Allahabad High Court
Commissioner Of Income-Tax vs S.B. Sugar Mills on 20 August, 1990
Equivalent citations: (1991)95CTR(ALL)286, [1991]187ITR441(ALL)
Author: B. P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B. P. Jeevan Reddy, C.J.
1. Under Section 256(2) of Income-tax Act, 1961, the Tribunal has referred the following questions for the assessment year 1969-70 :
"(1) Whether, on the facts and in the circumstances of the case, was the Tribunal right in allowing the full amount of loss or any part thereof on the sale of securities by the assessee ?
(2) Whether, on the facts and in the circumstances of the case, was the Tribunal justified in treating the loss on sale of U. P. Development Loan as a business loss ?"
2. With respect to the assessment year 1968-69, as many as five questions have been referred which read as follows :
"1. Whether, on the facts and in the circumstances of the case, was there any partial partition of Seth Banarsi Dass Gupta (HUF).
2. Whether, on the facts and in the circumstances of the case, was the amount of interest paid or any part thereof to Seth Mohan Lal and Sons and Mohan Orchards allowable as a deduction ?
3. Whether, on the facts and in the circumstances of the case, was the Tribunal right in allowing the full amount of loss or any part thereof on the sale of securities by the assessee ?
4. Whether, on the facts and in the circumstances of the case, was the Tribunal justified in treating the loss on sale of U. P. Development Loan as a business loss ?
5. Whether, on the given facts and circumstances of the case, was the Tribunal justified in admitting the claim of the assessee that a partial partition among the members of the Hindu undivided family had taken place ?
3. It would be seen that; the two questions referred for the assessment year 1969-70 are also referred as questions Nos. 3 and 4 for the assessment year 1968-69.
4. The assessee is a partnership firm deriving income from manufacture and sale of crystal sugar. For the assessment year 1968-69, it purported to set off a sum of Rs. 9,598 as toss occasioned on sale of securities. This amount, comprised Rs. 7,250 on account of loss and Rs. 2,348 paid by way of interest, for acquiring the said securities. The Income-tax Officer rejected the said claim on the ground that inasmuch as the assessee is not engaged in dealing in Government securities, it cannot seek to set off the loss occasioned therefrom. On appeal, the Appellate Assistant Commissioner allowed 'the appeal of the assessee following his order for the preceding assessment year. The appeal preferred by the Department was dismissed by the Tribunal. The assessee's case was that though it is not engaged in dealing in Government securities, it was obliged to purchase them with a view to satisfy the Government officials with whom they have to deal every day in connection with their business. In short, their argument is that the said securities wore purchased as a matter of business expediency.
5. It is brought to our notice that an identical question was considered by the Supreme Court in Patnaik and Co. Ltd. v. CIT [1986] 161 1TR 365. The assessee concerned in the Supreme Court case was dealing in automobiles and spare parts. It had subscribed to certain Government loans and sustained loss on sale thereof. He claimed the loss as a revenue loss. It, was found by the Tribunal in that case that, having regard to the sequence of events and the close proximity of the investment, with the receipt, of Government orders for motor vehicles, the conclusion was inescapable that the investment was made in order to further the sales of the appellant and the investment was made by way of commercial expediency for the purpose of carrying on the business. Accordingly, the loss suffered was held to be a revenue loss. Though the order of the Appellate Assistant Commissioner in this case does not expressly record any finding, it is clear that it approved that reasoning in the appeal for the preceding assessment year, namely, 1966-67. The Appellate Assistant Commissioner clearly held that the loss was incidental to the appellant's business. In short, he accepted the appellant's case. If so, the ratio of the judgment of the Supreme Court clearly applies.
6. For these reasons, the two questions referred for the assessment year 1969-70 and questions Nos. 3 and 4 referred for the assessment year. 1968-69 are answered in the affirmative, i.e., in favour of the assessee and against the Department.
7. So far as questions Nos. 1 and 5 referred for the assessment year 1968-69 are concerned, we are of the opinion that these questions do not need any elaborate discussion. The order of the Tribunal shows that a partial partition in Seth Banarsi Dass Gupta (HUF) was accepted by the Tribunal in its order dated December 28, 1972, in ITA No. 2047 of 1968-69 for the assessment year 1961-62. If so, there is no question of not accepting the same partial partition for the assessment year 1968-69.
8. Now, coming to question No. 2, it is more or less a repetition of the above question and is consequential to the finding on question No. 1. The interest amounts referred to were not allowed by the Income-tax Officer on the ground that the partial partition has not been accepted by him. It is admitted that once the partial partition is accepted, these amounts ought to be given deduction. In view of the Tribunal's order, the said amounts ought to have been given deduction. Accordingly, question No. 2 is also answered in the affirmative, i.e., in favour of the assessee and against the Department.
9. The income-tax reference is answered accordingly.