# A.V. T!wm1U &- C•., Lid v. Commissionn' of Incmn1-llJJt1

- **Citation:** [1963] Supp. 1 S.C.R. 776
- **Court:** Supreme Court of India
- **Decided:** 1960-07-08
- **Case number:** Civil Appeal No. 214 of 1962
- **Bench:** J. L. Kapur, M. Hidayatulla.H, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-v-t-wm1u-c-lid-v-commissionn-of-incmn1-lljjt1-2745
- **Pages:** 14

## Headnote

Income Tax-Deduction-Bad debt-Expenditure-Amount
advanced, for purchOJJe of 8hares-Indlan Income-tax Act, 1922
(11of1922), 88. 10(2) (xi) and (xv).
The assessee company was incorporated in 1935 and its
Memorandum of .M.Ssociation authorised it, inter alia, to
promote and to undertake the formation and establishment of
other companies and to assist any compo.ny financially or otherwise.
There was another company known as the Southern
Agencies Ltd. and Mr. A. V. Thomas was director of both these
r.ompanies. In 1948 the Southern Agencies Ltd. began the
promotion of a company to be known as the Rodier Textile
Mills Ltd., with a view to buying up a Mill known as the
Rodier Textile Mills. The assessee company made an advance
of Rs. 6 lakhs odd to the promoter for the purchase of 6000
shares of the new company. The public took no interest in .the
new company and the whole project failed. No application for
shares was made on behalf of the assessee company .and no
share was acquired. The Southern Agencies Ltd.: however, did
not return the entire amount. On December 7, 1951, it paid
back only lls. 2 Jakhs which was received in full satisfaction.
The balance of Rs. 4,05,071-8-6 was written of!' on December
3i, 1951, which was the close of the year of account of the
assessec company. For the assessment year 1952-53 the assessce
company claimed a deduction of that amount as a bad debt
actually written of!', or alternatively as an expenditure, not of
a capital nature laid out or expended wholly and exclusively
for the purpose of its business.
1 S.C •. R.
SUPREME COURT REPORTS
777
HtU, (I) that the amount advanced for the purchase of
shares was of a capital nature and, therefore, the balance ~as
not allowable as an expenditure under s. l0(2)(xv) of the Indian
Income-tax Act, 1922, as it was not the business of the assessee
company to buy agencies and sell them; and in any event the
amount was expended in 1948 and not in the year of account
ending December 31, 1951.
(2)
that it was not a bad debt under s. l0(2)(xi). A
debt in such cases is an outstanding which is recovered would
have swelled the profits. It is not money handed over to some
one for purchasing a thing which that person has failed to
return even though no purchase was made.
Ourtis v. J. &; G. Oltlfiel.d Ltd., (1925) 9 Tax Cas. 319,
Arunachalam Ohettiar v. Commissioner of Incomt-tax, (1936)
L. R. 63 I. A. 233, Badridas Daga v. Commissioner of Incomttn:z, [1959] S. C. R. 690 and Oommmiontr of Income-tax v.
Abdull.abhai Abdulakadar, [1961] 2 S.C.R. 9-i9, relied on:

## Text

1962
Commirsiontr oj
-u:ome~ta:c, Bombay
City 1, Bombay
v.,
Afto (P) Ltd.,
Bombay
Shah, J.
1962
Orto!nr, 25.
716 SUPREME COURT REPORTS [1963JSt.ri.>i>.
entitled to the rebate claimed by it. The appeal
therefore fails and is dismissed with costs.
Appeal dismissed.
A. V. THOMAS & CO., LTD., ALLEPPEY
"·
THE COMMISSIONER OF INCOME-TAX,
(BANGALORE) KERALA
(J. L. KAPUR, 'M. HIDAYATULLA.H and J. c.
SHAH, jj.)
Income Tax-Deduction-Bad debt-Expenditure-Amount
advanced, for purchOJJe of 8hares-Indlan Income-tax Act, 1922
(11of1922), 88. 10(2) (xi) and (xv).
The assessee company was incorporated in 1935 and its
Memorandum of .M.Ssociation authorised it, inter alia, to
promote and to undertake the formation and establishment of
other companies and to assist any compo.ny financially or otherwise.
