1993 (3) TMI 53 - HC - Income Tax

Summary

Issues:
1. Determination of loss as revenue loss or capital loss due to premature encashment of cash certificates.
2. Applicability of amended provision of section 80 for carrying forward the loss.

Analysis:

Issue 1:
The primary issue in this case was whether the loss incurred by the assessee due to premature encashment of cash certificates with a bank should be treated as revenue loss or capital loss. The assessee claimed it was a revenue loss, while the Commissioner of Income-tax (Appeals) held it to be capital in nature. The Tribunal concurred with the Commissioner's view, stating that any loss from encashment of investments should be considered a capital loss. The High Court, in line with the Supreme Court's decision in CIT v. Mysore Sugar Co. Ltd., emphasized that the character of the loss is determined by the nature of the asset it relates to directly. As the loss pertained to a part of the investment (fixed deposit), it was deemed a capital loss. Therefore, the first question was answered in favor of the Revenue.

Issue 2:
The second issue revolved around the applicability of the amended provision of section 80 for carrying forward the loss. The amendment, effective from April 1, 1985, required the return of loss to be filed under section 139(1) as a prerequisite for determining the loss for carry forward and set off. However, since the assessment year in question was 1983-84, the return filed under section 139(4) was governed by the unamended section 80. The High Court cited the decision in Presidency Medical Centre (P.) Ltd. v. CIT to assert that the loss determined based on a return under section 139 was entitled to the benefit of carry forward and set off. The Court also referred to relevant Board instructions and circulars to support this interpretation. Consequently, the second question was answered in favor of the assessee.

In conclusion, the High Court upheld the characterization of the loss as capital loss due to premature encashment and allowed the carry forward of the loss based on the provisions applicable to the assessment year in question. No costs were awarded in this matter.