LexCOMMISSIONER OF INCOME-TAX, BOMBAY versus M/S. ABDULLABHAI ABDULKADAR
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... .. ·"" 2 S.C.R. SUPREME COURT REPORTS 949 COMMISSIONER OF INCOME-TAX, BOMBAY v. M/S. ABDULLABHAI ABDULKADAR (J. J.,. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ.) Income-tax-.,Commission Agent's liability to pay for non-resi- dent principal-Test of dediJctible business loss-Indian Income-tax Act, r922 (II of r922), SS. IO(I), I0(2)(xi), 42(I), 43. The respondent was a registered firm carrying on business as commission agents, and for the purpose of income-tax it was treated as the agent of a non-resident principal doing business outside India. Under s. 42(1) of the Indian Income-tax Act the respondent was deemed to be the assessee and had to pay Rs. 3,78,491 as income-tax on behalf of the non-resident princi- pal. After allowing for the amounts lying with the respondent- firm the account of the non-resident principal showed a debit balance of Rs. 3,20,162. The respondent treated this amount as a bad debt and claimed it as a deductible loss. The Income- tax Officer and the Appellate Assistant Commissioner disallowed the respondent's claim but the Income Tax Appellate Tribunal held it to be an allowable deduction being a bad debt incurred as a result of the respondent's business activities with the non- resident principal. The High Court treating the amount as a deductible business loss incurred by the respondent affirmed the decision of the Income-tax Tribunal. On appeal by the Commis- sioner of Income-tax, Held, that the respondent was not entitled to the reduction claimed by it. The liability to pay imposed upon it under s. 42(2) of the Income-tax Act did not arise directly from the carrying on of the business nor was it incidental to the busine.ss. The loss was not a commercial loss incurred in the respondent- firm's own business but it arose out of the business of another person and that was not a permissible deduction within s. 10(1) or s. 10(2)(xi) of the Act. Gresham Life Assurance Society v. Styles, (1892) 3 T. C. 185 (H. L.), referred to. Commissioner of Income-tax v. Sir S. M. Chitnavis, (1932) L. R. 59 I. A. 290, followed. Badridas Daga v. Commissioner of Income-tax, [1959] S.C.R. 69oand Curtis v. ]. and G. Oldfield, Ltd., (1925) 9 T. C. 319, dis- cussed. · Lord's Dairy Farm Ltd. v. Commissioner of Income-tax, Bom- bay, (1955} 27 I.T.R. 700, Calcutta Co., Ltd. v. Commissioner of Income-tax, [1959] 37 l.T.R. l and C.I.R. v. Hagart and Burn Murdoch, [1929] A.C. 386, not applicable. uo I960 December 6. Cpmmissione, oj 950 SUPREME COURT REPORTS [1961) CryIL APPELLATE JURISDICTION: Civil Appeal No. 312 of 1959. Income-tax, Appeal from the judgment and order dated August Bombay 23, 1956, of the Bombay High Court in Income-tax M /s. A~dullabhai Reference No. 21 of 1956. Abdulhadar Hardyal Hardy and D. Gupta, for the appellant. A. V. Viswanatha Sastri and I. N. Shroff, for the respondent. 1960. December 6. The Judgment of the Court was delivered by Kapur. J. KAPUR, J.-This is an appeal by special leave brought by the Commissioner of Income-tax against the judgment and order of the High Court of Bom- bay answering the question in favour of the assessee. The question referred by the Tribunal was : "Whether on the facts and in the circumstances of the case the amount of Rs. 3,20,162 is an allowable deduction under Section 10(2)(xi) or 10(2)(xv) of the Income-tax Act?" which was amended by the High Court as follows : "Whether on the facts and in the circumstances of the case the amount Rs. 3,20,162 is an allowable deduction" and was answered in the affirmative and against the appellant. The facts of the case shortly stated are these: The respondent is a registered firm carrying on business as . commission agents. It was treated as the agent of a non-resident principal Haji :i\fohamed Syed Al Bar- bari of Port Sudan (hereinafter referred to as the 'non-resident principal'). It was carrying on the busi- ness of export of cloth and kariana (i.e., miscellaneous goods) to Aden, Saudi Arabia and Sudan. It used to supply goods from India to the non-resident princi- pal, who on his part, was sending cotton to the res- pondent and other merchants for sale in India. For the years 1942-43, 1943-44, 1944-45 and 1945-46, the respondent firm was treated as the agent of the non- resident principal under s. 43 of the Income-tax Act I .. jl! • . .. ,, i 2 S.C.R. SUPREME COURT REPORTS 951 (which will hereinafter be termed 'the Act') for ·
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