COMMISSIONER OF INCOME TAX Vs. DALMIA R

JUDGEMENT

(1.) This reference relates to assessment year 1958-59, the previous year for which is the year ending September 30, 1957. Seth R. Dalmia (hereinafter referred to as "the assessed") filed a return of his income for the assessment year 1958-59, disclosing an income of Rs. 99,496. In computing this income, he claimed, inter alia, that the loss incurred by him in the earlier years amounting to Rs. 2,52,121 from his business in shares should be set off against the dividend income of Rs. 3,12,734 which he had received during the accounting year. This dividend income represented the dividend received by the assessed from the shareholding in Jaipur Udyog Ltd. The assessed had also claimed allowance of interest amounting to Rs. 1,95,870 which was payable to M/s. Asia Udyog Pvt. Ltd. on the amount borrowed by the assessed for the purchase of the shares of Jaipur Udyog Ltd. The Income Tax Officer disallowed the assessed's claim for set-off on the ground that the dividend income did not constitute income from business under Section 10 of the Indian Income Tax Act, 1922 (hereinafter referred as "the Act") but constituted income from other sources under Section 12(1A) of the Act. He also disallowed the assessed's claim for interest on the ground that the borrowings from M/s. Asia Udyog Pvt. Ltd. were not for the sake of earning any income.

(2.) Against this order of the Income Tax Officer, the assessed preferred an appeal to the Appellate Assistant Commissioner and the latter, while allowing the assessed's claim of interest to the extent of Rs. 1,08,000, however, disallowed the assessed's claim for the set-off of the loss of earlier years against the dividend income received from the shareholding in Jaipur Udyog Ltd.

(3.) The assessed preferred a second appeal before the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") and pressed his claim for the set-off of the loss of the earlier years against the dividend income from the shares of Jaipur Udyog Ltd. For the reasons which will be referred to at a later stage, the Tribunal allowed the assessed's claim. At the instance of the Commissioner of Income Tax, however, the Tribunal has referred the following question to this court under Section 66(1) of the Act; "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessed was entitled to carry forward and set off losses of the earlier years against dividend income of the assessed in the assessment year 1958-59 - It would appear from the assessment order for the year 1958-59, which is made a part of the statement of the case, that the assessed derived income from various sources, such as, income from interest on securities, income from property, income from business and income from dividends. The income from business was from the business of a dealer in shares. It is not disputed that the loss claimed by the assessed amounting to Rs. 2,52,121 represented the loss incurred by the assessed in the earlier years from this business in shares. Under Section 24(2) of the Act, the assessed would be entitled to set off this loss of earlier years against his business income in shares and not against his income from any other source. Therefore, the assessed would be entitled to set off the earlier years' loss against the dividend income received by him from his shares in Jaipur Udyog Ltd. only if these shares constituted his stock-in-trade of his business in shares and that he would not be entitled to such a set-off if the said shares of Jaipur Udyog Ltd. were not his stock-in-trade but were only in the nature of an investment. Therefore, the question for determination is whether in the account year relevant to the assessment year under reference, the assessed held these shares of Jaipur Udyog Ltd. as his stock-in-trade or as investment.