Law:

Section:

Section 71 of the income-tax act, 1961-Loss-Set off of loss from one head against income from another-Assessee-company advanced money to C-In lieu of interest assessee entitled to 50 per cent of net profit, if any, of c after deduction of any loss arising to C-Subsequently C suffered loss-Whether assessee entitled to set off its share in aforesaid loss against its income -held, on facts, no Facts The assessee-company, deriving income from contract business, had entered into a financial agreement with the borrower company to advance a sum of Rs. 2 lakhs to the latter. The said agreement, inter alia, provided ( i) that the lender shall be entitled to 50 per cent of the net profit of the borrower company; (ii ) that the loss arising shall first be deducted from the net profit of any subsequent period and the balance, if any, shall only be divided between the parties; and (Hi) that if the borrower company made loss and such loss could not be recovered from the money due to the assessee-company, one KC was to be the guarantor for making up the loss. During the accounting year relevant for the assessment year 1962-63, the borrower company suffered a loss and the assessee's share therein was computed at Rs. 53,236, which was claimed by the assessee as a deduction in the computation of its income. The ITO observed that the relationship between the assessee and the borrower company was not that of partners but that of a lender and a borrower and disallowed the loss holding that the assessee was not to suffer loss in each "year and that it was to be carried forward to the subsequent year to be set off against the profits of the borrower company of that year and that it was only the balance which was to be divided between the assessee and the borrower-company. On appeal, the AAC upheld the the ITO's order. On second appeal, it was contended, inter alia, by the assessee before the Tribunal that the assessee had actually entered into a joint venture with the borrower company and, therefore, the loss arising from such venture had to be allowed in the computation of the total income of the assessee. The revenue contended (i) that the relationship between the assessee and the…

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