Law: Income Tax Act, 1922

Section: 10(2)(xv)

Law: Income Tax Act, 1922

Section: 10(2)(xv)

Section 37(1), read with section 28(1) of the Income-tax Act, 1961 [Corresponding to section 10(2) (xv), read with section 10(2) of the Indian Income-tax Act, 1922 - Business expenditure - Allowability of - Assessment year 1958-59 (xv) - Assessee-firm was carrying on banianship business with a company - As per terms of agreement assessee had to secure purchasers for goods sold by that company and to stand guarantee for money due and payable by merchants to whom goods were supplied - Subsequently, assessee decided to wind up its business - On date of settlement by assessee with company, total outstandings from customers was Rs. 5,54,105 which assessee stood guaranteed for said amount and he had to indemnify them by payment of said sum - Company failed to recover moneys from buyers - Assessee paid a sum of Rs. 75,000 to company towards their guaranteed amount of Rs. 5,54,105 and debited same to profit and loss account and, accordingly, claimed a deduction of said amount as liability due to company for assessment year 1958-59 - Whether sum of Rs. 75,000 paid by assessee to company could not be called an expenditure as it did not pay said amount on account of any accrued liability but only paid it towards a contingent liability - Held, yes - Whether, therefore, assessee would not be entitled to claim deduction under section 10(1) or section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee was carrying on banianship business with company. In the course of this business, the assessee had to secure purchasers for goods sold by the company and stood guarantee for the money due and payable by the merchants to whom goods were delivered. As and when amounts were realised from the constituents, credits would be given and the assessee was to be freed from the guarantee in respect of those transactions. Due to disputes among its partners, assessee decided to wind up its business. On the date of the settlement by the assessee with the company, the total outstandings from the customers was Rs. 5,54,105. According to the terms of the agreement, the assessee stood guarantee for the said amount and he had to indemnify them by payment of the said sum the company failed to…

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