Hindusthan Welfare Trust vs Director of Income Tax (Exemption)

Ajit K. Sengupta, J.—In this reference u/s 256(1) of the Income Tax Act, 1961, for the assessment year 1984-85, the following question of law has been referred to this court :

"Whether the Income Tax Appellate Tribunal, on the facts and in the circumstances of the case, was justified in holding that the loss on sale of investments of Rs. 54,982 is not allowable in computing the income of the assessee and/or treated as application of income ?"

The brief facts of the case are that during the year of account ending on March 31, 1984, the assessee-trust incurred a loss of Rs. 54,982 on sale of certain preference shares and debited the said amount to the income and expenditure account under the head "Loss on sale of investment". The Income Tax Officer refused to allow the said loss on the ground that the loss on sale of shares was not allowable in the case of the trust. On appeal to the Appellate Assistant Commissioner of Income Tax, the claim of the assessee was allowed and the Income Tax Officer was directed to deduct the loss in arriving at the total income and then recompute the benefit u/s 11.

On appeal to the Tribunal by the Income Tax Officer, it has been held that the loss in question cannot be regarded as an expenditure. It has also been held that the said loss was incurred not on revenue account but on capital account. The Tribunal has also taken the view that the circumstances that the assessee sold the shares with a view to conforming to the provisions of the amended Section 13(1)(d) of the Income Tax Act, 1961, cannot be conclusive of the matter. The order of the Appellate Assistant Commissioner of Income Tax was, accordingly, reversed and the Department''s appeal was allowed. While allowing the Department''s appeal, the Tribunal has relied on the decision reported as Commissioner of Income Tax, Bombay City II, Bombay Vs. New India Assurance Co. Ltd., and Commissioner of Wealth-tax, Gujarat Vs. S.C. Kothari, . The Tribunal has also found that the various decisions cited by the assessee''s counsel, namely, the decision of the Karnataka High Court in Commissioner of Income Tax, Karnataka-I Vs. Society of the Sisters of St. Anne, , the Calcutta High Court in Commissioner of Income Tax, Central-I Vs. Jayashree Charity Trust, and the Gujarat High Court in Commissioner of Income Tax Vs. Ganga Charity Trust Fund, do not support the assessee''s case because the above decisions did not deal with the case of loss on the sale of shares.

Mr. Bajoria appearing for the assessee has drawn our attention to a decision of this court in I. T. Ref. No. 62 of 1990 Director of Income Tax (Exmp.) Vs. Girdharilal Shewnarain Tantia Trust, , where the judgment was delivered on June 25, 1991. In that case, we have held that, in considering the income of the trust, only the real income has to be taken into account. In that case, the question was of allowing exemption u/s 80T on the capital gains which arose to the trust. There, this court held that the income from the property held under trust has to be arrived at in a normal commercial manner and there is no scope for computing the income from property by complying with the provisions of Section 14 of the Act. In other words, the real income has to be taken into account for the purpose of considering the exemption u/s 13 of the Act. If there be any loss that cannot form part of the real income of the trust and necessarily it has to be excluded from consideration. We, therefore, reframe the question as follows :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss on sale of investment of Rs. 54,982 is not allowable in computing the income of the assessee ?"

We answer the reframed question in the affirmative and in favour of the Revenue.

There will be no order as to costs.

Shyamal Kumar Sen, J. 7. I agree.