1986 (7) TMI 6 - SC - Income Tax

Loss on sale of government loan held revenue, not capital, investment was a commercial expedient without enduring benefit

Patnaik And Co. Limited Versus Commissioner of Income-Tax, Orissa

SC allowed the appeal, set aside the HC judgment, and held the loss on sale of the government loan was a revenue loss, not a capital loss. Relying on the ... Sale of the Government Loan - loss on sale of investments which assessee invested in Government loans to boost his sales - Whether a loss suffered by the assessee is a capital loss or a revenue loss - benefit of an advance from the Government up to 50 per cent. of the value of the orders placed - HELD THAT:- In the present case, the question referred to the High Court was framed on the assumption that it had to be decided in the factual matrix delineated by the Appellate Tribunal. In the circumstances, the findings of fact set forth in the judgement of the High Court must be vacated. We would have sent the case back to the High Court requiring it to answer the question of law referred to it on the basis of the facts found by the Appellate Tribunal but we refrain from doing so and propose to dispose of the reference ourselves on the statements of fact contained in the appellate order of the Appellate Tribunal. The case has remained pending through its successive stages for the last over 20 years, and it is appropriate that it should be disposed of now without further delay. 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, the conclusion was inescapable that the investment was made in order to further the sales of the assessee and boost its business. Thus, the Appellate Tribunal held that the investment was made by way of commercial expediency for the purpose of carrying on the assessee's business and that, therefore, the loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. We are of opinion that the Appellate Tribunal is right. The High Court, as has been mentioned, re-examined the facts on the record and found that the investment was not connected with the orders placed by the Government with the assessee and the advance payment made by the Government Departments to the assessee, and it was in that context that the High Court held that the investment in the loan was capital asset and the loss was a capital loss. The High Court took the view that the investment was of enduring benefit to the assessee and, therefore, it could not be allowed. We find it difficult to hold that an enduring benefit was brought about by the assessee investing in the loan. So far as orders from the Government Departments were concerned, the material on record shows that on August 30, 1961, it was decided to purchase 16 jeeps, 8 trucks and 4 one tonne pick-up vans. There is nothing to show that there was any reason for the assessee to hold on to the investment in the loan indefinitely. There was no enduring advantage. Accordingly, we hold that the investment did not bring in an asset of a capital nature and that, in the circumstances of the case, the loss suffered by the assessee was a revenue loss and not a capital loss. We hold that the High Court has erred in the view taken by it and that the Tribunal was right in allowing the appeal. In the result, the appeal is allowed, the judgment of the High Court is set aside and inasmuch as the loss is a revenue loss, the question referred to the High Court is answered in favour of the assessee and against the Revenue. Appeal allowed. Issues:1. Determination of whether a loss suffered by the assessee is a capital loss or a revenue loss.Analysis:The Supreme Court judgment involved the issue of categorizing a loss as either a capital loss or a revenue loss. The assessee, engaged in automobile sales and spare motor parts, claimed a loss on disposing of its subscription to the Orissa Government Floated Loan, 1972. The Income-tax Officer initially disallowed the loss as a capital loss, but the Income-tax Appellate Tribunal accepted the contention that the loss was a revenue loss as it arose in the course of the business. The High Court disagreed with the Tribunal, considering the loss as a capital loss. The Supreme Court emphasized that the Tribunal is the final fact-finding authority under the Income-tax Act and courts cannot re-examine evidence unless there is no support or a legal misdirection. The Court held that the investment in the loan was for commercial expediency to boost business, making the loss a revenue loss.The judgment highlighted the sequence of events where the assessee received an advance from the Government, leading to increased sales and savings on bank interest. The investment in the Government Loan was closely linked to receiving orders from Government Departments. The Appellate Tribunal found the investment was made for commercial expediency to further the business. The High Court, however, re-examined the facts and concluded that the investment did not relate to Government orders, deeming it a capital asset. The Supreme Court disagreed, stating that the investment did not bring enduring benefits and the loss was a revenue loss, citing precedents where losses on similar investments were allowed as business losses.The Supreme Court held that the High Court erred in its view, affirming the Tribunal's decision to treat the loss as a revenue loss. The Court allowed the appeal, set aside the High Court's judgment, and answered the question in favor of the assessee. The assessee was awarded costs for the appeal, concluding the case after a prolonged period of over 20 years.