1986 (7) TMI 6 - SC - Income Tax

Sale of the Government Loan - loss on sale of investments which assessee invested in Government loans to boost his sales - whether a loss suffered by the assessee is a capital loss or a revenue loss - held that loss incurred on the sale of such bonds or securities was allowable as business loss.

Summary

Issues:
1. Determination of whether a loss suffered by the assessee is a capital loss or a revenue loss.

Analysis:
The Supreme Court judgment involved the issue of categorizing a loss as either a capital loss or a revenue loss. The assessee, engaged in automobile sales and spare motor parts, claimed a loss on disposing of its subscription to the Orissa Government Floated Loan, 1972. The Income-tax Officer initially disallowed the loss as a capital loss, but the Income-tax Appellate Tribunal accepted the contention that the loss was a revenue loss as it arose in the course of the business. The High Court disagreed with the Tribunal, considering the loss as a capital loss. The Supreme Court emphasized that the Tribunal is the final fact-finding authority under the Income-tax Act and courts cannot re-examine evidence unless there is no support or a legal misdirection. The Court held that the investment in the loan was for commercial expediency to boost business, making the loss a revenue loss.

The judgment highlighted the sequence of events where the assessee received an advance from the Government, leading to increased sales and savings on bank interest. The investment in the Government Loan was closely linked to receiving orders from Government Departments. The Appellate Tribunal found the investment was made for commercial expediency to further the business. The High Court, however, re-examined the facts and concluded that the investment did not relate to Government orders, deeming it a capital asset. The Supreme Court disagreed, stating that the investment did not bring enduring benefits and the loss was a revenue loss, citing precedents where losses on similar investments were allowed as business losses.

The Supreme Court held that the High Court erred in its view, affirming the Tribunal's decision to treat the loss as a revenue loss. The Court allowed the appeal, set aside the High Court's judgment, and answered the question in favor of the assessee. The assessee was awarded costs for the appeal, concluding the case after a prolonged period of over 20 years.