| Case ID |
463ba9cd-abcf-4f4a-8299-1c3e4a5a4e9b |
| Body |
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| Case Number |
IT REFERENCE No. 86 OF 1976 |
| Decision Date |
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| Hearing Date |
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| Decision |
The court ruled that the Tribunal was incorrect in holding that the advance made by the assessee to its principal was not in the ordinary course of business. The Tribunal's decision to allow the loss as a deduction under section 28(i) was upheld. The court emphasized that the nature of the commission agency business inherently involves advancing amounts. The debt claimed as a bad debt arose directly from the business relationship between the assessee and M/s. Mohmad Peer Mohmad of Nasik, making it deductible under the Income-tax Act. Therefore, the loss should be recognized as a trading loss, affirming the importance of recognizing the financial operations integral to commission agency activities. |
| Summary |
In the landmark case of Commissioner of Income Tax v. Abdul Razak & Co., the Gujarat High Court addressed the complexities surrounding the classification of business losses under the Income-tax Act, 1961. The case primarily revolved around the nature of advances made by the assessee to its principal firm, M/s. Mohmad Peer Mohmad, and whether these constituted allowable deductions as bad debts. The court ruled that the Tribunal had erred in distinguishing between money-lending and commission agency activities, asserting that such financing is integral to the commission agency business. By examining the longstanding business relationships and financial transactions, the court concluded that the advances were indeed made in the ordinary course of business, thereby qualifying for deduction under section 28(i). This ruling underscores the importance of recognizing the operational realities of commission agency businesses in tax assessments, allowing for a more equitable treatment of legitimate business losses. |
| Court |
Gujarat High Court
|
| Entities Involved |
M/s. Abdul Razak & Company,
M/s. Mohmad Peer Mohmad,
M/s. Gokaldas Virjibhai
|
| Judges |
B.J. DIVAN, C.J.,
B.K. MEHTA, J.
|
| Lawyers |
N.U. Raval,
R.P. Bhatt,
K.C. Patel
|
| Petitioners |
Commissioner of Income tax
|
| Respondents |
Abdul Razak & Co.
|
| Citations |
1982 SLD 1144,
(1982) 136 ITR 825
|
| Other Citations |
CIT v. Equiterial (P.) Ltd. [1974] Tax 37(3) 82,
Abdulla Ahmed v. Animendra Kissen Mitter AIR 1950 SC 15,
Baring v. Corrie [1818] 2 B & Ald 137,
CIT v. Nainital Bank Ltd. [1965] 55 ITR 707 (SC),
R. Dhirajben Amin v. CIT [1968] 70 ITR 194 (Guj.),
Sitaram Co. v. Ratilal Ramlal AIR 1969 Cal. 472
|
| Laws Involved |
Income-tax Act, 1961
|
| Sections |
28(i)
|