MAHAJAN, J. - The following question of law has been referred to us by the Income-tax Appellate Tribunal, Delhi Bench, under section 66 of the Income-tax Act (XI of 1922) :
'Whether, on the facts and in the circumstances of the case, any business was carried on by the assessee and whether the said loss of Rs. 4,43,248 suffered by the assessee was a loss of capital nature and, as such, not an admissible deduction in the computation of its income, profits and gains under sub-section (1) of section 10 of the Indian Income-tax Act ?'
Facts out of which this reference has arisen may be shortly stated :
The Simla Banking & Industrial Co. Ltd., Simla, hereinafter referred to as the company, was carrying on the business of banking. It met with some financial reverses and, therefore, moved this court under section 153 of the Indian Companies Act for a scheme of arrangement. That scheme was sanctioned on the 14th of April, 1951, and in order to meet liabilities arising under that scheme, it sold securities held by it and by the sale of those securities suffered a loss of Rs. 4,43,248 in the assessment year 1953-54, calendar year 1952. The assessee-company claimed this amount as revenue loss. The Department treated it as a loss of a capital nature and, therefore, its deduction was not allowed. On an appeal to the Appellate Tribunal by the company, the plea of the company prevailed and the Appellate Tribunal held that it was a loss of revenue nature and, therefore, a permissible deduction. The Department being dissatisfied with this decision moved the Appellate Tribunal under section 66 (1) of the Indian Income-tax Act for reference of the aforesaid question of law to this court.
After hearing the learned counsel for the Department, we are of the view that the question must be answered in the affirmative. To us, the matter seems to be concluded by the decision of the Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax wherein their Lordships of the Privy Council observed while dealing with the case as under :
'If as in the present case some of the securities of the bank are realised in order to meet withdrawals by depositors, it seems to their Lordships to be quite clear that this is a normal step in carrying on the banking business, or, in other words, that it is an act done in what is truly the carrying on of the banking business.'
It cannot be disputed that the buying and selling of securities is part of banking business. Reference in this connection may be made to section 6(1)(a) of a Banking Companies Act (X of 1949) and its counterpart in the Companies Act (VII of 1913), namely, section 277F. The securities in question were sold by the company to meet its liabilities as a banker and any loss suffered by the sale thereof would certainly be loss of a revenue nature.
Mr. Mahajan, who appears for the Department, relied on a decision of the Supreme Court in Kishan Prasad & Co. Ltd. v. Commissioner of Income-tax and contended that the decision in Kishan Prasads case would apply to the facts of the present case. We are unable to agree with this contention. In Kishan Prasads case the shares that were sold were acquired by way of investment of capital and, therefore, any loss or appreciation by the sale of those very shares would be loss or appreciation in capital.
For the reasons given above, the answer to this reference is in the affirmative.
The respondents will have their costs which are assessed at Rs. 250.
KHOSLA, C. J. - I agree.
Reference answered accordingly.