Law: Income Tax Act, 1961

Section: 56,71

Income-tax-----Loss---Set off---Other sources ---Assessee manufacturing and selling beedies earning interest from fixed deposits in Banks---Premature encashment of fixed deposits---Loss could be set off against other income under provisions of S.71---Indian Income Tax Act, 1961, Ss.56 & 71. The assessee was a registered firm which derived its income from manufacture and sale of bidis. The assessee earned interest from bank deposits in the shape of fixed deposits receipts. During the year under consideration, the assessee claimed deduction of Rs.71,013 on account of the fact that in the earlier year, the assessee had purchased fixed deposit receipts out of its capital. It was assessed on interest on these fixed deposits on accrual basis from year to year. The fixed deposits got encashed prematurely and, as such, interest already taxed, on accrual basis, amounted to a loss. Therefore, it was claimed as a deduction. The Assessing Officer disallowed the claim. The Commissioner of Income-tax upheld the order of the Assessing Officer. The Tribunal, however, granted the deduction. On a reference: Held, that the assessee was engaged in the business of manufacture of bidis and not dealing with the business of investment and loans. Therefore, it could, at best, be treated to be an income from other sources. The deduction of Rs.71,013 was justified as the assessee had suffered loss on account of premature encashment of the fixed deposits and such set-off was permissible under section 71 of the Income Tax Act, 1961. JUDGMENT A.K. MATHUR, C.J.---This is an income-tax reference under section 256(1) of the Income Tax Act, 1961 (for short, the Act), and the following questions of law have been referred by the Tribunal for answer by this Court. "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law to hold that the Assessing Officer/Department, had accepted the position that the income fixed deposits receipts, was assessable under the head Business on accrual basis? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that the findings of the Commissioner of Income-tax (Appeals)…

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