1928 (2) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Loss on New Great Eastern Mill shares.
2. Loss on closure of the grain business at the Jubbulpore shop.
3. Loss in respect of the Katni shop.
4. Loss in respect of the value of wheat at the Jubbulpore shop.
5. Inclusion of Dharmada receipts in the income.

Issue-Wise Detailed Analysis:

1. Loss on New Great Eastern Mill Shares:
The first issue pertains to whether the loss of Rs. 501,200 incurred on New Great Eastern Mill shares should have been allowed to the non-applicant. The non-applicant had been dealing in these shares from 1977 onwards and adopted a method of accounting where losses or gains were only claimed when transactions ceased. The Assistant Commissioner of Income Tax argued that the non-applicant should have closed his share account annually and claimed losses each year, as carrying forward book balances was inconsistent with Section 13 of the Income Tax Act. The Commissioner of Income Tax upheld this view, stating that the losses represented various previous years and not the year under assessment. However, the court found that the non-applicant's method should be accepted for the purpose of assessment, as it was regularly employed and no specific orders had been issued by the Income Tax officer under the proviso to Section 13. The court noted that the Commissioner had previously accepted this method for other shares and that equitable estoppel applied. Therefore, the court answered the first question in the affirmative, allowing the loss on New Great Eastern Mill shares to be claimed.

2. Loss on Closure of the Grain Business at the Jubbulpore Shop:
The second issue involves a loss of Rs. 48,831 due to the closure of the grain business at the Jubbulpore shop. The court applied the same considerations as in the first issue, accepting the non-applicant's method of accounting. Consequently, the court answered the second question in the affirmative, allowing the loss to be claimed.

3. Loss in Respect of the Katni Shop:
The third issue concerns a loss of Rs. 3,564 in respect of the Katni shop. Again, the court applied the same principles as in the first issue, accepting the non-applicant's accounting method. The court answered the third question in the affirmative, allowing the loss to be claimed.

4. Loss in Respect of the Value of Wheat at the Jubbulpore Shop:
The fourth issue is whether a loss of Rs. 22,676 incurred in connection with the value of bags of wheat at the Jubbulpore shop should have been allowed. The non-applicant valued the bags at Rs. 20 each, the price paid, while the Commissioner of Income Tax valued them at Rs. 10, the market value. The court found that the stock should be valued at the original price to arrive at a correct calculation of profits or losses. The same system of accounting was adopted as in the first three issues. Therefore, the court answered the fourth question in the affirmative, allowing the loss to be claimed.

5. Inclusion of Dharmada Receipts in the Income:
The fifth issue is whether Dharmada receipts amounting to Rs. 8,129 were improperly included in the income. The non-applicant argued that these receipts were part of a trust fund for charitable purposes. However, the court found that the elements of a trust were not present, as the non-applicant could alter the nature of the fund at any time. The management and distribution of the proceeds were entirely within the non-applicant's control. Thus, the court agreed with the Commissioner of Income Tax and answered the fifth question in the negative, stating that the Dharmada receipts were properly included in the income.

Conclusion:
The court answered the first four questions in the affirmative, allowing the losses claimed by the non-applicant, and the fifth question in the negative, including the Dharmada receipts in the income. The applicant was ordered to bear the non-applicant's costs, assessed at Rs. 250.