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Issues:
1. Assessment of income under the head "Other sources" instead of "Business." 2. Set off of unabsorbed depreciation against business income. 3. Classification of compensation bonds as trading assets. 4. Carry forward and set off of business loss and unabsorbed depreciation. Analysis: The judgment dealt with the assessment of income for the assessment year 1971-72 of a banking business that was acquired under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The Income Tax Officer (ITO) assessed the income under the head "Other sources" as the assessee had earned interest on compensation bonds. The assessee appealed, arguing that the income should be treated as "Business income" and sought to set off unabsorbed depreciation from the previous year. The Appellate Assistant Commissioner (AAC) rejected the claim, stating that the interest income was not earned through business activity post-nationalization and, therefore, should not be classified as business income. The Tribunal upheld the AAC's decision, emphasizing that the compensation bonds were awarded for the cessation of banking business activity and did not form part of the business assets. The Tribunal concluded that the interest income from the bonds was not business income and dismissed the appeal. The assessee then sought a reference under s. 256(1) of the Act, arguing that the compensation bonds were trading assets and the income should be treated as business income. The Revenue contended that the bonds were not trading assets and the income should be categorized under "Other sources." The court analyzed whether the compensation bonds were part of the trading assets of the business. It noted that the interest income was sourced from the compensation for the acquisition of the business and not from business activities. The court observed that the balance-sheet did not include business assets or liabilities, indicating the bonds were not utilized as trading assets. The court distinguished a previous case where securities were part of the trading assets, unlike the current scenario. The court held that the interest income did not qualify as business income as the bonds were not utilized as trading assets. In conclusion, the court upheld the Tribunal's decision, ruling that the compensation bonds and interest income did not constitute business assets or income. Therefore, there was no basis for carrying forward or setting off business loss or unabsorbed depreciation against the interest income. The court answered the reference question in the negative, favoring the Revenue and awarded costs accordingly.
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