Capital loss on securities: losses from capital investment in debentures cannot be set off as business loss against other income.

A capital loss incurred on debentures acquired as a capital investment (including under a family arrangement and not in the ordinary course of a money lending business) cannot be treated as a loss of profits or gains under the heads of income and therefore is not available for set off under the statutory loss set off provisions. The statutory scheme distinguishes interest on securities and capital investments from business advances; where the loss arises from capital investment in securities rather than a business transaction, it remains a capital loss and is not allowable for set off against other income.

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Issues: Whether the loss of Rs. 8,58,710 suffered by the assessee on debentures of the Agra Spinning and Weaving Co. Ltd. can be treated, for the purposes of Section 24(1) of the Income-tax Act, 1922, as 'a loss of profits or gains' under any head of income in Section 6 of the Act and set off against the assessee's income for the assessment year 1933-34.

Analysis: The statutory scheme relevant to the question comprises Section 6 (heads of income), Section 8 (manner of taxing interest on securities), and Section 24(1) (set off of loss of profits or gains). The facts, as found by the Income Tax Officer and affirmed on review, establish that the debentures were acquired pursuant to a family arrangement when the assessee was a minor and that the transaction was not connected with the assessee's money-lending business. Given those binding findings of fact, the transaction must be treated as a capital investment in debentures rather than as an advance made in the ordinary course of a money-lending business. Section 8 prescribes special treatment for income under the head "Interest on Securities," and there is no provision in the Act permitting a capital loss on investment in securities to be treated as a loss of profits or gains for set off under Section 24(1).

Conclusion: The loss of Rs. 8,58,710 is a capital loss on investment in debentures and cannot be treated as a loss of profits or gains under any head of income in Section 6; it is not allowable for set off under Section 24(1). The question is answered in the negative, against the assessee.

Final Conclusion: On the facts found, the assessee's claim to set off the loss against other income is rejected and the assessment stands confirmed in favour of the revenue.

Ratio Decidendi: Where a payment or loss arises from a capital investment in securities that is not made in the course of a taxpayer's business of money-lending, the resulting loss is a capital loss and is not allowable as a loss of profits or gains for set off under Section 24(1) of the Income-tax Act, 1922.

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