Case: Western States Trading Co Ltd Vs. Commissioner Of Income Tax, Central Calcutta

the present appeals we are concerned with the first and the second question. It has been submitted on behalf of the appellant that the loss of Rs. 11,257/- was allowable under S. 10 (2) (vii) of the Act in computing the total income of the appellant. The Tribunal had recorded a finding which was one of fact; that in the relevant accounting year the appellant did carry on the colliery business. The finding of the Tribunal had not been challenged by the department by raising an appropriate question and therefore it was not open to the High Court to go against the finding of the Tribunal and hold that the business was carried on for and on account of the purchaser. At any rate it was an undisputable fact that the appellant carried on the business upto November 29, 1954 and it was only by virtue of the agreement made on that day that it agreed to treat the business as having been transferred to the purchaser with effect from September 1, 1954. By means of the agreement it was not possible to alter the actual state of affairs, namely, the carrying on of the business by the appellant. 7. In our judgment there is a good deal of substance in the above contentions urged on behalf of the appellant. The Tribunal had, in clear and unequivocal terms, upheld the contention of the appellant that it had actually carried on the business till November 29,1954. Section 10 (2) (vii) provides that profits or gains shall be computed after making the allowance in respect of any such building, machinery or plant which had been sold etc. the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant is actually sold or its scrap value. The first proviso requires that such amount should actually be written off in the books of the assessee. It is difficult to see how all the conditions necessary for the allowance under the above provisions were not satisfied. The colliery business was carried on by the appellant during part of the relevant accounting year. The machinery and plant had been used for the purpose of the business. The sale of the colliery took place during the accounting year. The loss of Rupees 11, 257/- was written off in the books of the appellant. The present case appears to be covered by the decision of this Court in Commissioner of Income-tax, Bombay City II v. National Syndicate, (1961) 41 ITR 225 = (AIR 1961 SC 398 ) in which all the above conditions for the applicability of Section 10 (2) (vii) were held to be present. It was said that there was no other condition to be found in the section or in the Act which had to be complied with. There was nothing to show that the business of the assessee should have been carried on for the whole year or that the machinery or plant should have been used for the whole of the accounting period or if the assessee worked only for a part of the year and then sold out the loss that he incurred was not a business loss. The decisions which were relied upon by the High Court are hardly of much assistance in the matter and are distinguishable on facts. The first question should have been answered in favour of the assessee. 8. On the second question once it is accepted that the colliery- business was carried on for a part of the relevant assessment year the assessee would be entitled to get a set off under Section 24 (2) of the Act if the shares on account of which the dividends were received formed part of the assessees trading assets. It is well settled by the decisions of this Court (see C. I. T. Andhra Pradesh v. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 = (AIR 1966 SC 47 ) that Section 6 of the Act classifies the taxable income under the several heads but the scheme is that income tax is one tax and Section 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. While sub-s. (1) of Section 24 provides for setting off the loss under one of the heads mentioned in Section 6 against the profits under a different head in the same year sub-s. (2) provides for the carrying forward of the loss for one year and setting off the same against the profits or gains of the assessee from the business in the subsequent year or years. It was emphasised in the aforesaid decision that sub-section (2) of Section 24 in contradistinction to sub-section (1) is concerned only with the business and not with its heads under Section 6 of the Act. Dividends are included in the meaning of income under sub-section (1-A) of Section 12 which is the residuary head. Applying the principles adverted to before the amount of dividends would form a part of the income from business of the assessee if the shares were a part of the assessees trading assets and the assessee would be entitled to a set off as claimed against the loss from its business incurred during the previous years. It does not appear to have been disputed at any stage that the shares formed part of the stock-in-trade of the share dealing business of the assessee. There could be no reason, therefore, for the amessee not being entitled to the set off claimed. The High Courts have consistently taken the view that business loss carried forward from earlier years can be set off against dividend income derived from shares held as Stock-in-trade(Vide Commissioner of Income-tax Madhya Pradesh v. Shrikishran Chandmal, (1966) 60 ITR 303 (Madh Pra) and Commissioner of Income-tax Ahmedabad v. Bhavnagar Trust Corporation (P) Ltd., (1968) 69 ITR 278 (Guj) . The second question, therefore, should have been answered in favour of the assessee.