1991 (9) TMI 16 - HC - Income Tax

Summary

Issues: Whether the loss on the sale of investments of Rs. 54,982 is allowable in computing the income of the assessee trust for the assessment year 1984-85.

Analysis:

The case involved a reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1984-85. The primary question of law referred to the High Court was whether the Income-tax Appellate Tribunal was justified in holding that the loss on the sale of investments of Rs. 54,982 is not allowable in computing the income of the assessee trust or treated as an application of income. The assessee trust had incurred a loss on the sale of certain preference shares during the year ending on March 31, 1984. The Income-tax Officer initially disallowed the loss on the grounds that it was not allowable for the trust. However, on appeal, the Appellate Assistant Commissioner allowed the claim of the assessee and directed the deduction of the loss in arriving at the total income. The Tribunal, on appeal by the Income-tax Officer, held that the loss cannot be regarded as an expenditure and was incurred on a capital account, not a revenue account. The Tribunal also noted that the sale of shares to comply with tax provisions does not conclusively determine the nature of the loss. The Tribunal relied on previous decisions and found that the loss on the sale of shares was not supported by relevant case law.

In a similar case referenced by the assessee's counsel, the High Court had previously held that only the real income of the trust should be considered for income computation purposes. The court emphasized that any loss that cannot form part of the real income must be excluded from consideration. Consequently, the High Court reframed the question to focus on whether the loss on the sale of investments is allowable in computing the income of the assessee trust. The High Court answered the reframed question in the negative and in favor of the assessee, indicating that the loss should be considered in computing the income of the trust.

In conclusion, the High Court's decision favored the assessee trust, allowing the loss on the sale of investments to be considered in computing the income. The judgment highlighted the importance of determining the real income of the trust and excluding losses that do not form part of the real income. The decision provided clarity on the treatment of losses in trust income computation, emphasizing the need to consider the actual income generated by the trust.