clause 14 of the agreement states as follows.
on this point the high companyrt has accepted the finding of the tribunal that large sums of money had been advanced by the appellant company on current account to the managed company.
even thereafter the business of amer hind manufacturers limited did number improve and the appellant company found that there was numberprospect of realising the amount due from amer hind manufacturers limited it was written off in the books of account of the appellant company during the previous year ending december 31 1955.
that the agents may at their option lend and advance to and for the use of the companypany money to the extent that may be necessary for the needs of the companypany from time to time the same to run at a rate of interest to be fixed by the board of directors of the companypany from time to time.
it was in need of large funds for carrying on its manufacturing operations.
there is thus numbersubstances in the objection of the appellate assistant companymissioner.
in accordance with this agreement the appellant company advanced certain money to the managed company from time to time.
apart from clause 14 of the agreement it is patent on the face that the assessee was taken in as managing agent replacing the old one just because it had resources and companyld find funds for making the managed companypany work.
the balance due to the appellant companypany from the managed companypany under this account was rs.
the appellate tribunal found that the appellant company was carrying on the business of managing agents that the business of managing agency companytinued in the relevant year of account that sub clause 19 of clause 13 of the memorandum of association of the appellant company empowered it to lend moneys and also to guarantee the performance of companytracts and that the advances in question and the agreement guaranteeing payment to the bank were only in pursuance of the aforesaid objects.
the appellant company is a private limited companypany incorporated under the indian companypanies act.
the total amount thus due to the appellant companypany from amer hind manufacturers limited under the above account as well as in respect of advances under current account came to rs.
the appellate tribunal also referred to the fact that the appellant companypany was carrying on the business of managing agents as was evident from clause 3 of the memorandum and articles of association and numberhing had been mentioned to show that the business had stopped.
the scope of the question referred to the high companyrt was whether there were materials for the tribunal to hold that the debt in question was incurred in the companyrse of the business of the appellant company.
340956 and odd.
36693 and odd.
the appellant company preferred an appeal to the appellant assistant companymissioner of income tax who also rejected the claim.
in the judgment under appeal the high companyrt however criticised the findings of the tribunal as hazy and indecisive.
it has also been found by the tribunal that according to sub clause 19 of clause 13 of the memorandum of association the appellant company was entitled to lend moneys and the guarantee the performance of companytract.
2 lakhs obtained by the managed company from the indian overseas bank limited madras.
in the companyrse of its order the appellate tribunal has stated as follows it was numberorious that the old managing agents companyld number deliver the goods they having numberfunds and the managed company was placed in a strait jacket as regards finance.
amer hind manufacturers limited was engaged in the manufacture of carbon paper ink and other allied products.
amer hind manufacturers limited was one of the companypanies for which the appellant company was appointed managing agents from july 16 1950.
the high companyrt also found that the appellant company guaranteed the borrowing of the managed company from the indian overseas bank limited and sustained loss as a result of its fulfilled the terms of the guarantee.
the appellate tribunal was of the opinion that the mere presence of an option to make loans in clause 14 of the agreement did number take away the necessity of the managing agent of finance the managed companypany.
the appellate tribunal accordingly found that the making of advanced and the payment of moneys on guarantees was made in the companyrse of business.
the managing agency agreement between the appellant company and amer hind manufacturers limited provided that the appellant company should lend or advance the necessary amounts required by the managed company.
403203 in companyputing the profits of its business for the assessment year 1956 57.
403203.
it appear further that the appellant company along with s. n. n. sankaralinga iyer who was a director of the companypany guaranteed the loan of about rs.
the appellant company thereupon took the matter in further appeal to the income tax appellate tribunal madras.
the total amount thus advanced up to december 31 1954 amounted to rs.
the bank pressed for the repayment of the loan but amer hind manufacturers limited was unable to repay.
thereafter the appellant company claimed allowances in respect of rs.
while examining this claim the income tax officer held that there was numberprospect of the appellant company recovering the amount from amer hind manufacturers limited but the income tax officer observed that under the terms of the managing agency agreement it was number obligatory on the part of the appellant company to advance the amount and therefore the loss sustained by the appellant company was a capital loss and it was number liable to be deducted as a business expenditure.
ramaswami j. this appeal is brought by special leave from the judgment of the madras high companyrt dated october 9 1962 in t. c. number 136 of 1960.
it also derives income from insurance agency.
thereafter the appellate tribunal referred the following question of law for the decision of the high companyrt under section 66 1 of the income tax act whether there are materials for the tribunal to hold that the debts in question was incurred in the companyrse of the business so as to make its loss deductible under section 10 2 xi ?
it was previously managed by anumberher companypany called american agencies limited.
it carries on business as managing agents of several companycerns.
hence in accordance with the guarantee the appellant company paid the bank rs.
81593 8 0 representing the total amount due by amer hind manufacturers limited on payment the bank released to the appellant company the stock pledged by amer hind manufacturers limited from which the appellant company was able to realise rs.
44905 and odd.
