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Issues Involved:
1. Whether the forfeiture of security deposit of Rs. 77,290 was correctly treated as an allowable loss in the hands of the assessee for the assessment year 1957-58. 2. Whether the surplus realized by the assessee on the sale of certain shares during the previous year was rightly treated as a capital gain. Detailed Analysis: Issue 1: Forfeiture of Security Deposit The first issue revolves around whether the forfeiture of the security deposit amounting to Rs. 77,290 could be treated as an allowable business loss for the assessment year 1957-58. The court examined two key points: the nature of the loss (revenue or capital) and the appropriate assessment year for claiming the loss. Nature of the Loss: The court determined that the security deposit was made as part of a business contract for the purchase of rice, aiming to earn profits. It was not intended to secure a capital asset or obtain an enduring advantage. Therefore, the loss was attributed to the business activities of the assessee. The court referenced a similar case, Narandas Mathuradas & Co. v. Commissioner of Income-tax, where the forfeiture of a security deposit was considered a trading loss. Assessment Year: The security deposit was forfeited on November 1, 1956, which falls within the previous year relevant to the assessment year 1957-58. The court noted that under the mercantile system of accounting, a loss becomes deductible when it accrues, not necessarily when it is paid. The court emphasized that for a loss to be deductible, it must be both accrued and ascertained. The court rejected the department's argument that the loss could not be considered accrued until the final award by the Regional Director (Food) on September 6, 1965. The court clarified that the liability accrued when the Deputy Director (Food) informed the assessee about the forfeiture on November 1, 1956. The loss was not contingent or unascertained at that point, as the exact amount was known and fixed. The court also cited several cases, including Pope The King Match Factory v. Commissioner of Income-tax and Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax, to support the principle that contesting a liability does not delay its accrual for tax purposes. Conclusion: The court concluded that the forfeiture of the security deposit was a business loss that accrued in the relevant previous year and was, therefore, deductible in the assessment year 1957-58. Issue 2: Surplus from Sale of Shares The second issue concerned whether the surplus of Rs. 64,909 realized from the sale of 5,200 shares of Rohtas Industries should be treated as a capital gain or business income. Facts: The assessee, primarily dealing in sugar, was not engaged in the regular business of buying and selling shares. The shares were purchased directly from the company and later sold at a profit through a sister concern. Relevant Considerations: The court noted that determining whether a receipt is of a revenue or capital nature often depends on the specific facts and the overall impression. The court considered several factors, such as whether the shares were purchased with borrowed capital, their speculative nature, and whether they were bought in the open market or directly from the company. Tribunal's Findings: The Tribunal concluded that the assessee did not purchase the shares as an adventure in the nature of trade but as a capital investment. The Tribunal's decision was based on the facts that the assessee was not a dealer in shares and the shares were purchased directly from the company. Supreme Court Precedents: The court referenced Supreme Court cases like Patiala Biscuit Manufacturers P. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Dalmia Jain & Co. Pvt. Ltd., which established that the Tribunal's findings on whether a transaction is a trading activity or an investment are primarily factual and not to be disturbed unless irrelevant circumstances were considered or relevant ones ignored. Conclusion: The court upheld the Tribunal's finding that the surplus from the sale of shares was a capital gain, not business income. Final Judgment: Both questions were answered in the affirmative, in favor of the assessee and against the department. The assessee was also awarded costs assessed at Rs. 200.
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