Law:

Section:

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business loss/deductions - Allowable as - Assessment year 1959-60 - Assessee-corporation was established under section 3 of State Financial Corporation Act, 1951 with object of financing Industrial Concerns - Assessee in addition to advancing loans also invested surplus funds in government securities - It sold certain securities which resulted in loss - Assessee claimed that it was a trading loss - Tribunal rejected claim of assessee - However it was found that governing consideration for selling securities was necessity to find money for disbursing sanctioned amount of loan to industrial concerns - Whether, on facts, sale of securities was closely linked up with business of corporation and loss suffered on account of such sale was to be regarded as a trading loss - Held, yes FACTS The assessee corporation was established by the State Government in exercise of its power under section 3 of the State Financial Corporations Act, 1951. The assessee had advanced loans and also invested its surplus funds in Government securities. The assessee sold certain securities which resulted a loss and claimed that a trading loss when it filed the return of its income for the relevant assessment year. The ITO, however, disallowed this claim observing that its primary object was to grant loans to the industrial undertakings. Hence, the loss claimed was a capital loss. The AAC noted that the corporation was brought into being as a part of the scheme to establish financial corporations in different States for advancing or guaranteeing loans industries and the nature of the business was analogous to that of a banking concern and it had to keep its funds in easily realisable securities and he observed that the corporation had to dispose of the securities as it was necessary for meeting its obligations. Accordingly, he came to the conclusion that, having regard to the nature of the corporation's business, the loss in question deserved to be allowed as revenue loss in spite of the fact that in the balance-sheet of the corporation it had not been shown as stock-in-trade, but…

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