There was another company known as the Southern
Agencies Ltd. and Mr. A. V. Thomas was director of both these
r.ompanies. In 1948 the Southern Agencies Ltd. began the
promotion of a company to be known as the Rodier Textile
Mills Ltd., with a view to buying up a Mill known as the
Rodier Textile Mills. The assessee company made an advance
of Rs. 6 lakhs odd to the promoter for the purchase of 6000
shares of the new company. The public took no interest in .the
new company and the whole project failed. No application for
shares was made on behalf of the assessee company .and no
share was acquired. The Southern Agencies Ltd.: however, did
not return the entire amount. On December 7, 1951, it paid
back only lls. 2 Jakhs which was received in full satisfaction.
The balance of Rs. 4,05,071-8-6 was written of!' on December
3i, 1951, which was the close of the year of account of the
assessec company. For the assessment year 1952-53 the assessce
company claimed a deduction of that amount as a bad debt
actually written of!', or alternatively as an expenditure, not of
a capital nature laid out or expended wholly and exclusively
for the purpose of its business.
1 S.C •. R.
SUPREME COURT REPORTS
777
HtU, (I) that the amount advanced for the purchase of
shares was of a capital nature and, therefore, the balance ~as
not allowable as an expenditure under s. l0(2)(xv) of the Indian
Income-tax Act, 1922, as it was not the business of the assessee
company to buy agencies and sell them; and in any event the
amount was expended in 1948 and not in the year of account
ending December 31, 1951.
(2)
that it was not a bad debt under s. l0(2)(xi). A
debt in such cases is an outstanding which is recovered would
have swelled the profits. It is not money handed over to some
one for purchasing a thing which that person has failed to
return even though no purchase was made.
Ourtis v. J. &; G. Oltlfiel.d Ltd., (1925) 9 Tax Cas. 319,
Arunachalam Ohettiar v. Commissioner of Incomt-tax, (1936)
L. R. 63 I. A. 233, Badridas Daga v. Commissioner of Incomttn:z, [1959] S. C. R. 690 and Oommmiontr of Income-tax v.
Abdull.abhai Abdulakadar, [1961] 2 S.C.R. 9-i9, relied on:
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 214 of 1962.
Appeal fro~ the judgment dated July 8, 1960
of the Kerala High Court, Emakulam, in Income·tax
Referred Case No. 10 of 1957.
S. T. Desai and Sardar Bahadur, for the
appellant.
K. N. Rajagopal Sastry, R. N. Sachthey and
P. D. Merwn, for the respondent.
1962.
October 25. The Judgment of the
Court was delivered by
HrnAYATULLAH, J.-The assessec, A.V. Thomas
& Co., Ltd., Alleppey, claimed a deduction of
Rs. 4,05,07~-8-6 in the assessment year 1952-53 as a
bad debt which was written-off in its books of account
on December 31, 1951. This claim was disallowed.
Afte; sundry proce~ure, the following question was
con~idered by the High Court of Kerala and answered
agamst the assessee company :-
".Whether on the facts and the circumslanu:s
of the cas~ .. the Tr.ibunal ·,, ''" correct in hoiding
1962
A.V. T!wm1U &-
C•., Lid.
v.
Commissionn' of
Incmn1-llJJt1
(Bantal8") !Ctra,
1962
A.V. Thomas &
Co., Ltd.
y,
Jommissioner of
lncom,,..tax,
an.galore) Kera/a
ffidayatullah, J.
778 SUPREME COURT REPORTS [1963] SUPP.
that the amount of Rs. 4,05,071-8-6 claimed by
the assessee Co. as a deduction was not admissible either under section 10(2) (xi) or 10(2)
(xv) ?"
The High Court certified the case as fit for
appeal to this Court and this appeal has been filed by
the assessee company. The Commissioner of Incometax (Bangalore) Kerala, is the respondent.
The assessee company was incorporated in 1935
and, as is usual with companies, its Memorandum of
Association, authorised it to do multifarious businesses.
According to clauses 1, 5, 18 and 23, it was
authorised "to be interested in, to promote, and to
undertake the formation and establishment of other
companies", to make investments and to assist any
company financially or otherwise.
