November a4. 644 SUPREME COURT REPORTS (1961] THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY I v. M/S. JAGANNATH KISSONLAL, BOMBAY (J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.) Income Tax-Money borrowed by two persons for business pur- poses on joint and several lidbility-One failing to pay his share- Whole paid by another-Unpaid sum by Co-borrower-If deductible as business loss-Commercial custom of joint borrowing-Mutuality -Indian Income Tax Act, z922 (II of z922), s. I0(2)(xv). For the purposes of its business the respondent borrowed a certain sum of money from the Bank of India on a pronote executed jointly by him and one Kishorilal in accordance with a commercial practice of carrying on business by borrowing money from Banks on joint and several liability. The money was divid- ed half and half between the respondent and Kishorilal but Kishorilal failed to pay off his liability as he became a bankrupt and th~ respondent had to pay the whole amount to the Bank. The respondent, however, received from the Official Assignee a part of the sum taken by the Kishorilal leaving a balance still unpaid. The respondent's claim to deduct this unpaid balance under s. ro(2)(xv) of the Income-tax Act was refused by the In- come-tax Officer and the Appellate Assistant C6mmissioner but was allowed by the Income-tax Appellate Tribunal on appeal. On a reference ma(le at the instance of the appellant the High Court decided the question in favour of the respondent assessee. On appeal by the appellant by special leave, Held, that the view taken by the High Court was correct. On the finding that there was a well establised Commercial prac- tice of financing business by borrowing money on joint and several liability and by so doing the respondent could borrow at a lower rate of interest, and that there was mutuality bet- ween the borrowers for standing surety for each other for loans taken for business purposes, the respondent assessee in comput- ing his business profits was entitled to deduct the loss suffered by him in paying the sum not paid by his co-borrower. Commissioner of Income-tax v. Ramaswami Chettiar, [1946] 14 I.T.R. 236, applied. Madan Gopal Bag/a v. Commissioner of Income-lax, West Bengal, [1956] S. C.R. 551, Commissioner or Income-tax v. S. R. Subramanya Pillai, [1950] 18 I. T. R. 85 distinguished. Montreal Coke and Manufacturing Co. v. Minister of National Revenue, [1945] 13 I.T.R. Supp. 1, not applicable. Civn. APPELLATE JURISDICTION: Civil Appeal No. 358of1958. 2 S.C.R. SUPREME COURT REPORTS 645 Appeal by special l.;iave from the judgment and x96o order dated 8th March, 1956, of the former Bombay Th c . . H • . f 9 e 01nmsssioner 1gh Court Ill l.T.R. No. 55 0 1 55. of Income-tax, A. N. Kripal an\l D. Gupta, for the appellant. Bombay City I N. A. Palkkivala and B. P. Maheshwari, for the Mi 1 v. d s. agannalh respon ents. Kissonlal, Bombay 1960. November 24. The Judgment of the Court was delivered by Kapur J. KAPUR, J. -This is an appeal by special leave against the judgment and order of the High Court of Bombay in Income-tax Reference No. 55 of 1955, in which two questions of law were ~tated for opinion and both were answered-in favour of the assessee and against the Commissioner of Income-tax ~ho is the appellant before us and the assessee is the respondent. The facts of this case are these: The respondent is a registered firm carrying on business as commission agents in Bombay. For pur- poses of its business it borrowed money from time to time from Banks on joint promissory notes executed by it and by others with joint and several liability. On September 26, 1949, the respondent borrowed Rs. 1,00,000 from the Bank of India on a pronote executed jointly with one. Kishorilal. Out of this amount a sum of Rs. 50,000 was taken by the respondent for pur- poses of its business and the rest by Kishorilal. Kishorilal however failed to meet his liability and became a bankrupt. The respondent had therefore to pay the Bank the whole amount, i.e., Rs. 1,00,000 with interest. Out of the amount taken by Kishorilal the respondent received in the accounting year, from the Official Assignee, a sum of Rs. 18,805 and claimed the balance, i.e., Rs. 31,740 as deduction. The accounting year was from August 26, 1949 to July 17, 1950, the assessment year being 1951-52. This claim was dis- allowed both by the Income-tax Officer as well as the Appellate Assistant Commissioner. On Appeal.t.o the Income-tax Appellate Tribunal this sum was .allowed as an allowable de~uction under s, lO(~)(:~v) of the In, come-tax Act a:t;id as business loss. 8:z 646 SUPREME COURT REPORTS [1961) z96o At the instance of the Commissioner a case was sta- Th C --. . ted to the High Court of Bombay by the Income-tax ' ommission" A 11 "b 1 I hof Jn,ome-ta• ppe ate Tri una . n t e statement of the case Bombay City i which was agreed to by both parties the Tribunal said: v. "E'or the purpose of his business, he borrows from M/s. Jagannath time to time money on joint and several liability from Kissonlal, Bombay banks. The Commercial practice is to borrow money Kapur]. from banks on joint and several liability. An illus- tration will explain what we mean. A and B require Rs. 50,000 each. They find that the Bank would not advance Rs. 50,000 to each on his individual security. They however, find that the Bank would be prepared to advance Rupees one lac on their joint and several liability. They take Rupees one lac on joint and seve- ral liability and then divide the money equally bet- ween themselves." It also found that the Banks advanced monies to some constituents on their personal security also but they had to pay a higher rate of interest than when the money was borrowed on joint and several responsibi- lity; that Rs. 1,00,000 borrowed from the Bank was in accordance with tqe commercial practice of Bombay. On these facts the following two questions of law were referred to the High Court:- "(l) Whether the assessee's claim is sustainable under Section 10(2)(xv) of the Act? (2) Whether the assessee's claim that the loss was a business loss and, therefore, allowable as a deduction in computing the profits of the assessee's business is sustainable under law?" Both these questions were answered in favour of the respondent and against the appellant. Counsel for the Commissioner challenged the find- ings of the Tribunal in regard to the existence of com- mercial practice in Bombay but this ground of attack is not available to him because not only did the Tribu- nal give this finding in its Order, but in the a.greed statement of the case also this finding was repeated as is shown by the passage quoted above. The High Court also has proceeded on the basis of this commer- cial practice. In the judgment under appeal the learned Chief Justice said: • ...•• J i •' ' I .. ' 2 S.C.R. SUPREME COURT REPORTS 647 "The finding of the Tribunal is clear and explicit r96o that what the assessee was doing was not something Th c ---: . f h d. b . b . h" B ommissionar out o t e or mary, ut m orrowmg t IS money on of Income-tax • joint and several liability he was following a practice Bombay City r which was eetablished as a commercial practice. There- v. fore, the transaction was clearly in the course of the M/s. Jagannath business and incidental to the business and it is this Kissonlal, Bomba} transaction which resulted in a loss to the assessee, he I