THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY I versus M/S. JAGANNATH KISSONLAL, BOMBAY

Citation: [1961] 2 S.C.R. 644 · Decided: 24-11-1960 · Supreme Court of India · Bench: J.L. KAPUR · Disposal: Dismissed

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Judgment (excerpt)

November a4. 
644 
SUPREME COURT REPORTS 
(1961] 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY CITY I 
v. 
M/S. JAGANNATH KISSONLAL, BOMBAY 
(J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.) 
Income Tax-Money borrowed by two persons for business pur-
poses on joint and several lidbility-One failing to pay his share-
Whole paid by another-Unpaid sum by Co-borrower-If deductible 
as business loss-Commercial custom of joint borrowing-Mutuality 
-Indian Income Tax Act, z922 (II of z922), s. I0(2)(xv). 
For the purposes of its business the respondent borrowed a 
certain sum of money from the Bank of India on a pronote 
executed jointly by him and one Kishorilal in accordance with a 
commercial practice of carrying on business by borrowing money 
from Banks on joint and several liability. The money was divid-
ed half and half between the respondent and Kishorilal but 
Kishorilal failed to pay off his liability as he became a bankrupt 
and th~ respondent had to pay the whole amount to the Bank. 
The respondent, however, received from the Official Assignee a 
part of the sum taken by the Kishorilal leaving a balance still 
unpaid. The respondent's claim to deduct this unpaid balance 
under s. ro(2)(xv) of the Income-tax Act was refused by the In-
come-tax Officer and the Appellate Assistant C6mmissioner but 
was allowed by the Income-tax Appellate Tribunal on appeal. On 
a reference ma(le at the instance of the appellant the High Court 
decided the question in favour of the respondent assessee. On 
appeal by the appellant by special leave, 
Held, that the view taken by the High Court was correct. 
On the finding that there was a well establised Commercial prac-
tice of financing business by borrowing money on joint and 
several liability and by so doing the respondent could borrow 
at a lower rate of interest, and that there was mutuality bet-
ween the borrowers for standing surety for each other for loans 
taken for business purposes, the respondent assessee in comput-
ing his business profits was entitled to deduct the loss suffered 
by him in paying the sum not paid by his co-borrower. 
Commissioner of Income-tax v. Ramaswami Chettiar, [1946] 14 
I.T.R. 236, applied. 
Madan Gopal Bag/a v. Commissioner of Income-lax, West 
Bengal, [1956] S. C.R. 551, Commissioner or Income-tax v. S. R. 
Subramanya Pillai, [1950] 18 I. T. R. 85 distinguished. 
Montreal Coke and Manufacturing Co. v. Minister of National 
Revenue, [1945] 13 I.T.R. Supp. 1, not applicable. 
Civn. APPELLATE JURISDICTION: 
Civil Appeal No. 
358of1958. 
2 S.C.R. SUPREME COURT REPORTS 
645 
Appeal by special l.;iave from the judgment and 
x96o 
order dated 8th March, 1956, of the former Bombay Th c 
. . 
H• 
. 
f 9 
e 
01nmsssioner 
1gh Court Ill l.T.R. No. 55 0 1 55. 
of Income-tax, 
A. N. Kripal an\l D. Gupta, for the appellant. 
Bombay City I 
N. A. Palkkivala and B. P. Maheshwari, for the Mi 1
v. 
d 
s. 
agannalh 
respon ents. 
Kissonlal, Bombay 
1960. November 24. The Judgment of the Court 
was delivered by 
Kapur J. 
KAPUR, J. -This is an appeal by special leave 
against the judgment and order of the High Court of 
Bombay in Income-tax Reference No. 55 of 1955, in 
which two questions of law were ~tated for opinion 
and both were answered-in favour of the assessee and 
against the Commissioner of Income-tax ~ho is the 
appellant before us and the assessee is the respondent. 
The facts of this case are these: 
The respondent is a registered firm carrying on 
business as commission agents in Bombay. For pur-
poses of its business it borrowed money from time to 
time from Banks on joint promissory notes executed 
by it and by others with joint and several liability. On 
September 26, 1949, the respondent borrowed Rs. 
1,00,000 from the Bank of India on a pronote executed 
jointly with one. Kishorilal. Out of this amount a sum 
of Rs. 50,000 was taken by the respondent for pur-
poses of its business and the rest by Kishorilal. 
Kishorilal however failed to meet his liability and 
became a bankrupt. The respondent had therefore to 
pay the Bank the whole amount, i.e., Rs. 1,00,000 with 
interest. Out of the amount taken by Kishorilal the 
respondent received in the accounting year, from the 
Official Assignee, a sum of Rs. 18,805 and claimed the 
balance, i.e., Rs. 31,740 as deduction. The accounting 
year was from August 26, 1949 to July 17, 1950, the 
assessment year being 1951-52. This claim was dis-
allowed both by the Income-tax Officer as well as the 
Appellate 

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