At the material
time the assl'.'ssee company had three directors, whose
names are given below :
1.
A. V. Thomas
2.
S. Sankaranarayana Iyer and
3. ]. Thomas.
There was another private limited company
known as the Southern Agencies Limited, Pondicherry, and its directors were :-
1. A. V. Thomas
2.
S. S. Natarajan, and
3.
C. S. Ramakrishna Karayalar.
There was a mill in Pondicherry known as
R'.odier Textile Mill belonging to the Anglo French
Textiles Limited, Pondicherry. The assessee company
averred that the Southern Agencies Ltd., took up in
1948 the promotion of a limited company to be
known as Rodier Textile MilJs Ltd., Pondicherry, with
1 s.c.R. SUPREME COURT REPORTS
779
a view to buying and developing the Rodier Textile
Mill. The assessee company, so it was stated,
financed the Southern Agencies Ltd., Pondicherry, by
making over funds
aggregating to the sum of
Rs. 6,05,071-8-6. This amount was not given directly
by the assessee company but at its instance by India
Coffee and Tea Distributors Ltd., Madras. The
assessee company further stated that though an entry
in its own books dated December 31, 1948, showed
this amount as an advance for purchase of 6,000
shares of Rs. 100 each in the Rodier Textile . Mills
Ltd., the main intention of the assessee company was
to assist and finance the Southern Agencies Ltd.
within the terms of the assessee company's Memorandum. The subscription list for the R odier Textile
Mills Ltd. remained open from January 5 to January
20, 1949. No application for shares was made on
behalf of the assessee company and the shares were
not acquired. The public took no interest iu the new
company which was being promoted and the whole
project failed.
On September 1, 1950, the assessee company
approved of the action of .Mr. A. V. Thomas in
making the said advance and on September 18, 1950,
a resolution was passed by the Board of Directors of
the assessee company that the amount of Rs. 6,00,000
should be shown as an advance for purchase of shares
in the Rodier Textile Mills Ltd. (in formation) and
the balance of Rs. 5,072-8-5 be shown under sundry
advances due from the promoters of the new company.
The Southern Agencies Ltd. however, did not return
the entire amount. On December 7, 1951, it paid
back Rs. 2,00,000 which appears to have been
received in full satisfaction. Thou(ih as late as June
12, 1951, the advance was considered to be good and
recoverable, the balance was written off on December
31, 1951, which was the close of the year of 1ccount
of the assessee company. It was this amount which
was claimed in the assessment year 1952-53 as a bad
1962
A. V. Tlwmas &
Co., Ltd.
v.
Commission11 of
Jneome~tax
(Bangalo") Kera/a
Hida,.tullah, /.
1962
A. V. Thomas &
Co., Ltd.
v.
CommissioMr af
lntmn4-tax,
(Bangalore) Ker.Ua
Hidayatultali, J.
780 SUPREME COURT REPORTS (1963] SUPP.
debt actually written off, or alternatively as an
expenditure, not of a capital nature, laid out or
expended wholly and exclusively for the purpose of
the assessee company's business.
The Income-tax Officer, Alleppey, held that
the debt was written off at a time when it was neither
bad nor doubtful and the claim to write it off was
premature. He, therefore, disallowed it. An appeal
was taken to the Appellate Assistant Commissioner
and he upheld the order of the Income-tax Officer
though on a different ground. He held that the
advance was made for the purpose of purchasing
shares of the new company then in formation and it
was thus made for the acquisition of a capital asset,
which was either the control of the new company or
"to gain its good-will likely to result in the grant of
agency rights" to the assessee company. According
to the Commissioner, the loss, if any, was of a capital
nature and the question whether the claim of bad
debt was premature or otherwise did not arise for
consideration.
