Commissioner of Income Tax vs D.S. Bist and Sons

This is a reference u/s 256(2) of the Income Tax Act, 1961, with respect to the assessment year 1967-68 at the instance of the Revenue. As per the statement of the case, the assessed is a registered firm engaged in exploitation of forests. It also derives income from tea estates and other sources. The assessed had claimed Rs. 31,911 as a revenue loss on sale of investments. The assessor�s contention was that these investments were pledged with the various District Forest Officers as security and these were, Therefore, business assets. It was stated that after release these were given to banks against overdrafts and were thereafter sold. According to the assessee, the security against the performance of contract should be taken as business stock and not capital stock. The Assessing Officer did not accept this contention raised on behalf of the assessed and did not allow the said claim as a revenue loss.

In the first appeal against the said order, the decision of the Assessing Officer was confirmed. The assessed came to the Tribunal. The Tribunal accepted the appeal of the assessed and allowed the claim as a revenue expense. Hence, this reference at the instance of the Revenue. It appears from the statement of the case that the assessed was forced to subscribe to these securities by the Department with which it was doing business. In other words, the assessed had no option but to subscribe to the securities if it wanted to continue to do business with the Departments concerned. The investments were thus necessarily by way of commercial expediency for the purpose of carrying on the business as a contractor. The point in issue is fully covered by a decision of the Supreme Court in Patnaik and Co. Ltd. Vs. Commissioner of Income Tax, Orissa, . In the case before the Supreme Court, the assessed dealt in automobiles and spare parts and had subscribed to certain Government loans. It sustained a loss of Rs. 53,650 while selling them and claimed that the loss was a revenue loss. The Appellate Tribunal found that having regard to the sequence of events and the close proximity of the investment with the receipt of the Government orders for motor vehicles, the conclusion was inescapable that the investment was made in order to further the sales of the appellant and boost its business and that the investment was made by way of commercial expediency for the purpose of carrying on the business. Therefore, the loss suffered by the assessed on the sale of the investment was a revenue loss. This view was upheld by the Supreme Court.

Having regard to the facts found in the present case it has to be held that the amount of Rs. 31,911 was rightly allowed by the Tribunal as revenue loss. The reference is answered in the affirmative, in favor of the assessed and against the Revenue.