Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business deduction/loss - Allowable as - Assessment year 1963-64 - State Government floated loan - Assessee, an automobile dealer, thought fit that if it purchased said Government Loan, then it could claim a preferential treatment at hands of Government - However, there was no evidence that assessee was persuaded by Government to make investment on such loan nor was assessee coerced to do so - No promise was held out that it would be given bulk of orders of Government for purchase of vehicles if it invested in such loans - Assessee subscribed to loan which it sold in relevant assessment year and sustained loss - Assessee claimed this loss to be revenue loss - Whether since assessee's business was not in purchase and sale of Government loans, even if purpose of assessee in going in for said loan was inspired by business expediency, said investment was of capital nature, earning interest and, therefore, loss sustained by assessee was a capital loss and not revenue loss - Held, yes FACTS The assessee was dealer in automobiles. The State Government had floated a loan, and the assessee was allegedly persuaded to subscribe to the same with the understanding that it would be accorded preferential treatment in placing orders for motor vehicles required for the Government departments and also would be granted advance of 50 per cent of the value of such orders placed with the assessee. The assessee agreed to the subscription of the loan although it was anticipated that it would result in loss while disposing of the subscribed loan. The assessee, accordingly, subscribed to the said loan, which it sold in the relevant assessment year and sustained loss. It claimed this loss as revenue loss. This was disallowed by the ITO as capital loss, which was sustained, on appeal, by the AAC. On further appeal, the Tribunal while agreeing with the assessee's contention that the subscription to the Government loan was conducive to the business and, thus, subservient to the existing business, held that the loss arose in the course of business activities of the company and, therefore, directed the deletion of the disallowance of the loss. The…

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