The Appellate Assistant Commissioner also held that the deduction could not be
claimed as an allowance under s. l0(2l(xv) of the
Income·tax Act. The assessee company appealed' to
the Tribunal. The Tribunal upheld the order of the
Appellate Assistant Commissioner but on a third
ground. The Tribunal accepted that one of the
objects of the assessee company wa~ the promotion
and financing of other companies for gain but this
advance of Rs. 6,00,000 was not made by the assessee
company in the normal course of its business. It was
rather a transaction
"actuated only by personal
motives". In reaching this conciusion the Tribunal
observed that the advance was made to Southern
Agencies Ltd. which was not a company promoted
by the assessee company, that between these two
companies there was no previous business connection
and that the 4sscssee company had no expectancy of
a financial benefit. The Tribunal heid that the
1 S.G.R. SUPREME COURT REPORTS
781
Rodier Textile Mills Ltd., Pondicherry, was not
being financed or promoted by the assessee company
and that the statement by the assessee company that
it would have received some agency right was not
supported by evidence.
The Tribunal was of the
opinion that this advance was probabiy due t0 the
"substantially common ownership of the
as<essee
company and the Southern Agencies Ltd., of two
individuals,
namely,
A. V.
Thomas
and
S. S. N atara j an." The Tribunal thus held that this
deduction could not be claimed as it was given out
of "personal motives" and not as a part of the business of the assessee company.
The assessee company demanded a case but it
was refused by the Tribunal. The assessee company
in its application for the case had propounded three
questions as under :-
"( i) Whether on the facts and iu the circumstances
of
the
case,
the
sum
of
Rs. 4,05,072-8-5 can be claimed by the
assesst>e as a bad debt written off under
the provisions of Section 10( 2) (xi) of the
Act,
(ii) Whether on the facts and in the circumstances of the case, the assessee can claim
the sum of Rs. 4,05,072-8-5 ?.S permissible
deduction under Section 10(2) (xv) of the
Act, and
(iii) Whether on the facts and in the circumstances of the case, the assessee is permitted
to claim the deduction of the said sum of
Rs. 4,0.'i,072-8-5 as a proper debit and
charge it to the Profit and Loss account of
the assessee company."
These questions show that the deduction was
dairned (i) as a loss in the doing of the business unde:r
1962
A. V. Thomas &
Co., Ltd.
v.
Commissiontr of
Income-la....;,
(Bangalore) Keralt.
Hid•yatu!ld, J.
1962
A. V. Thomas &
Co., Ltd.
v.
-Commissioner of
Income-tax,
-Bangalore) Kerala
Hidayatul/ah, J.
782 SUPREME COURT REPORTS [1963] SUPP.
s. 10(1); (ii) as a bad debt actually written off under
s. 10(2)(xi); and (iii) as an expenditure laid out
wholly and exclusively for the pii.rpose of the business
under s. 10(2)(xv) of the Income-tax Act. The
assessee company applied to the High Court and the
High Court directed a reference on the single question
which has been quoted. That question shows that
the High Court did not direct the case under s. 10(1)
of the Act.
The Tribunal had considered the case
from the point of view of the business and had held
that this was not an advance in the normal course of
business but one out of "personal motives".
The
High Court apparently had not accepted that the
matter could be considered under s. 10( 1) and framed
the question under els. (xi} and (xv) of s. 10(2). The
question as propounded and considered by the High
Court related to the two clauses only. An attempt
was made before us to raise the issue under s. 10( 1)
and to claim the deduction as an ordinary business
loss. We disallowed the argument because in our
opinion the question as ·considered in the High Court
docs not embrace it. The assessee company should
have requested the High Court at some stage to
frame a question that there was no material for the
Tribunal to reach the conclusion that this was not a
business transaction but a case of an advance out of
personal motives.
It was contended before us that
the f!igh Court in calling for a reference on the single
queshon had stated that that question would cover
three matters. The first two were mentioned in the
question and the third which was said to be implicit
was whether the Tribunal was competent to decide
a case which had not been made out by the Department at an earlier-stage. But this was not the same.
thing as saying that the Tribunal had no material
before it on which it could reach the conclusion that
this was not an advance in the ordinary course of
business by the assessee company. No doubt, the
High Court in its order calling for a statement of the
case has observed that there was no dispute at any
I S.C.R.
SUPREME COURT REPORTS
78.J
earlier stage that this was not in the ordinary course
of business, but that conclusion of the High Court in
the order it made under s. 66(2) can have no relevance
or binding force.
lncJced, the High Court was in
error in giving a finding of its own and it is not
surprising that the Tribunal protested against this
finding.