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]5. On the first question the High Court was of the view that the sale was a closing down sale and the net result of the transaction was that the assessee was working the colliery from September 1, 1954 for and on account of the purchaser. While recognising that the coal business was not stopped as from September 1, 1954 the High Court came to the conclusion that it was on account of the purchaser that the business was carried on and any profits or losses which might have resulted until the actual sale were to be those of the purchaser and the vendor was to get only the price fixed together with interest. The first question was answered against the assessee. The second question was also answered against the assessee on the view that no colliery business in the relevant year was carried on by it and therefore no question of set off could arise. The third and the fourth questions were answered in accordance with the findings of fact given by the Tribunal and against the assessee. The fifth question was not pressed and was not answered. The sixth question was covered by the second question and therefore no answer was returned with regard to it as well6. In the present appeals we are concerned with the first and the second question. It has been submitted on behalf of the appellant that the loss of Rs. 11,257/- was allowable under S. 10 (2) (vii) of the Act in computing the total income of the appellant. The Tribunal had recorded a finding which was one of fact; that in the relevant accounting year the appellant did carry on the colliery business. The finding of the Tribunal had not been challenged by the department by raising an appropriate question and therefore it was not open to the High Court to go against the finding of the Tribunal and hold that the business was carried on for and on account of the purchaser. At any rate it was an undisputable fact that the appellant carried on the business upto November 29, 1954 and it was only by virtue of the agreement made on that day that it agreed to treat the business as having been transferred to the purchaser with effect from September 1, 1954. By means of the agreement it was not possible to alter the actual state of affairs, namely, the carrying on of the business by the appellant7. In our judgment there is a good deal of substance in the above contentions urged on behalf of the appellant. The Tribunal had, in clear and unequivocal terms, upheld the contention of the appellant that it had actually carried on the business till November 29,1954. Section 10 (2) (vii) provides that profits or gains shall be computed after making the allowance in respect of any such building, machinery or plant which had been sold etc. the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant is actually sold or its scrap value. The first proviso requires that such amount should actually be written off in the books of the assessee. It is difficult to see how all the conditions necessary for the allowance under the above provisions were not satisfied. The colliery business was carried on by the appellant during part of the relevant accounting year. The machinery and plant had been used for the purpose of the business. The sale of the colliery took place during the accounting year. The loss of Rupees 11, 257/- was written off in the books of the appellant. The present case appears to be covered by the decision of this Court in Commissioner of Income-tax, Bombay City II v. National Syndicate, (1961) 41 ITR 225   = (AIR 1961 SC 398  ) in which all the above conditions for the applicability of Section 10 (2) (vii) were held to be present. It was said that there was no other condition to be found in the section or in the Act which had to be complied with. There was nothing to show that the business of the assessee should have been carried on for the whole year or that the machinery or plant should have been used for the whole of the accounting period or if the assessee worked only for a part of the year and then sold out the loss that he incurred was not a business loss. The decisions which were relied upon by the High Court are hardly of much assistance in the matter and are distinguishable on facts. The first question should have been answered in favour of the assessee8. On the second question once it is accepted that the colliery- business was carried on for a part of the relevant assessment year the assessee would be entitled to get a set off under Section 24 (2) of the Act if the shares on account of which the dividends were received formed part of the assessees trading assets. It is well settled by the decisions of this Court (see C. I. T. Andhra Pradesh v. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306   = (AIR 1966 SC 47  ) that Section 6 of the Act classifies the taxable income under the several heads but the scheme is that income tax is one tax and Section 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. While sub-s. (1) of Section 24 provides for setting off the loss under one of the heads mentioned in Section 6 against the profits under a different head in the same year sub-s. (2) provides for the carrying forward of the loss for one year and setting off the same against the profits or gains of the assessee from the business in the subsequent year or years. It was emphasised in the aforesaid decision that sub-section (2) of Section 24 in contradistinction to sub-section (1) is concerned only with the business and not with its heads under Section 6 of the Act. Dividends are included in the meaning of income under sub-section (1-A) of Section 12 which is the residuary head. Applying the principles adverted to before the amount of dividends would form a part of the income from business of the assessee if the shares were a part of the assessees trading assets and the assessee would be entitled to a set off as claimed against the loss from its business incurred during the previous years. It does not appear to have been disputed at any stage that the shares formed part of the stock-in-trade of the share dealing business of the assessee. There could be no reason, therefore, for the amessee not being entitled to the set off claimed. The High Courts have consistently taken the view that business loss carried forward from earlier years can be set off against dividend income derived from shares held as Stock-in-trade(Vide Commissioner of Income-tax Madhya Pradesh v. Shrikishran Chandmal, (1966) 60 ITR 303 (Madh Pra) and Commissioner of Income-tax Ahmedabad v. Bhavnagar Trust Corporation (P) Ltd., (1968) 69 ITR 278 (Guj)  . The second question, therefore, should have been answered in favour of the assessee.