad and doubtful debts due to the assessee in respect of his business. The debt must therefore be one which can properly be called a trading debt and a debt of the trade, the profits of which are being computed. Judged by that test it is difficult to see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led. The principle is that where accounts are kept on a mercantile basis the expected profits or expected receipts are also entered on the credit side and the book-profits resulting from the inclusion of such expected profits or receipts are offered for taxation. If in the ultimate event any of these expected receipts fails to materialise or to take the specific case if any debt becomes irrecoverable that amount is allowed to be deducted because having been included in the profits it now transpires that it had been wrongly included. Nothing therefore can be allowed to be deducted as a bad debt unless, if recoverable or recovered, it could be taken as a profit of the business. As Mr. Justice Rowlatt put it in the case of Curtis v. J. G. Ol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invalidity of the assessees claim even clearer. I have already pointed out that by the transaction which ultimately caused him the loss of ₹ 55,030 he did not procure any capital for his own business but supposing that he had done so and some part of the borrowed capital had been lost it would be impossible for him to contend that such loss should be allowed to him as a deduction under Section 10. As has been pointed out when a person borrows for the purpose of his business the only allowance to which he is entitled is the interest he pays on it. No allowance is permissible in respect of the capital. If a man who invests his own money cannot claim any loss if the money so invested should be lost it is not easy to see why he should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and not applicable to business other than money-lending business of Nattukottai Chetties. A well reasoned exposition of the principle upon which a bad debt can be allowed as a deduction will be found in the later case. It appears from the statement of case submitted by the Tribunal that when at the hearing of the application for a reference the later case of the Madras High Court was cited on behalf of the Commissioner of Income Tax the Tribunal felt pressed by its reasoning and authority. I have said enough to indicate the reasons on which the claim of deduction made by the assessee in the present case must be disallowed. In my opinion the question referred to this Court must be answered in the negative. The assessee had not en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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