It was open to the High Court to frame a
question whether there was any material to support
the finding of the Tribunal and to ask the Tribunal
to state a case thereon.
Not having done so, th~
question as framed drives the assessee company to
prove its case either under s. 10(2)(xi) or under
s. 10(2)(xv) and it is from these two angles that the
case will be considered by us. Clauses (xi) and {xv)
of s. 10(2) read as follows :-
"(2) Such profits or gains shall be computed
afler making the following allowances, namely:-
x
Ji
(xi) when the assessee's accounts in respect of
any part of his business, profession or vocation are not kept on the cash basis, such
sum, in respect of bad and doubtful debts,
due to the assessee in respect of that part
of his business, profession or vocation, and
in t~e case of an assessee carrying on a
bankmg or money-lending business, such
sum in respect of loans made in the ordinary cour.se of such business as the Incometax Gfficer may estimate to be irrecoverable but not exceeding the amount actuallv
written off as irrecoverable in the books a'f
the assessee :
(Proviso 0mitted)
(xv) any expenditure (not being an allowance
of the nature described in any of tlw
clauses (i) tq (xiv) inclusive, and not being
in the nature of : 1pital expenditure o~
1962
A. V. Th•mar&
Co., Ltd.
v.
CommissioMT of
lneome-lax,
(Bangalore) K1rala
Hidayatullah, J.
1962
A. Y. Thomas&
C•., Ltd.
v.
Commissioner of
lricome~tax,
( Banga/OT1) Kira/a
Hidayatullah, J,
784 SUPREME COURT REPORTS [1963] SUPP.
personal expenses) laid out or expended
wholly and exclusively for the purpose of
such business, profession or vocations".
In support of its case, the assessee company
stated that as there was no dispute about the facts that
this was an advance in the ordinary course of business
it should be treated as a trading loss or alternatively
as a bad debt or an expenditure claimable under
s. 10(2)(xv).
The assesses company relied strongly
upon certaii:t Ledger entries of the Rodier Textile
Mills Ltd. in the books of the assessee company.
These have been marked as Annexures A. 1 to A. 3.
The High Court also referred to these accounts and
they have been construed as showing that there was
an attempt by the assessee company to acquire a
capital asset.
These accounts began in 1948 and
ended on December 31, 1951.
The accounts are
headed "Personal Ledger."
In December, 1948,
sundry amounts totaHing Rs. 6,05,071-8-5 are shown
as amounts "paid to you by Indian Coffee and Tea
Distributors Ltd., Madras, towards
purchase of
shares." On January l, 1949, the account opened
with a debit balance of Rs. 6,05,071-8-5. Nothing
appears from the accounts who this "you'·' was.
A
number of reversing entries were 11).ade in respect of
certain amounts and then on December 31, 1949,'the
amount was shown as follows :-
By advance for sundry expenses
due from the promoters of new
company debited to this transferred
By balance
1950 opened with entry on January 1To Balance
and closed with an entry
By Amount paid to Southern
Agencies Ltd.
c
5,071-8-5
6,00,000-0-0
6,00,000-0-0
6,00,000-0-0
1 S.C.R.
SUPREME COURT REPORTS
785
This was shown as an opening balance on
January l, 1951.
On December 7, a payment of
Rs. 2,00,000 was shown and Rs. 4,00,000 were transferred for writing off.
On December 31. Hlill,
Rs. "1,011,0llO were written off and so also the amount
uf Rs. ;),072-8-5.
The last amount included a sum
of Rupee 1, hire for carriage which was also written
off after the ~ntry had been reversed.
From these accounts it 1s quite clear that to
begin with the amount was shown as an advance for
purchase of shares of the Rodier Textile Mills Ltd.
If this was the purpose, it was not an expenditure
on the r,·vrnue side.
The High Court correctly
pointed out thal it was not the business of the assessee
company to buy agencies and sell them.
The shares
were being acquired by the assessee company so that
it might have the lucrative business of selling agency
and similar other agencies from the Rodier Textile
lvlills Limited.
