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Issues involved: Assessment of loss on purchase and sale of Government bonds as allowable deduction u/s 37 of Income-tax Act, 1961.
Summary: The assessee, a private limited company operating buses and lorries, incurred a loss of Rs. 13,820 on the purchase and sale of Government bonds. The Inspecting Assistant Commissioner and the Commissioner of Income-tax initially disallowed the claim, stating that the loss was not part of the assessee's business. However, the Tribunal allowed the deduction, considering the pressure from road transport authorities and the necessity to mobilize funds for the business. The Tribunal held that the expenditure was incurred for the purpose of the business and directed the deletion of the disallowance. The High Court, in compliance with the directions, considered the question of whether the loss on Government bonds was allowable as a business expenditure u/s 37 of the Income-tax Act, 1961. The court noted the pressure felt by the assessee from the authorities and the commercial expediency behind the investment in bonds. Referring to relevant case laws, the court emphasized that if there is a nexus between the expenditure and the business, it can be considered as incurred in the course of business. The court reframed the question to focus on the deductibility of the difference between the outlay on bonds and their sale proceeds under section 37. The court highlighted the conditions for deduction u/s 37 - expenditure incurred wholly and exclusively for business and not in the nature of capital expenditure. While the Tribunal had considered the first condition but not the second, the court technically ruled in favor of the assessee. However, it directed the Tribunal to reexamine the nature of the expenditure in the rehearing of the appeal to determine its allowability under section 37.
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