9911796707
|
Home
Issues Involved:
1. Whether the loss of Rs. 53,650 sustained by the assessee on the sale of Government loan is a capital loss or revenue loss. Issue-wise Detailed Analysis: 1. Nature of Loss: Capital or Revenue Facts and Background: The assessee, a company dealing in automobiles, claimed a loss of Rs. 53,650 for the assessment year 1963-64, which was sustained from the sale of Orissa Government Floated Loan 1962. The company was persuaded by the Government of Orissa to subscribe Rs. 50,00,000 to the loan, with the promise of preferential treatment in placing orders for motor vehicles required by various Government departments and an advance of 50% of the value of such orders. Tribunal's Findings: The Tribunal concluded that the subscription to the loan was motivated by business prudence and was conducive to the business. It held that the loss arose in the course of business activities and directed the deletion of the disallowance of the loss. Revenue's Contentions: (a) Legally: (i) The business of the assessee is to purchase and sell cars, jeeps, etc., not Government securities. Hence, any investment in Government loans is foreign to its business, making the loss a capital loss. (ii) The assessee had no prior trading transactions in Government bonds, making it a new venture unconnected with its ordinary business. (iii) The investment was not the basis of any contract for securing bulk orders from the Government. (iv) The investment was yielding interest, thus a capital asset of enduring nature. (v) The assessee speculated that acquiring the loan would better its business prospects, which is not business prudence. (vi) Investment in Government loan might have been prompted by the off-chance of boosting business but not solely for that object. (vii) There is no proof that the company's aims and objects include dealing in loan bonds or securities. (b) Factually: The Tribunal committed errors by making findings on surmise and conjecture without proper evidence. There was no contract under Article 299 of the Constitution, no letters of proposal or acceptance, and no material to justify that the Government persuaded the assessee to subscribe to the loan. Assessee's Contentions: The assessee argued that the loss was a revenue loss, as the investment was made to augment the existing business. It was not open for the revenue to challenge the Tribunal's finding of fact that the loan bonds were purchased to boost the business. Legal Authorities and Precedents: Several case laws were discussed to determine the nature of the loss: - Tata Hydro Electric Agencies Ltd. v. CIT [1937] 5 ITR 202 (PC): Payments not solely for earning business profits are not deductible. - CIT v. Motiram Nandram [1940] 8 ITR 132 (PC): Deposits for securing an enduring benefit of a capital nature are not revenue expenses. - Shapurji Broacha Mills Ltd. v. CIT [1970] 78 ITR 68 (SC): The nature of loss depends on the intention of the assessee and the legal requirements of trade or business. - Ashok Marketing Ltd. v. CIT [1961] 42 ITR 193 (Pat): Loss from transactions not performed in the normal course of business is not deductible. - Catholic Bank of India Ltd. v. CIT [1967] 64 ITR 514 (Ker): Loss from premature repayment of Treasury Savings Certificates is capital loss. - New Prahlad Mills (P.) Ltd. v. CIT [1972] 85 ITR 480 (Bom): The intention behind acquiring shares determines the nature of the loss. High Court's Analysis: The High Court scrutinized the Tribunal's findings and the statement of facts, finding several inaccuracies and unsupported inferences. It emphasized that: - The resolution dated July 24, 1961, indicated the company's initiative to subscribe to the loan, not any persuasion from the Government. - Annexure "E" did not support the claim of Government persuasion or commitment for preferential treatment. - The Khanna Commission Report did not substantiate the claim of Government persuasion or commitment. Conclusion: The High Court concluded that the investment in Government loans was of a capital nature, yielding interest and providing an enduring benefit. The loss sustained from the sale of such an investment is a capital loss, not a revenue loss. The Tribunal's findings were based on extraneous matters and misinterpretations of the evidence. Final Judgment: The loss sustained by the assessee is attributable to capital and not to revenue. The Commissioner of Income-tax is entitled to costs. The Tribunal's findings were not accepted due to the lack of proper evidence and misinterpretation of the facts. Separate Judgment by B. K. Patra J.: B. K. Patra J. agreed with the judgment and the analysis provided.
|
