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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 214 of 1962. Appeal from 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. Sahthey and P. D. Menon, for the respondent.

1962. October 25. The judgment of the Court was delivered by HIDAYATULLAH, J.-The assessee, A.V. Thomas & Co., Ltd., Alleppey, claimed a deduction of Rs. 4,05,072-8-6 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. After sundry procedure, the following question was considered by the High Court of Kerala and answered against the assessee company :-

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. 10(2)(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 was 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 conclusion 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 at the assessee company had no expectancy of a financial benefit. The Tribunal held that the 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 probably due to the " substantially common ownership of the assessee company and the Southern Agencies Ltd., of two individuals, namely, A. V. Thomas and S. S. Natarajan." 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.