Law:

Section:

Section 28(i) of the Income-tax Act, 1961 (Corresponding to section 10 of Indian Income-tax Act, 1922) - Business loss - Allowable as - Assessment year 1948-49 - Assessee sold cloths to a merchant in excess of his export permit and was thus prosecuted in contravention of his permit - Magistrate passed orders confiscating 1/10th of cloths and placing cloths at disposal of Provincial Textile Commissioner to be disposed of in appropriate manner - In pursuance of that order, Commissioner sold entire goods, deducted 10 percent from sale proceeds to be paid to Government and costs and expenses of sale and paid assessee balance amount - Assessee, who kept his accounts on mercantile basis, credited himself with moneys received from Government and claimed loss of difference between sum credited in previous year as representing price of goods sold and what was paid to him by Government - Whether receipt in question was a business receipt and, hence, loss sustained by assessee was a trading loss which was deductible in computing assessee's income - Held, yes - Whether, however, to extent to which Magistrate directed confiscation to proceed, loss was not contemplable and so not a commercial loss in course of trade - Held, yes - Whether, therefore, sum representing value of 1/10th confiscated and costs incurred in effecting sales could not be claimed as a loss - Held, yes FACTS The assessee was a firm carrying on business in the manufacture and sale of handloom cloth. The assessee obtained a permit to export 200 yards of cloth, but without regard to the limit of that permit he sold to a party 9762 yards of cloth at a sale price of Rs. 16,807. When the assessee attempted to export that quantity in contravention of his permit, this was detected by the textile authorities and the goods were seized. The assessee was prosecuted. The Magistrate found the partners guilty of the offence with which they were charged and convicted them. In awarding the sentence the Magistrate took into account the fact that some of the partners of the firm had not taken any prominent part in the commission of the offence and therefore sentenced them to varying amounts of fine. In addition he passed…

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