TMI Blog1980 (4) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany had also executed a promissory note in favour of the assessee and the assessee had assigned the said promissory note in favour of the bank. The electricity undertaking of the company was compulsorily acquired by the then State of Bombay in 1957 and the licence granted for generating and distributing electricity was cancelled with the result that the company went into liquidation in February, 1958. The liquidation proceedings were completed by the middle of 1965. On January 22,1959, the Bank of India demanded a sum of Rs. 73,520.80 on account of the amount of the loan outstanding against the company which the assessee being the guarantor of the said loan paid to the Bank of India by cheque on February 11, 1959. The assessee was not able to recover any money from the company in order to reimburse himself in respect of the amount paid by him as guarantor. In the assessment for the assessment year 1960-61, the assessee claimed that the amount of Rs. 73,520.80 should be allowed to be deducted as loss under s. 10(2)(xv) of the Indian Income-tax Act, 1922 (hereinafter referred to as " the Act "), out of his total income. The ITO rejected this claim on the ground that the loss ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee under s. 12(2) of the Act and found that the assessee's claim in substance was a claim for set off of a loss and was not a claim for the deduction of an expenditure and, therefore, s. 12(2) of the Act did not apply. The Tribunal further held that it was difficult to see as to how the incurring of the loss of Rs. 75,201 (sic) could be said to have been necessitated solely for the purpose of making or earning such income. On these facts, the following question has been referred at the instance of the assessee to this court for opinion : " Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of Rs. 75,201 (sic) as an expenditure or as a business loss out of his income ? " Shri Mehta, the learned counsel for the assessee, has restricted his argument to only the alternative contention raised before the Tribunal and, according to the learned counsel, the assessee was carrying on an organised activity consisting of his investment in shares, becoming director in various companies, getting director's fees, drawing remuneration as a managing director and earning commission. The contention of the learned counsel is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether in the liquidation proceedings the assessee had made any claim and whether such claim was either wholly or partly satisfied in respect of the amount of the loan. So far as the assessee is concerned, if the amount repaid on account of the loan of the company is not recovered by him, the loss in the hands of the assessee will be clearly in the nature of a capital loss. What the learned counsel for the assessee, however, claims is that notwithstanding the general position of law that the assessee would step into the shoes of the creditor, in so far as the provisions of the I.T. Act are concerned, the assessee will be entitled to claim this amount as a deduction if he is able to show that he satisfies the requirements of s. 10(2)(xv) of the Act. It was in that context that the learned counsel for the assessee canvassed the proposition that the assessee was carrying on an organised activity. Now, it is difficult for us to see how the three factors relied upon by the assessee can indicate that the assessee was carrying on any organised activity. Primarily, the activity of the assessee was investment in shares and the election as a director of different companies or his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made the agents of the company and they filed in the capacity as managing agents within the meaning of the Companies Act. It is on this footing that the income derived by them from the company was held to be remuneration paid to them in their capacity as managing agents and that was why it was held that the commission " partakes of the character of business income assessable under section 10 of the Act " and that it does not partake of the nature of a salary. That decision must be treated as having been rendered on the facts of that case. Really speaking, once we come to the conclusion that the three kinds of activities cannot be held to result in the carrying on of any business as contended, the claim of the assessee under s. 10(2)(xv) or under s. 12(2) of the Act must also consequently fail. Under s. 10(2)(xv), before a deduction is claimed, it must be established that the amount is an expenditure and it has further to be shown that the said expenditure is laid out or expended wholly and exclusively for the purpose of the business. We may even assume for a moment that the assessee was carrying on business as contended by him but then again it becomes difficult to hold that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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