1977 (11) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of the value of shares held by the assessee in Navanagar Industries Ltd.
2. Deduction of the amount outstanding from Navanagar Industries Ltd. either u/s 10(2)(xi) or u/s 12B as a capital loss.

Summary:

Issue 1: Deduction of the value of shares held by the assessee in Navanagar Industries Ltd.

The assessee, a private limited company, claimed a deduction of Rs. 1,60,185 as a loss for the value of shares held in Navanagar Industries Ltd., which went into liquidation. The ITO rejected this claim, stating that the assessee was not a dealer in shares. The AAC upheld this decision. The Tribunal also rejected the claim, noting that the assessee had never traded in these shares and there was no evidence to show that they were acquired with a view to trade. The Tribunal's decision was based on the absence of a clear finding in an earlier order and the circumstances of the share purchase. The High Court agreed with the Tribunal's approach and decision, concluding that the department was justified in rejecting the assessee's claim.

Issue 2: Deduction of the amount outstanding from Navanagar Industries Ltd. either u/s 10(2)(xi) or u/s 12B as a capital loss

The assessee claimed Rs. 1,30,925 as a business loss for the amount advanced to Navanagar Industries Ltd. The ITO and AAC rejected this claim, stating that the assessee was not a money-lender and the advances were not made in the course of money-lending activities. The Tribunal also rejected the claim, noting that the connection between the assessee's business activities and the loan was too remote. However, the High Court found that the Tribunal's reliance on the Madras High Court decision in CIT v. Essen P. Ltd. was misplaced, as the Supreme Court had set aside that decision. The High Court referred to similar cases, including CIT v. F. M. Chinoy and Co. (P.) Ltd. and CIT v. Investa Industrial Corporation Ltd., where advances made by managing agents to managed companies were considered incidental to business and allowed as deductions. The High Court concluded that the assessee's advances to Navanagar Industries Ltd. were directly related to its business activities and should be allowed as a trading debt.

Conclusion:

- Question 1: Answered in the negative and against the assessee.
- Question 2: Answered in the affirmative and in favour of the assessee.

The parties were directed to bear their own costs of the reference.