B.D.BHARUCHA,BOMBAY versus COMMISSIONER OF INCOME-TAX, CENTRAL BOMBAY

Citation: [1967] 3 S.C.R. 238 · Decided: 21-03-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

B.D.BHARUCHA,BOMBAY 
v. 
COMMISSIONER OF INCOME-TAX, CENTRAL BOMBAY 
March 21, 1967 
[J. C. SHAH, S. M. Sil{RI AND V. RAMASWAMI, JJ.] 
Income-tax Act (11 of 1922), $. 10(2)(xi)-Capital or rewmue 
Joss-Nature, how determined, 
The appellant, who was carrying on the business 
of financing 
film 
producers and distributors, had 
advanced a swn of Rs. 1,00,000 lo a 
B 
firm of film distributors. 
Clause 3 of the agreement between the par~ 
provided that the appellant was not entitled to any interest but that he 
C 
was to share with the distributors their profit and loss; and cl. 7 I?rovided 
that in case the picti:re was not released within the stipulated tlme, the 
distributors would return to the appellant all the moneys advanced by 
him together with interest at 9 % per annum. 
There was delay in re· 
leasing the picture and a dispute arose between the appellant and 
the 
distributors, which was settled. The appellant 
found that a sum of 
Rs. 80,759 was irrecoverable. He accordmgly wrote it off as a bad debt 
and claimed it as a revenue loss which should be 
deducted under 
I» 
s. 10(2)(xi) of the Incom!>-tax Act, 1922. The department, the Appel· 
late Tribunal, and the High 
Court on reference, 
held 
against 
the 
appellant, on the basis of cl. 3 of the agreement, that the loss •uffered 
by the appellant was a capital loss. 
In appeal to this Court, 
HELD : Since all payments· reduce. capital one is apt to consider a 
E. 
loss as a capital loss. 
But losses in the running of a business cannot be 
said to be of capital. To find out whether an expenditure is on the capi-
tul account or on revenue account, one must consider the expenditure in 
relation to the business. In the present case, the debt was in respect of 
and incidental to the business of the appellant in the relevant accounting 
year, and the accounts of his business were kept on mercantile basis. If 
els. 3 and 7 of the agreement are read together, the transaction would be 
F 
a money-lending transaction or a transaction in the nature of a financlal 
deal in the course of the appellant's business, resulting in a loan repay-
able with interest. 
Therefore, the loss suffered was a revenue loss and 
the appellant was entitled to claim the deduction of the amount as a bad 
debt under s. 10(2) (xi) of the Act. 
[24!H; 242E-F) 
Reid's Brewery Co. Ltd. v. Male, 3 T.C. 279, applied. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1230 of 
G 
1966. 
Appeal by special leave from the judgment and order dated 
August 27, 1962 of the Bombay High Court in Income-tax Re-
ference No. 18 of 1961. 
S. T. Desai, M. N. Shroff for /. N. Shroff, for the appellant. 
H 
R. M. Hazarnavis, Gopal Singh, S. P. Nayyar for R. N. 
Sachthey, for the respondent. 
t 
BHARUCHA v. C.I.T. (Ramaswami, J.) 
239 
A 
The Judgment of the Court was delivered by 
B 
c 
D 
E 
' 
G 
H 
Ramaswami, J, This appeal is brought, by special leave, from 
the judgment of the High Court of Bombay dated August 27, 
1962 in Income Tax Reference No. 18 of 1961. 
The appellant is an individual having income from House 
Property, Government Securities, Cinema Exhibition and financ-
ing film producers 
and distributors. 
During the period from 
March 3, 1952 to November 5, 1952 the appellant advanced a 
sum of Rs. 40,000/- to a firm of film distributors known as Tara-
chand Pictures. The appellant thereafter entered into an agree. 
ment dated January 5, 1953 with Tarachand Pictures under which 
the appellant advanced a further sum of Rs. 60,000/- in respect 
of the distribution, exploitation and exhibition of a Picture called 
"Shabab". According to cl. 2 of the agreement the distributors 
were to pay a lumpsum of Rs. 1,750/- by way of interest on the 
initial advance of Rs. 40,000/-. Clause 3 of the agreement read 
as follows :-
"No interest will run henceforth on this sum of 
Rs. 40,000/- as also on the advances to be made as pro-
vided hereinabove but in lieu of interest it is agreed that 
the Distributors will share with the Financier profit and 
loss of the Distribution, Exploitation and Exhibition of 
the picture SHABAB in the Bombay Circuit, two-third 
going to the Financier and one-third to the Distributors." 
Clauses 4 and 5 were to the following effect :-
"4. The Distributors shall on or before the 15th of 
every month submit to the Financier a Statement of 
Account of the business done during the previous month 
in respect of the picture 'SHABAB' in the territories of 
Bombay Circuit." 
"5. The Distrib

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