Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business loss/deduction - Allowability of - Assessee-company subscribed for Government loan and as per understanding with Government assessee got preferential treatment in getting orders placed with it - Whether subsequently the loss suffered by assessee on sale of investment must be regarded as a revenue loss - Held, yes Section 256 of the Income-tax Act, 1961 - Reference - General - Whether High Court is entitled to re-examine evidence and arrive at its own finding of fact where there is no challenge for Tribunal's finding of fact - Held, no Facts The assessee-company was dealing in automobiles and spare motor parts business. The assessee was told that if it subscribed for the Government loan preferential treatment would be granted to it in the placing of orders for motor vehicles required by the various Government departments and that it would be entitled to the further benefit of an advance from the Government up to 50 per cent of value of the orders placed. Pursuant to that understanding a certain amount of advance was received by the assessee, thus, enabling it to save bank interest that year. A circular was also issued by the State Government to various departments to make purchases of the vehicles required by them from the assessee. As good orders were expected, the purchase of the loan was approved by the board of directors and was ratified in the annual general meeting of the shareholders and, thus, a deposit of Rs. 5 lakhs was made as subscription to the Government floated loan. In the relevant assessment year, the assessee claimed a certain amount of loss sustained by it on disposing of its subscription to that as revenue loss. The ITO disallowed the loss holding that it was a capital loss. The 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 and, therefore, the loss suffered by it on the sale of the investment must be regarded as a revenue loss. The High Court took the view that the…

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