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TMI Blog1986 (11) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and in particular to customers and others having dealings with the company and to guarantee the performance of the contracts or payment of money to any such persons or companies. " In the year 1963-64, the assessee furnished a guarantee in respect of certain contracts of carriage by one Great India Boat Company from one part of India to another through the territories of Pakistan for which sanction was granted by the Collector of Land Customs. In December, 1967, the assessee furnished counter-indemnity in respect of a loan of over Rs. 3,00,000 in favour of Bokaro Steel Ltd. at the request of one Asian Refractories Ltd. The aforesaid guarantee and the indemnity were furnished by the assessee without consideration. Some time in July, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talments between January 16, 1971, and January 21, 1971. It is on record that the assessee did not prefer any claim with the official liquidator in charge of liquidation of the debtor. The assessee wrote off the said amount of Rs. 1,36,800 in its accounts for the year ending May 31, 1971. The assessee was assessed to income-tax in the assessment year 1972-73, the accounting year ending on May 31, 1971. In its assessment, the assessee claimed a deduction of the said amount of Rs. 1,36,800 as a business expenditure. The Income-tax Officer found that the main sources of the income of the assessee were rent from house property and boat hire but furnishing guarantees was not a part of the normal business of the assessee. The Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended on behalf of the assessee before the Tribunal that furnishing guarantees was a part of the normal business of the assessee as authorised by its memorandum of association. It was also sought to be contended that the assessee had been entitled to charge a commission at the rate of 2 1/2% from the debtor in respect of the said guarantee and, as such, the guarantee had been furnished for adequate consideration. The Tribunal found that the sources of income of the assessee were rent from property, interest on deposits and boat hire. The Tribunal found further that the furnishing of the guarantee in issue had no connection with the said sources of income. Construing the relevant clause of the memorandum of association of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee not in the course of its business or for any commercial consideration but the same was really in the nature of an accommodation furnished to the principal debtor on extra-commercial consideration. The appeal of the assessee was rejected. On an application of the assessee under section 256(1) of the Income-tax Act, 1961, the following question has been referred as a question of law arising out of the order of the Tribunal for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in confirming the disallowance of loss incurred by the assessee and amounting to Rs. 1,36,800 in guaranteeing the loan advanced to Asian Refractories Limited by the United Bank of India ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Korean Syndicate Ltd. [1921] 12 TC 181 (CA) as follows (at page 371 of 44 ITR): " An individual comes into existence for many purposes, or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction by getting possession of concessions and turning them to account, then that is a matter to be considered when you come to decide whether doing that is carrying on a business or not." Learned advocate also cited the decision in CIT v. S. P. Jain [1973] 87 ITR 370 (SC) for the following observations (at page 381): " In our view, the High Court and this court have always the jurisdiction to intervene if it appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and that the same had been furnished on extra-commercial considerations. These findings have not been challenged specifically by the assessee. No doubt, the Tribunal has not scanned the relevant clause in the memorandum of association properly or with care as it should have done but the same cannot vitiate the finding of the Tribunal which is based on other evidence. It is not disputed that there was no agreement in writing by and between the assessee and the principal debtor on the basis of which the guarantee had been furnished ; no evidence was furnished by the assessee before the Income-tax Officer or the Appellate Assistant Commissioner to show that the assessee would be entitled to charge a commission on the guarantee to be fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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