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TMI Blog1967 (7) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... advances so made by the assessee was by way of fixed deposit of Rs. 6,00,000 with the Bhavnagar branch of a company called Godhra Electricity Company Limited. The interest on this fixed deposit was treated by the assessee as income of its money-lending business and was taxed as such by the revenue authorities during the relevant assessment years. Some time in the beginning of 1954, the business of the Bhavnagar branch of the Godhra Electricity Company Limited was taken over by a new company called Bhavnagar Electricity Company Limited by virtue of an order passed by the District Judge, Ahmedabad, in Civil Miscellaneous Application No. 12 of 1954 and under the terms of that order the Bhavnagar Electricity Company Limited was also directed to take over the liabilities of the Bhavnagar branch of the Godhra Electricity Company Limited amounting to Rs. 18,36,737 which included the liability in respect of the fixed deposit of Rs. 6,00,000 due to the assessee and it was also provided that the said liability should be discharged by the Bhavnagar Electricity Company Limited by issuing shares of the face value of Rs. 100 each to the extent of multiples of Rs. 100. Pursuant to this order the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enting interest on advances and Rs. 34,794 representing dividend on 5,799 shares of Bhavnagar Electricity Company Limited and as against this income the assessee incurred expenditure amounting to Rs. 29,308 which included Rs. 27,845 payable as interest on the amounts borrowed by the assessee. The Income-tax Officer treated the sum of Rs. 29,308 as business expenditure and after taking into account the income of Rs. 562 earned as interest on advances, he determined the business loss of the assessee to be Rs. 28,646 and then he set off this business loss of Rs. 28,646 against the income of Rs. 34,794, representing dividend on 5,799, shares of Bhavnagar Electricity Company Limited in accordance with the provisions of section 24(1) and arrived at the resultant income of Rs. 5,148 which he brought to tax. The assessee claimed to set of the carried forward loss of Rs. 99,704 against the resultant income of Rs. 6,148, which was earned as dividend but this claim was rejected by the Income-tax Officer on the ground that the income by way of dividend was not income of business and section 24(2) was, therefore, not attracted. The assessee carried the matter in appeal before the Appellate Assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on which such income was earned formed part of the trading assets held by the assessee in the course of its business. If these shares formed part of the trading assets of the assessee, the income from them would be part of the income of the business and section 24(2) would be immediately attracted and the carried-forward loss of the earlier years would be liable to be set off against the total income of the business, that is the income of the business including the income from these shares. We must, therefore, proceed to consider the question whether these shares formed part of the trading assets of the assessee. Now, in order to understand the nature and character of these shares acquired by the assessee, it is necessary to bear in mind the circumstances in which they came to be acquired. The assessee was admittedly carrying on money-lending business and in the course of the money-lending business it had advanced a sum of Rs. 6,00,000 by way of fixed deposit to the Bhavnagar branch of the Godhra Electricity Company Limited : that was a debt plainly due to the assessee in the course of its money-lending business. Then by an order made by the District judge, Ahmedabad, in Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares. Even in the assessment for the assessment years 1959-60 and 1960-61 in which income by way of dividend on these shares was received by the assessee, the entire interest payable on the borrowed moneys was treated as expenditure incurred in the money-lending business and the revenue authorities accepted it as business expenditure. These shares of the Bhavnagar Electricity Company Limited were, therefore, regarded by the assessee as part of the stock-intrade of the money-lending business and interest payable on the borrowed moneys representing these shares was treated as expenditure in the money-lending business. If these shares had been taken out of the money-lending business and had been treated as capital investments of the assessee, the borrowed moneys to the extent to which they were invested in these shares would also have ceased to form part of the money-lending business and the interest payable on them by the assessee would not have been an expenditure of the money-lending business liable to be deducted in computing the income from business. Strong reliance was placed on behalf of the revenue on the circumstance that these shares remained with the assessee from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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