1 to 3. [These paras are not reproduced here as they involve minor issues.] 4. It was decided in the meeting of the Board of the assessee's directors held on 19-5-1973 that the assessee would be promoting a public limited company with an object to set up a forging plant in which the assessee was to make investment by purchase of shares. As a result of the above decision, a company called Forgings and Castings Ltd. was incorporated on 27-9-1973. A certificate of commencement of business was also granted to it. The assessee incurred certain expenditure in connection with incorporation and procurement of land for the newly formed company. From the minutes of the meeting of the Board of the assessee's directors held on 14-11-1973, it appears that the assessee was prepared to spend up to Rs. 2 lakhs for the above purpose. The total expenditure incurred from June 1973 to June 1975 amounted to Rs. 65,309. This was recovered partly by adjustment of consideration amount paid by the new company towards transfer of allotment and reservation money for plot of new industrial area, Panki, and partly by receipt of cash of Rs. 7,465. This left an unrecovered balance of Rs. 18,993. This was written off as irrecoverable in the books of the assessee-company as Forgings and Castings Ltd. were left neither with any asset nor with any cash. This situation arose as it was finally decided that the work which was to be entrusted to this newly promoted company had to be undertaken by the assessee itself and further that the name of the newly promoted company was to be struck off from the register of the companies.
5. The assessee claimed before the IAC that the above amount of Rs. 18,993 was in the nature of a short-term capital loss and, therefore, it was allowable as deduction in the computation of its income under Section 71(3) of the Income-tax Act, 1961 ('the Act'). This section states that where in respect of any assessment year, the net result of the computation under Sections 48 to 55 of the Act in respect of capital gains relating to short-term capital asset is a loss and the assessee has income assessable under any head of income other than 'capital gains', the assessee shall be entitled to have such loss set off against the income aforesaid. The IAC did not agree with the above claim. He found that there were no fixed terms and conditions of advancing any loan or money to the newly promoted company and whether it was at all repayable to the assessee. He, therefore, held that there was no claim or right over the assets created with the newly promoted company by the assessee. His finding was that the amount advanced by the assessee from time to time did not result in any capital asset and, therefore, the question of its transfer and consequent loss did not arise. The Commissioner (Appeals) agreed with him. He held that neither there was any capital asset nor any extinguishment thereof.
6. The assessee is now in appeal before us. The submissions placed before the lower authorities were repeated before us. It was submitted before us that the advances made by the assessee formed part of its capital asset and, therefore, the loss being in the nature of extinguishment of that asset had to be treated as a capital loss to be set off in terms of Section 71(3). On behalf of the department reliance was placed on the orders of the lower authorities.
7. After considering the facts of the case, we are of the opinion that the assessee must fail in its claim. We required the learned counsel for the assessee to place before us copies of the resolutions passed in the meetings of the directors and shareholders of Forgings and Castings Ltd. to show that the latter company had admitted that the expenses incurred by the assessee and the advances made were in the nature of loan which was required to be paid by Forgings and Castings Ltd. No such resolution was placed before us. It was frankly admitted that it was not available. In the absence of any such resolution from the records of Forgings and Castings Ltd., it is not possible for us to hold that whatever expenses have been incurred or whatever advances have been made by the assessee to or on behalf of the Forgings and Castings Ltd. were in the nature of a loan to the latter and the Forgings and Castings Ltd. was under an obligation to repay them. In this connection, the learned counsel for the assessee relied on the entries in the accounts of the assessee and those of Forgings and Castings Ltd. He submitted that in the books of Forgings and Castings Ltd. the various amounts had been shown as liability to the assessee and similarly in the books of the assessee, they had been shown as loan to Forgings and Castings Ltd. In our opinion, this does not help the assessee. It was held by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT  82 ITR 363, that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. In the absence of the acceptance by Forgings and Castings Ltd., we cannot hold that the amounts advanced by the assessee or the expenses incurred by it were in the nature of loan to Forgings and Castings Ltd, As a consequence, we also cannot hold that they were in the nature of any capital asset belonging to the assessee as defined in Section 2(14) of the Act. Consequently, the question of transfer of any capital asset resulting in any loss to the assessee also does not arise. We, therefore, confirm the disallowance of Rs. 18,993 also.