As late as December 15, 1952, the
Chairman of the assessee company stated in his
speech as follows :-
"You are aware that an advance was made to
the Southern Agencies (Pondicherry) Ltd. to
acquire for us shares in Rodier Textile Mills
Ltd. It was felt that when the promotion and
working of Rodier Textile Mills Ltd., became a
fait accompli, our company stood considerably
to gain by securing their agency for handling
their goods.''
This clearly shows that the assessee company
intended to acquire a capital asset for itself.
This
purpose takes the case of the assessee ccmpany out of
s. 10(2)(xv) of the Income-tax Act, because no expenditure can be claimed under that clause which 1s of
a capital nature. By the declaration of the Chairman
of the assessee company the case under s. 10(2)(xv)
becomes completely untenable. In any event, the
1962
A. V. Th Mn as &
Co., Lid.
v.
Cammissione' tJj
lneomt-tllx,
lBangalore) Ker11/a
Hid11yatullah, J.
1962
A. V. Thomas &
Oo., Ltd.
v.
Commissi"oner of
Income-tax,
(Bangalore) Kerala
Hidayatullah, J,
786 SUPREME COURT REPORTS [1963] SUPP.
amount was not expended in the year of account
ending with December 31, 1951 : it was expended
in 1948.
It remains to consider the case under s. 10(2)(xi).
In this connection, we were referred to the Memorandum of Association to show that it was one of the
objects of the assessee company to promote other
companies and this amount was paid to Southern
Agencies Ltd. to promote the Rodier ·Textile Mills
Ltd.
There is no doubt that the objects mentioned
in the Memorandum of Association of the assessee
company include the promotion and financing of
other companies.
A "Memorandum, however, is not
conclusive as to the real nature of a transaction. That
nature has to be deduced not from the Memorandum
but from the circumstances in which the transaction
took place. Here, the different versions given in the
books of account of the asscssee company belie the
assertion that this was an amount paid to promote
the Rodier Textile Mills Ltd.
Even though this
money was available on December 31, 1948, and the
subscription list for the shares remained open from
January 5 to 20, 1949, no application for a single
share was made on behalf of the assessee company.
The entry till the end of 1949 was that the amount
was laid out for purchase of shares. It was only
subsequently that it was shown to be an advance to
the Southern Agencies Ltd. In fact, the entrv comes
only at the end of 1950 when it is set down "By
Amount paid to Southern Agencies Ltd."
The assessee company raised three contentions
in support of the case that this became a bad and
doubtful debt which was actually written off: (a) that
the High Court was wrong in saying that before the
assessee could claim the deduction under s. 10(2)( xi)
it must prove that it had in the past purchased and
sold agencies, (b) that the object of the assessee
company was to apply for shares but as it did noi
I S.C.R. SUPREME COURT REPORTS
787
apply for shares the transaction between it and the
Southern Agencies remained an advance in the ordinary course of business, and ( c) Southern Agencies
having failed to give back the money the assessee
company was within its rights to write off this bad
and doubtful debt.
Now, a question under s. 10(2)(xi) can only
arise if there is a bad or doubtful debt. Before a
debt can become bad or doubtful it must first be a
debt. What is meant by debt in this connection was
laid down by Rowlatt, J., in Curtis v. J. & G.
Oldfield Ltd.,(') at p. 330 as follows :-
"When the Rule speaks of a bad debt it means
a debt which is a debt that would have come
into the balance sheet as a trading debt in the
trade that is in question and that it is bad. It
does not really mean any bad debt which, when
it was a good debt, would not have come in to
swell the profits."
A debt in such cases is an outstanding which if
recovered would have swelled the profits. It is not
1'lloney handed over to someone for purchasing a thing
which that person has failed to return even though
no purchase was made. In the section a debt means
something more than a mere advance. It means
something which is related to business or results from
it. To be daimal:>Ie as a bad or doubtful debt it
must first be shown as a proper debt.
The observations of Rowlatt, J., were applied by the Privy
Council in Arunachalam Ohettiar v. Oommisswner of
lncome-tax( 2), at p. 245, where their Lordships
observed as follows:-
"Their
Lordships
moreover
can give no
countenance to a
suggestion that upon a
dissolution of partnership a partner's share of
the losses for several preceding years can be
accumulated and thrown into the scale against
(1) (1925) 9 Tax c ... 519, 530.
