TMI Blog1964 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Appeal allowed. - - - - - Dated:- 1-10-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.---This appeal by certificate preferred against the order of the High Court of Madhya Pradesh, Indore Bench, raises the question whether an item of Rs. 42,63,090-14-7 should have been allowed as a trading loss in computing the profits of the appellant-company under section 3 of the Indore Industrial Tax Rules, 1927. The facts may be briefly stated. The appellant, Indore Malwa United Mills Ltd., is a public limited company incorporated and registered under the Indore Companies Act, 1914. Since the incorporation, it has been carrying on business of manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r debts. After satisfying the general body they would again withdraw large sums for their purposes. The general body was also aware of the loans and indeed it approved the said transactions. In the year 1933 the managing agency company went into liquidation. For the assessment year 1941, the appellant-company submitted its return of income and claimed thereunder a deduction, among other items---of a sum of Rs. 49,13,316, under the head of bad debt and trading loss written off in the profit and loss account of the appellant-company---we are only concerned in this appeal with this item and, therefore, it is not necessary to notice any other particulars of the assessment. The assessing authority allowed only Rs. 6,41,913-2-0 as bad debt and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managing agents was not a trading debt inasmuch as the managing agents borrowed moneys not necessary for the business of the appellant-company and lent to themselves the said amount and, therefore, it was a loss incurred by the appellant dehors the business of the company. The first question raised by Mr. Sen is based upon the distinction between the Indore Industrial Tax Rules and the corresponding provisions of the Indian Income-tax Act. It is said that the Indore Industrial Tax Rules are only concerned with the cotton mill industry and the tax payable thereunder is in respect of the said industry, while under the Income-tax Act, the tax is payable in respect of the income of the business of the assessee. But a perusal of the proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act." Where an agent employed by the appellant for the purpose of carrying on his business in exercise of the powers conferred on him operated on the bank accounts, withdrew moneys from it and used them for discharging his personal debts, this court in the said decision found no difficulty in holding that the amount misappropriated and found irrecoverable was an allowable deduction under the Income-tax Act. The only difference between that case and the present one is that the agent misappropriated the amount in that case, whereas in the present case the managing agents, in exercise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of fraud in this case, for the profit and loss account and the balance-sheet placed before the general body meeting of the company every year brought to its notice the total amount the company borrowed through the managing agents and the general body approved of it. The only fraud, if any, consisted in the practice followed by the managing agents in bringing into the accounts of the company the entire amount lent to them in order to satisfy the shareholders that nothing was going wrong. The next step is the borrowing of money by the managing agents from the company. Under the memorandum of association as well as under the express power conferred by the said resolution, the company, through the managing agents, could invest i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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