TMI Blog1976 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ? " The question relates to the assessment year 1963-64, the corresponding previous year being the year which ended on March 31, 1963. The assessee-company was incorporated in 1941 for carrying out the objects mentioned in its memorandum of association. In particular, from its very inception, it started carrying on business as managing agents and became the managing agents of two companies, viz., (1) Investa Machine Tools and Engineering Co. Ltd. (hereinafter referred to as " Tools Co. " ) in 1942 and (2) Palanpur Vegetable Products Ltd. (hereinafter referred to as " Palanpur Co. " ) in the year 1946. From 1945, it started financing the Tools Co. and from 1949 it started financing Palanpur Co. As on March 31, 1963, the loan financed to To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Palanpur Co. was in a position to pay. Attempts were made to restart the Palanpur Co.'s business by change in the management and those attempts fructified when the managing agency of Palanpur Co. was taken over by Forbes Campbell Co. Ltd., in October, 1959, and the business was restarted in February, 1960, by the new managing agents. In the beginning the results were encouraging and in respect of the accounts of the year 1960, the directors in their report to the shareholders expressed the hope that the company would be able to earn some profit. But despite all efforts the financial position of Palanpur Co. deteriorated and it was taken into creditors' voluntary winding up on 12th March, 1963. It thus became clear to the assessee-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im made on the basis of the item being deductible as bad debt under s. 36(2), he took the view that the assessee had declared that debt as doubtful from 31st March, 1963, onwards and since then no attempts were made for recovery of the said amount. In this view of the matter he confirmed the ITO's order. When the matter was carried further in second appeal to the Tribunal it was contended on its behalf that granting of loans or providing financial assistance to the managed-company was incidental to the business of the assessee, that in fact the assessee had granted loans to companies under its management and that the loss sustained was incidental to the assessee's business and, therefore, the same was deductible while computing the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that Mr. Mehta for the assessee did not press the contention that the item should be allowed as a deduction as being a bad debt under s. 36(2) of the Act and the only question that was debated at the Bar was whether the said item could be regarded as an allowable deduction as a trading loss while computing the business income of the assessee-company for the relevant assessment year under s. 28 of the Act. Mr. Joshi appearing for the revenue urged before us that if due regard be had to the memorandum of association of the assessee-company it would be clear that there was no obligation on the part of the assessee-company to make any advance or to make any finances to the managed-company and in the absence of any such obligation being t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alanpur Co. It may be stated that instances of such general practice to make such advances had been judicially noticed by Sir John Beaumont C.J. in the case of CIT v. Tata Sons Ltd. [1939] 7 ITR 195 (Bom). At page 202 of the report, this is what the Chief justice has observed : "...... the ordinary practice in this country is for the managing agents to finance the company of which they are such agents. I do not mean to suggest that the assessees were bound in law to procure finance for the Tata Iron and Steel Co. Ltd. but for practical purposes the finance would have to be provided by them, if it was to be procured at all." It is, therefore, clear that having regard to the conduct of the assessee in commencing to make its finances from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, but we do not think that the absence of such security would make any difference to the assessee's claim. After all it was by way of commercial relationship that subsisted between the assessee-company on the one hand and the managed-company on the other that the advances were made by the assessee-company to Palanpur Co. Moreover, there is nothing to prevent a financier to make unsecured advances. The last fact on which reliance was placed by Mr. Joshi was that in or about October, 1959, there was a change in the managing agency of Palanpur Co. and the managing agency was taken over by M/s. Forbes Campbell Co. Ltd. Relying upon this fact it was urged by Mr. Joshi that this factor would alter the character of loans or advances that wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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