The appellant paid off his loan of Rs.
The said reference was heard by the High Court and in its judgment the High Court held that the Tribunal had proceeded on an erroneous assumption as to the facts of the case and the application of the money.
Regarding the decision relied upon by the Tribunal, the High Court referred to a later decision in Commissioner of Income tax, Madras v. S. R. Subramanya Pillai 1 , which held that the earlier decision must be read as companyfined to its peculiar facts and number applicable to business other than money lending business of Nattukottai Chettiars.
It is clear that numberpart of the monies borrowed on the joint security of the appellant and Mamraj Rambhagat from the Imperial Bank of India, Bombay went to finance the timber business of the appellant, but they were all utilised by Mamraj Rambhagat in his own business.
The High Court, therefore, answered the referred question in the negative.
Appeal from the judgment and order dated the 8th day of June 1951 of Calcutta High Court in Income tax Reference No.
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.
Since numberpart of the loan, which had been taken from the Imperial Bank of India by Mamraj Rambhagat on the joint security of himself and the appellant, was applied to the appellants own business, there was numberquestion of an allowable deduction in relation to the business of the appellant.
or business debt of the trade or business of the appellant, which companyld be claimed as a loss and as the debt claimed was number in respect of the business of the appellant, which was the business of trading in timber and number of a person carrying on the business of standing surety for other persons, the loss suffered by the appellant was a capital loss and number a business loss at all.
The Income tax Officer disallowed the claim holding that the said loss was a capital loss, and so did the Appellate Assistant Commissioner.
Reference was made to the case of Commissioner of Income tax, Madras v. S. A. S. Ramaswamy Chettiar 1 , where it was held that it was a custom amongst Nattukottai Chettiars to stand surety for one another for borrowing from Banks for the purpose of lending out at higher rates of interest and that the loss incurred under the agreement of guarantee by the Chettiar firm should be allowed as a deduction.
6 of 1954.
These monies were number required to finance the timber business of the appellant, number was the debt due by Mamraj Rambhagat and in respect of which the account was opened by the appellant in his ledger in the name of Mamraj Rambhagat a debt due by Mamraj.
and came to 1 1946 14 I.T.R. 236.
9,434 on 25th April 1934 and Rs.
This sum of Rs.
45 596 leaving a balance of Rs.
The appellant opened a ledger account in the name of Mamraj Rambhagat and the total amount 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 is a timber merchant.
the companyclusion that the loss suffered by standing surety was an allowable loss and upheld the companytention of the appellant.
1 of 1951.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
The appellant received the dividends from the receivers Rs.31,446 on 30th October 1930, Rs.
On 5th February 1930.
4,716 on 17th May 1938, aggregating to Rs.
N. Joshi, Porus A. Mehta and R. H. Dhebar, for the respondent.
J. Kolah and P. K. Ghosh, for the appellant.
The Judgment of the Court was delivered by BHAGWATI J. This is an appeal with certificate 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.
It was stated that this manner of securing loans on joint security was preferred by the Banks and it was also in the interest of the traders as lower rate of interest was charged, if the loan was on joint security.
1 lakh from the Imperial Bank of India.,
he obtained a loan of Rs.
At the instance of the respondent the Tribunal stated a case to the High Court under section 66 1 of the Act and referred the following question for its decision Whether on the facts found the sum of Rs.
Bombay on the joint security of himself and the appellant.
1 lakh was realised by the Imperial Bank of India from the appellant with interest thereon of Rs.
1,00,626, was debited to this account.
It was also stated that the appellant used to borrow money on joint security frequently and certain old pro notes jointly executed were submitted before the Appellate Assis tant Commissioner.
On the same day Mamrai Rambhagat obtained a loan of Rs.
1 lakh from the Bank of India on the joint security of himself and one Mamraj Rambhagat.
May 8.
I lakh to the Bank of India but Mamraj Rambhagat failed to make good the amount of his loan to the Imperial Bank of India, Bombay.
Hence this appeal.
55,030 suffered by the appellant in this transaction was a capital loss or 1 1950 18 I.T R. 85.
was a trading loss or a bad debt incurred by the appellant in the companyrse of carrying on his business of timber.
