1984 (2) TMI 118 - AT - Income Tax

Assessment Year, Business Income, Capital Loss, Carry Forward And Set Off, Total Income, Unabsorbed Development Rebate

Summary

Issues:
1. Whether the profit on the sale of shares should be treated as income from business or as capital gain.
2. Whether the unabsorbed development rebate can be set off against the total income.

Detailed Analysis:

1. The first issue revolves around determining whether the profit on the sale of shares by the assessee should be considered as income from business or as capital gain. The assessee contended that the shares were purchased to enhance the business as the companies in which the shares were bought were consumers of the assessee's products. However, the Income Tax Officer (ITO) and the Commissioner (Appeals) held that the purchases were made as investments, not for trading in shares. The Commissioner (Appeals) upheld the ITO's decision to tax the profit as short-term capital gain. The key point was whether the intention was to deal in shares or to invest. The Tribunal analyzed the Memorandum & Articles of Association, the treatment of shares in the balance sheet, and past assessments where gains/losses were treated as capital. The Tribunal referred to legal precedents like Kishan Prasad & Co. Ltd. case to conclude that the shares were purchased as investments, not for trading, and hence the profit was taxable as capital gain, not business income.

2. The second issue pertains to the treatment of unabsorbed development rebate by the Revenue. The ITO initially held that the rebate cannot be set off against total income akin to business loss. However, the Commissioner (Appeals) directed the ITO to deduct the unabsorbed development rebate based on the provisions of section 33(2)(ii) of the Income-tax Act. The Revenue contended that only losses are covered under section 72(1) and not rebates. The Tribunal analyzed the specific language of section 33(2)(ii) which allows for the deduction of unabsorbed development rebate to reduce total income to nil, carrying forward the balance. The Tribunal upheld the Commissioner (Appeals) decision, emphasizing the specific provisions of section 33(2)(ii) over the general reference to losses in section 72(1).

In conclusion, the Tribunal dismissed both appeals, upholding the decisions regarding the treatment of profit on the sale of shares as capital gain and the deduction of unabsorbed development rebate in computing total income. The judgment provides a detailed analysis of the legal principles governing the taxation of share transactions and the set off of development rebates, relying on statutory provisions and legal precedents to reach its conclusions.