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Issues: Claim for deduction of trading loss in Govt. securities for assessment year 1964-65.
Analysis: The case involved M/s. Sir Shadilal Sugar and General Mills Ltd. claiming a deduction of Rs. 29,347 as a trading loss in Govt. securities for the assessment year 1964-65. The Income Tax Officer (ITO) disallowed the claim, considering the securities as purchased for investment and the loss as capital in nature. This decision was upheld by the Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal. The main issue was whether the assessee was entitled to the deduction claimed. The assessee argued that the investment in Govt. securities was a business expenditure necessary to maintain a good relationship with the district authorities. They relied on a decision of the Madras High Court in a similar case. However, the court found the Madras case distinguishable, as in that situation, there was a compelling necessity for selling the bonds before maturity due to financial reasons. In contrast, in the present case, the assessee failed to establish any compelling reason for selling the securities before maturity. The court noted that the Govt. securities carried interest at 4 1/2%, but the rate at which the assessee raised loans against the cash credit account was not disclosed. Without a clear nexus between the loss and the business operations, the claim for deduction was rightly disallowed. In conclusion, the court answered the question in the affirmative, ruling against the assessee and in favor of the department. The department was awarded costs amounting to Rs. 200.
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