V. RAMASWAMI J.


Sree Shanmugar Mill Limited, Rajapalayam, company incorporated under the Companies Act, had incurred heavy losses and was under liquidation and an official liquidator had been appointed by this court in O.P. No. 279 of 1957. Some of the shareholders desired that the mill should continue to work by being leased out to good financier so that the employment of the workers and the capital of the investors could be protected. The assessee-firm, which was granted registration by the Income-tax Officer, came into existence in June, 1960, primarily, to work Shanmugar Mill, Rajapalayam. A petition was filed before the High Court in O.P. No. 279 of 1957 for stay of the sale and direction to the official liquidator to grant lease of the mill to the assesseefirm. The sale of the mill was stayed. A list of creditors of the company was also drawn. The mill was leased to the assessee for a period of ten years on a monthly lease rent of Rs. 6, 000. The lease rent was subject to modification with the increase in spindleage capacity of the mill. The lessee was directed to instal additional spindles secured from the Government grant, to make the necessary funds available for purchase, installation, etc., of the same and run the mill. The assessee had agreed and the court accordingly had directed him to provide funds for discharging the debts of the company. Initially, a sum of Rs. 1 lakh was to be paid. Within three weeks of the court's order dated April 29, 1960, another sum of Rs. 2 lakhs was to be provided by the assessee. The amounts of debt set out in the list of creditors were to be partially paid. Subsequent arrangements were also made for discharging the entire debts of the company. Thus, between 1960 and 1964, the assessee had advanced a total sum of Rs. 8, 66, 600 to the official liquidator in order to enable him to discharge the creditors of the company, as directed by the court. In February, 1969, the mill was put up for sale in auction. The assessee, being the highest bidder, purchased the mill for a sum of Rs. 6, 76, 000. The assessee was permitted to set off this sum of Rs. 6, 76, 000 towards the advances made as per the directions of the court to the liquidator and there was still a deficit of Rs. 1, 33, 493. This amount was claimed as irrecoverable and the assessee had also written off the same in its books of account as irrecoverable as on March 31, 1970. The assessee claimed it as a bad debt and as a loss arising out of the advances made to the mill and, therefore, deductible as an expenditure. However, the Income-tax Officer rejected this claim and held that it is a capital loss and disallowed the claim. On appeal, the Appellate Assistant Commissioner, however, held that the assessee is money-lender, that the loss is attributable to its money-lending business and that it cannot be held to be capital in nature. Accordingly, the assessee was held to be entitled to the deduction. This order was confirmed by the Tribunal Learned counsel for the Revenue strenuously contended that though the assessee may be a money-lender and is also carrying on the business of money-lending, this sum of Rs. 8, 66, 600 advanced to the official liquidator formed part and parcel of the lease agreement and, therefore, cannot be treated as an advance in the course of the carrying on of the business as money-lender and in reality it is of the nature of investment. He also contended that the fact that it is also having money-lending business, cannot conclude the question. In this connection, he referred to the decision in Ramnarain Sons (P.) Ltd. v. CIT. The assessee in that case who was a dealer in shares and securities was also carrying on business as managing agents of other companies. In order to acquire the managing agency of a textile mill, the assessee purchased the shares of another managing agent in a company at a price in excess of the market price of the shares. Two months later, the assessee sold those shares at loss and claimed that as a trading loss. It was held by the Supreme Court that by purchasing the shares for a price far in excess of their market price to facilitate the acquisition of the managing agency, a capital asset was acquired by the assessee and the subsequent disposal of some of the shares could not convert what was a capital acquisition into an acquisition in the nature of trade. As stated in the facts themselves, the assessee in that case acquired the shares in order to acquire the managing agency of textile mill and it is also pertinent to note that it was also carrying on business as managing agent of other companies. Having regard to the facts and other circumstances, the Supreme Court held that the shares could not be treated as part of his business as dealer in shares and it was really acquiring the managing agency. Questions of this nature cannot be decided in the abstract without reference to facts. In this case, as stated earlier, the lease was for a period of ten years primarily on a lease rent of Rs. 6, 000 per mensem. The lease rent is also subject to modification with increase in the spindleage capacity of the mill. The assessee is also a moneylender and it is in evidence that it was also assessed as a money-lender with reference to the business carried on by it as money-lender. The assessee was entitled to interest even as per the order of the court at the rate of 71 per cent. on the advances made to the official liquidator. The advances also were directed to be given by the court in order to enable the liquidator to discharge the creditors of the company. Though the order of the court is of the same date, namely, April 29, 1960, the date on which the lease was granted was part of the same order, both are two distinct transactions, one a lease of the mill by the liquidator to the assessee and the other, as per the directions of the court, advancing money to the liquidator for the purpose of enabling him to discharge the creditors. That advance of the money cannot be treated as part of the terms of the lease itself. It is true that though primarily the lease is mentioned as for a period of ten years, if the advance made to the official liquidator is outstanding, the assessee will have to be permitted to continue the lease, but that is so as to enable it to secure the payment of the money to it. We do not find anywhere in the orders of the assessing officers or the order of the Tribunal or the stated case, any material to treat this advance as premium for grant of the lease. If the assessee had not been a moneylender, it might have been possible to contend that the advance was in the nature of a premium, as in the decision in CIT v. Coimbatore Pictures Private Ltd. Though, as held in Ramnarain Sons (P.) Ltd. v. CIT, the assessee also carrying on business as a money-lender may not conclude the issue, it is certainly relevant factor to consider whether the advance was a part of the term of the lease or in the nature of a premium for the grant of the lease or that it was an advance of money in the normal course of the carrying on of the business of money-lending. The facts in this case clearly show that these two transactions of lease and advancing money to the liquidator were kept separate from the beginning and not linked one to the other and the assessee was always keeping separate its dual capacity i

n regard to these two transactions. We, therefore, have to agree with the Tribunal that the loss has to be regarded as a direct result of the assessee's continuing the business of money-lending and the loss is not of a capital natureIt was then contended by learned counsel that, in any case, this is not an allowable deduction in the assessment year 1970-71 as the sale itself was in February, 1969. This contention has been raised ignoring the fact that the sale was confirmed only in June, 1969, by this court. The sale is complete only when it is confirmed by this court and, therefore, the claim for deduction made in 1970-71 is in order The question referred to is accordingly answered in the affirmative and against the Revenue. The respondent will be entitled to its costs. Counsel's fee Rs. 500.