(2) (19~6) L. R. 65 I. A. 233, 2.S
1912
A. V. Thomas &
Co., Ltd.
v.
Commissioner of
IM~rru-lax,
( B1111g•lon) Ker.Jo
Hii•yotullah, J.
1962
A. V. Thomas &
Co .. I.td.
v.
Commissioner of
I n~ome-tax,
-(Bangalore) Ktrala
Hidayatullah, J.
788 SUPREME COURT REPORTS [1963] SUPP.
the income of another partner for a particular
year. No principle of writing off a bad debt
could justify such a course, whether in the year
following the dissolution or.. as logic would
permit, in some subsequent year in which the
partner's insolvency
has
crystallised. · The
"bad debt" would not, if good, have come in
to swell the taxable profits of the other
partner."
This
Court also approved the dictum of
Rowlatt, J., in Commissioner oj Income-tax v. Abdul/!Jbhai Abdullcadar (1) at p. 550 and referred to the
observations of Venkatarama Ayyar, J., in Badridas
Daga v. Commissioner of Income-tax, (') where the
learned Judge speaking for this Court said that a
business debt "springs directly from the carrying on
of the business and is incidental to it and not any
loss sustained by the assessee, even if it has some
connection with his business." Section 10(2)(xi) is.
in two parts. One part deals with an assessee who
carries on the business of a banker or money-lender.
Another part deals with business other than the
aforesaid.
Since' this was not a loan by a banker or
1
money-lender, the debt to be a debt proper had to
P
be one which if good would have swelled the taxable
profits.
Applying these tests, it is quite obvious that an
advance paid by the assessee company to another to
purchase the shares cannot be said to be incidental
to the trading activities of the assessee company. It
was more in the nature of a price paid in advance
for the shares which the Southern Agencies had a
right to allot in the Rodier Textile Mills Ltd. This
cannot, therefore, be described as a debt and indeed
the changes in the books of account of the assessee
company clearly show that the assessei: company
itself was altering the entries to convert the advance
into a debt so as to be able to write it off anA claim
m
~195112 a. c. 11.. 949.95•·
t2> (11159] s. a. a . .4i0.
I S.C.R. SUPREME COURT REPORTS
789
the benefit of
s. 10 (2) (xi). In our opinion,
s. 10(2)(xi) was inapplicable to the facts of this case.
In the result the appeal must fail and it is dismissed.
The assessee company shall pay the costs
of the
respondent.
Appeal dismissed.
0. K. GHOSH AND ANOTHER
v.
E. X. JOSEPH
(B. P. SINHA., c. J., P. B. GAJllNDRA.GADKAR, K. N.
WANCHOO, K. C. DAB GUPTA andJ. C. SHAH, JJ.)
Service8 Rule8-ABBOciation of non-Gazetted civil •/,affWilktlrawal of recwnition by Government-Proceeding• agai118t
Secretary for refUBal to dis•ociate-Participation in preparation
for Btrike-Comlitutional Validity of Rules-Central Civil
S.rviwi (Conduct) Rules, 1965, rr. 4(A), 4(B)-Comtitution of
India, Art. 19.
The respondent, a Central Government servant, who was
the Secretary of the Civil Accounts Association- of nonGazcttcd Staff, was departmentally proceeded against under
rr. 4(A) and 4(.B) of the Central Civil Services (Conduct)
Rules, 1955, for participating in demonstrations in preparation
of a general strike of Central Government employees and for
refusing to dissociate from the Association after the Government
had withdrawn its recognition of it.
He impugned the validity
of the said rules on the ground that they infringed his fondamental rights under Art. 19 of the Constitution. The High
Court held that r. 4(A) was wholly valid but quashed the
proceeding under r. 4(.B) which it held to be invalid. Ruic
4(A) provided that no Government servant shall participate in
any demonstration or resort to any form of strike in connection
with any matter pertaining to his conditions of service and
r. 4(B) provided that no Government servant shall join or
continue to be a member of any services Association whicb the
1962
A.V. Thomas Iii
Oo., Lttl.
v.
Commissimur •f
(naomt·lax,
(Bon1aJor1) K,,,1to
Hidayatullah, J,
J96Z