1973 (5) TMI 23 - HC - Income Tax

Set Off - Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to carry forward and set off losses of the earlier years against dividend income of the assessee in the assessment year 1958-59 ? - we answer the question referred to us in the affirmative i.e., in favour of the assessee and against the revenue

Summary

Issues:
Assessment of set-off of losses against dividend income for the assessment year 1958-59.

Analysis:
The case involved the assessment of an assessee's claim for set-off of losses incurred in earlier years against dividend income received in the assessment year 1958-59. The Income-tax Officer disallowed the set-off, stating that the dividend income did not constitute business income under section 10 of the Income-tax Act, 1922. However, the Appellate Assistant Commissioner allowed a partial claim for interest but disallowed the set-off of losses against dividend income. The assessee appealed to the Tribunal, which allowed the claim for set-off. The main issue was whether the shares held by the assessee constituted stock-in-trade or investment during the relevant period.

The Tribunal considered various factors to determine the nature of the shares, concluding that they were held as stock-in-trade by the assessee during the relevant period. The Tribunal's decision was based on the assessee's conduct, including the sale of shares in subsequent years as business income. The Tribunal's finding was supported by the treatment of profits from share sales in the following assessment years as business income. The Appellate Assistant Commissioner also allowed interest deduction on the borrowed amount for share purchase, indicating a business purpose.

The High Court upheld the Tribunal's decision, emphasizing that if dividend income is derived from the stock-in-trade of the assessee, it retains the character of business income. Citing relevant case law, the court confirmed that such dividend income can be set off against business losses carried forward from earlier years under section 24(2) of the Act. The court dismissed the revenue's argument against the set-off, stating that the dividend income's source determines its treatment for set-off purposes.

In conclusion, the High Court answered the question in favor of the assessee, allowing the set-off of losses against dividend income for the assessment year 1958-59. The court awarded costs to the assessee and affirmed the Tribunal's decision based on the nature of the shares held by the assessee as stock-in-trade during the relevant period.