Law:

Section:

Bad debt----   ---- Freight broker guaranteeing loan of charterer to shipping line Broker to receive share of profits as consideration-Failure of shipping line to repay loan Freight broker discharging obligation Loss incurred Whether bad debt.   As part of a transaction of a charter party, the charterer advanced a sum of money to a shipping line for acquiring a vessel. The freight broker guaranteed the loan. In return, the broker was to obtain a share of the profits which would be earned by the shipping line, over and above his earnings on account of agency fees, brokerage, etc. The shipping line being unable to repay the loan, the broker had to discharge the obligation. He did so, wrote off the amount in his accounts and claimed it as a bad debt. The claim was rejected by the Appellate Tribunal. On a reference to the High Court :   Held, that no part of the sum which was guaranteed by the assessees could be treated as a bad debt as furnishing of guarantee is not a normal incident in the course of business of freight brokerage and it is also not customary for freight brokers to undertake such an obligation on behalf of shipping lines.   The connection between a business of freight brokerage and the business of securing advances to shipping lines is far too tenuous to support a claim that it was incidental to the business. Re fact that the assessee was to receive a part of the profits of the shipping line from the transaction showed that it was not entered into in the course of the business of a freight broker.   The question to be considered in such cases is whether the transaction is a necessary part of the normal course of business and is so closely interlinked with the business as to be incidental to the carrying on of the business.   Facts differ from business to business and what is allowable as a deduction in respect of one business may not be allowable in another business.   Commissioner of Income tax v. Subramanaya Pillal (1959) 18 I T R 85 and Madan Gopal Bagla v. Commissioner of Income tax (1956) 30 I T R 174 (S C) fol.   Commissioner of Income tax v. Jagannath Kissonlal (1961) 41 I T R 360 (S C) ; Morley v.…