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Income‑tax Application No. 1 of 1961, decided on 31st May 1962.

Income‑tax Act (XI of 1922), S. 66(2)‑Reference‑Loss to assessee due to shortage of stocks in transit‑ Whether assessee entitled to deduction‑Question of law.

S. M. Abbas for Petitioner.

A. F. M. Mesbahuddin and A. M. Khan Chowdhury for Respondent.

.‑This Rule is to show cause why the Income‑tax Appellate Tribunal, Dacca Bench, Dacca, should not be directed to state a case and refer to this Court for its opinion the following point, namely :‑--

"Whether on the facts and circumstances of the case the Tribunal was justified in not allowing the loss of Rs. 60,697 in the assessment for the year in which it occurred."

Facts of the case, shortly stated, are as follows;

The assessee, petitioner is a Company and it deals in electrical goods and also in M. S. rods. The petitioner purchased several bundles of M . S. rods from Pakistan Industries Limited of Karachi on an invoice mentioning the particulars of the rods, i.e., the number of the bundles and weight of the rods sold. The goods were shipped from Karachi to Chittagong by the vessel of East and West Shipping Company of which Messrs James Finlay & Co., was the agent. When the goods arrived at Chittagong there was a shortage of 333 bundles of rods and a short certificate was granted by the Port Authorities at Chittagong and when the goods were transhipped by rail from Chittagong to Dacca, there was a further shortage of 31 bundles, the total weight of shortage being 74 tons and the total loss suffered being Rs. 60,697. These facts are not disputed by the Income‑tax Authority. But the books of accounts maintained by the assessee in mercantile system shows the purchase of the total quantity of rods and a turn‑over of Rs. 1,54,415. Due to the non‑receipt of the entire purchased stock, the closing stock was shown at Rs. 56,155 with the resultant loss of Rs. 41,842 but the ultimate loss amounted to Rs. 60,697 due to the loss in transit from Karachi to Dacca.

The only question that arose between the Income‑tax Authority or before the Appellate Tribunal is whether the assessee is entitled to get deduction of Rs. 60,697 in the assessment for the year in which it occurred. The right to get deduction is not disputed by the Income‑tax authority. What is disputed is the time when the assessee is to get his deduction‑whether it will be in the current year or in the future year. In view of the fact that these goods are covered by the insurance policy, when the Insurance Company refused to pay the money the assessee petitioner filed a suit against the Insurance Company at Karachi and has also filed a suit against the carrying company at Karachi.

The view of the Tribunal is that if the petitioner fails to realise the amount either from the Insurance Company or from the carrying Company, it will be entitled to get refund but it will not be exempted from the assessment now.

Question is what is the process of assessment, in other words, whether the petitioner is entitled to deduct its loss amount from its total account.

It is contended by Mr. Mesbahuddin that the Tribunal is of the opinion that whether the assessee is entitled to get deduction from its total account is a question of fact. But how it is a question of fact, we do not understand. Mr. Mesbahuddin, the learned Advocate for the Department, also could not support it. What he contends is that the petitioner is to satisfy the Income-tax Authority under what provision of law they are to get deduction But the question really is under what provision of law the Income‑tax Authority is entitled to make assessment and for what amount It seems to us that the question is not a question of fact ; it involves a question of law.

Therefore, we make the rule absolute with costs, hearing fee being assessed at two gold mohurs, and direct the Income‑tax Tribunal to state a case and refer the question of law involved in the case to the High Court for its opinion.

I agree with My Lord the Chief Justice. Rule made absolute.

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