Law:

Section:

Section 36(1)(vii) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xi) of the Indian Income-tax Act, 1922 - Bad debts - Assessment year 1956-57 - Assessee-company was engaged in carrying on managing business of several concerns - It was appointed as a managing agent of a company to which it had advanced certain amount - Assessee had also given guarantee to said managed company to obtain loan from a bank - On failure of managed company to repay that loan, in accordance with guarantee, assessee had to pay that - As managed company failed in its business amount paid to bank as guarantee money and moneys advanced to it was became irrecoverable - Therefore assessee wrote off that amount in its books of account and claimed as allowance from profits arising from business - Both ITO and AAC disallowed claim of assessee - However Tribunal allowed claim of assessee on finding that memorandum of association of assessee company empowered it to lend moneys and agreement guaranting payment to bank was in pursuance to that object and during course of business - However, High Court disallowed claim of assessee on finding that assessee had acquired managing agency on condition of giving loans and making advances and loss arising out of such advance would only be capital loss as it related to structure or framework of managing agency business - Whether High Court was in error in disregarding finding of fact which Tribunal had recorded and there was proper material before Tribunal in support of its finding that debt in question was incurred in course of business of assessee so as to make it deductible under section 10(2)(xi) of Act 1922 - Held, yes FACTS The assessee company was carrying on business as managing agents of several concerns. 'AHM' Ltd. was one of the companies for which the assessee was appointed managing agents. 'AHM' Lt.d was engaged in the manufacture of carbon paper, ink and other allied products. It was in need of large funds for carrying on its manufacturing operations. The managing agency agreement between the assessee and 'AHM' Ltd. provided that the assessee should lend or advance the necessary amounts required by the managed-company. In…

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