G. P. SINGH. C. J.-This is a reference made by the Income-tax Appellate Tribunal, referring for our answer the following question of law : Whether on the facts and in the circumstances of the case, the loss of Rs. 19,854 was a revenue loss?
2.The assesses is firm carry on the business of purchase and sale of tendu leaves. The relevant assessm ent year is 19-4-75. During the relevant accounting year, the assessee alongwith another person took a contract for the purchase of tendu leaves from the Orissa Forest Corporation Ltd. In connection with this contract a sum of Rs. 39,3!0 was deposited at security. As this contract eras not fulfilled, the Corporation forfeited the security. The assessee's-share of the security amount comes to Rs. 19,b54, and the assessee deduction of this amount as business loss in the assessment for the year 1974-75. The claim for deduction was disallowed by the Income-tax Officer, but was allowed by the Appellate Assistant Commissioner. The Tribunal allowed the appeal and restored the order of the Income-tax Officer. The reasoning of the Tribunal is that the deposit of amount of Rs. 39,350 for the contract with the Corporation was in the nature of capital expenditure for commencing the venture and, therefore, could not be deducted as a business loss in the assessm ent.
3. It has to be taken notice of that the business carried on by the assesses was purchase and sale of tendu leaves. The contract with the Orissa Forest Corporation was also for purchase of tendu leaves. This contract was in the course the same business which was then carried on by the assessee and could not be said ;o be commencement of a new business. The deposit of security amount in such a case was made as a business expenditure in the course of business and the loss was a business loss. It has generally been held that forfeiture of security deposited under a contract is . a business loss an not a capital loss. The security amount deposited under a contract is no for obtaining the contract but for due performance of its terms. Morel over, as earlier stated, here the contact with the Orissa Forest Corporation was not a new business gated by the assesses but it was only a venture in the course of business which the assesses was already carrying on and, therefore, it could in no sense be held that the deposit of security w made for acquiring a business : (See Norandas Mathurodas & Co. v. Commassioner income-tax ((1959) 35 T R 461 : AIR 1959 Bom.
355) ; Jwala Prasad Radha Kishan v. C. I. T. ((1971) 79 I T R 530 (All.) ) and C. I. T v. Sugar Dealers.
((1975) 100 I T R 424 (All.))
4. For the reasons given above, we answer the question referred in favour of the assessee as follows "On the facts and circumstances of the case the loss of Rs. 19,854 was a revenue loss".
There will be no order as to costs of this reference.