LexMADAN GOPAL BAGLA versus THE COMMISSIONER OF INCOME-TAX, WEST BENGAL.
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S.C.R. SUPREME COURT REPORTS MADAN GOPAL BAGLA v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL. [S. R. DAS C.J., BHAGWATI and VENKATARAMA AYYAR JJ.] 551 Income-tax-Allowable deduction-Timber business-Surety to third party-Bacl debt-Capital loss or business loss-Indian In· come-tax Act, 1922 (XI of 1922), s. 10 (2)(xi). The appellant who was a.-timber merchant obtained a loan from the Bank of India on the ]oint security of himself and a third party, M. On the same day M obtained a loan from the Imperial Bank of India on the joint security of himself and the appellant. M failed in his business and the Imperial Bank of India realised the amount of the loan from the appellant who after getting some divi· dends from the receivers, wrote off the ha.lance as bad debt in the assessment year in question and claimed it as an allowable deduc· tion under s. 10 of the Indian Income-tax Act, 1922 o~ the footing that it was in the course of securing finances for the business of timber that he stood surety with M and that it was the usual custom to secure loans on the joint security from Banks by persons carry· ing on business. It was not established that the appellant was in the habit of standing surety for other persons along with them for the purpose of securing loans for their use and benefit. Held, that the debt in question could not be considered a debt in respect of the business of the assessee who was not a person carrying on a business of standing surety for other persons and that, in any event, the loss suffered by reason of having to pay a debt borrowed for the benefit of another would be a capital loss and not a business loss and was not an allowable deduction under s. 10(2) (xi) of the· Indian Income-tax Act. Oommi3sioner of Income-tax, Madras v. S. A. S. Rama.swamy Ohettiar ([1946) 14 I.T.R. 236), distinguished. Commissioner of Income-tax, Madras v. S. R. Subramanya Pillai ([1950) 18 I.T.R. 85), approved. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6of1954. Appeal from the judgment and order dat.ed the 8th day of June 1951 of Calcutta High Court in In- come-tax Reference No. 1 of 1951. R. J. Kolah and P. K. Ghosh, for the appellant. 1956 Maya 1956 552 SUPREME COURT REPORTS [1956] G. N.Joshi, Porus A. Mehta and R.H. Dhebar, for the respondent. v. 1956. May 8. The Judgment of the Court was Th• Commissiontr delivered by Madan Gopal Bagla 01 Income-tax, BHAGWATI J:-This is an appeal with certificate We!t Bengal under section 66-A(2) of the Indian Income-tax Act, 1922 from the judgment and order passed by the High Court of Judicature at Calcutta on a reference under section 66(1) of the Act, whereby the High Court answered the referred question in the negative. The appellant is a timber merchant. On 5th Febru- ary 1930 he obtained a loan of Rs. l lakh from the Bank of India on the joint security of himself and one Mamraj Rambhagat. Oil the same day Mamraj Rambhagat obtained a loan of Rs. l lakh from the Imperial Bank of India, Bombay on the joint security of himself and the appellant. The appellant paid off his loan of Rs. 1 lakh to the Bank of India but Mam- raj Rambhagat failed to make good the amount of his loan to the Imperial Bank of India, Bombay. This sum of Rs. 1 lakh was realised by the Imperial Bank of India from the appellant with interest thereon of Rs. 626 on 24th March 1930. Mamraj Rambhagat failed in his business and his estate went into the hands of the receivers on 25th April 1930. The appellant opened a ledger account in the name ofMamraj Rambhagat and the total amount of Rs. 1,00,626, was debited to this account. The appellant received the dividends from the receivers: Rs. 31,446 on 30th October 1930, Rs. 9,434 on 25th April 1934 and Rs. 4,716 on 17th May 1938, aggre- gating to Rs. 45,596, leaving a balance of Rs. 55,030 unpaid, which sum he wrote off as bad debt in the assessment year 1941-42 (the account year being 1997 Ramnavmi) and claimed as an allowable deduction under section 10 of the Act. The Income-tax Officer disallowed the claim hold- ing that the said loss was a capital loss, and so did the Appellate Assistant Commissioner. It was argued on behalf of the appellant before the Appellate Assis- S.C.R. SUPREME COURT REPORTS 553 tant Commissioner that it was the usual custom in 1956 Bombay to secure loans on joint security from Banks h Madan Goj>al by persons carrying on business. It was stated t at
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