JOSNA BANK LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law for our opinion :

(2.) THE assessee, the Josna Bank Ltd., was a banking company which carried on business till the 12th October, 1965. On account of financial difficulties, it was given the benefit of moratorium on and from June 12, 1965, by the Central Government on the recommendation made by the Reserve Bank of India under Section 45 of the Banking Companies Act, 1949. A scheme of amalgamation of the assessee-bank with Lord Krishna Bank Ltd. was prepared by the Reserve Bank under Sub-section (4) of Section 45 of the Banking Regulation Act, 1949, and after observing the formalities required by the section it was ultimately sanctioned by the Central Government under Sub-section (7) of Section 45 by order dated 7th October, 1965. A copy of this scheme is annexure "A". By another order dated 7th October, 1965, the Central Government specified 13th October, 1965, as the prescribed date in relation to the aforesaid scheme for the amalgamation of the assessee-bank with Lord Krishna Bank Ltd. That order is annexure " B". Under the scheme of amalgamation Lord Krishna Bank Ltd. was to take over the " selective assets " of the assessee-bank and undertake the discharge of its liabilities. Lord Krishna Bank Ltd. was also to take over the investments of the assessee-bank inclusive of Government securities. Sub-clause (a) of clause 4 of the scheme provided for the valuation of such investments at the market value prevailing on the day immediately preceding the prescribed date. Accordingly, the Government securities held by the assessee of the book value of Rs. 12,35,241.70 were taken over by Lord Krishna Bank Ltd. at a market value of Rs. 11,79,697.65. THE difference between the book value and the market value was Rs. 55,544.05. In the return filed by the assessee for the assessment year 1966-67, along with the profit and loss account for the year ending December 31, 1965, a loss of Rs. 20,611 was shown. THE assessee's claim before the assessing authority was that the sum of Rs. 55,544.05 being the difference between the book value of the Government securities and the market value at which they were taken over by Lord Krishna Bank Ltd. should also be added to its loss. THE Income-tax Officer determined the total income of the assessee from business as Rs. 70,560 and he rejected the claim of the assessee for deduction of the sum of Rs. 55,544.05. In appeal before the Appellate Assistant Commissioner the rejection of the claim for deduction of a sum of Rs. 55,544.05 was upheld. In further appeal by the assessee the Tribunal too upheld the decisions of the Income-tax Officer and the Appellate Assistant Commissioner.

(3.) THE Tribunal after referring to a number of decisions formulated its conclusions in paragraph 11 of its order thus :