1969 (9) TMI 20 - HC - Income Tax

Petitioner carrying on tea business - It also has dividend income - petitioner claims that it also carries on the business of investing monies in shares of tea companies and its income from dividend is income from its business - petitioner had not produced sufficient materials to satisfy the Commissioner that the shares were part of its trading assets - Commissioner can t be said to have acted arbitrarily in refusing the claim

Summary

Issues Involved:
1. Determination of the petitioner's status as resident or non-resident for various assessment years.
2. Set off of business losses carried forward from previous years against current year's income.
3. Classification of dividend income as business income or income from other sources.
4. Allowance of unabsorbed depreciation from previous years.

Detailed Analysis:

1. Determination of Petitioner's Status:
The petitioner, a sterling company with its head office in London, was assessed as a non-resident for the assessment years 1956-57 and 1957-58, and as a resident and ordinarily resident for the year 1955-56. The status was determined based on whether the petitioner's income in India exceeded its income outside India.

2. Set Off of Business Losses:
The petitioner claimed to carry forward and set off the loss from the assessment year 1955-56 against the income for 1957-58. The Appellate Assistant Commissioner dismissed this appeal, stating that under Section 24(2) of the Indian Income-tax Act, 1922, the loss sustained in any year could be carried forward and set off against the profits of the following year, and the loss of 1955-56 could not be set off against the income for 1957-58 without first being set off against its income for 1956-57. The Income-tax Appellate Tribunal later allowed the appeal, holding that the loss carried forward from 1955-56 could be set off against the income for 1957-58.

3. Classification of Dividend Income:
The petitioner argued that its dividend income from shares in tea companies should be considered as business income. The Commissioner dismissed this claim, stating that the dividend income could not be considered business income because investments in shares were not incidental to the petitioner's business activities and were not held as trading assets. The Commissioner distinguished this case from several Supreme Court decisions, including United Commercial Bank Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Chugandas & Co., and Commissioner of Income-tax v. Cocanada Radhaswami Bank Ltd., on the facts.

4. Allowance of Unabsorbed Depreciation:
The petitioner also claimed the set off of unabsorbed depreciation carried forward from 1955-56. The Commissioner rejected this claim, stating that unabsorbed depreciation could only be set off against business income in the current year, and since there was no business income in the current year, the unabsorbed depreciation could not be set off.

Legal Provisions Considered:
- Section 6: Heads of income chargeable to income-tax.
- Section 10(2)(vi), proviso (b): Allowance for depreciation.
- Section 12(1A): Income from other sources shall include dividends.
- Section 24(2): Carry forward and set off of business losses.
- Section 33A(2): Revision by the Commissioner.

Court's Observations:
- The court noted that the Commissioner's finding that the shares were not part of the business assets was not based on any material and was not justified.
- The court emphasized that the Commissioner could pass an order after perusal of the records and/or after making such inquiries as he might think necessary.
- The court observed that the Commissioner had distinguished the Supreme Court decisions on the facts of the case and had not committed any error of law.
- The court agreed with the Commissioner that the petitioner had not provided sufficient materials to prove that the shares were part of its trading assets.
- The court also agreed that the question of allowance of unabsorbed depreciation would only arise when there is a computation of business income under section 10 in the current year.

Conclusion:
The court dismissed the application, agreeing with the Commissioner that the petitioner had not provided sufficient evidence to prove that the shares were part of its trading assets and that the dividend income was business income. The court also agreed that unabsorbed depreciation could not be set off in the absence of business income in the current year. The rule was discharged, and all interim orders were vacated. The operation of the order was stayed till December 10, 1969.