Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court for the assessment year 1983-84 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the appellant was not an investment company in terms of Section 109(ii) of the Income-tax Act, 1961 ?" The relevant facts as found by the Tribunal are as under : The assessee is a limited company and derives income from share dealings and dividend. The assessee during the year under reference disclosed share loss of Rs. 12,90,145 for which delivery was taken by it. The speculation loss in shares was shown at Rs. 7,95,447. The Income-tax Officer discussed the nature of the business of the assessee and indicated that it was a dealer in shares and it was not an investor. He, accordingly, came to the conclusion that the business loss shown by the assessee at Rs. 12,90,145 could be taken as speculative loss in view of the Explanation to Section 73 of the Income-tax Act, 1961. The assessee went in appeal before the Commissioner of Income-tax (Appeals) and contended that it was an "investment company" within the meaning of Section 109(ii) of the Act and indicated that its dividend income was greater than the business income. Therefore, it was an "investment company" and, consequently, the business loss in shares could not be taken as speculative loss in view of the Explanation to Section 73 of the Act. The argument of the assessee was accepted by the Commissioner of Income-tax (Appeals), who directed the Income-tax Officer to treat the loss from share dealings as an ordinary business loss and not as a speculative loss.
(2.) On further appeal by the Revenue, the Tribunal held that the loss from share dealings was more than the income from other sources. Therefore, the assessee was not an investment company. The Tribunal also held that the business loss in establishing dealing for the purpose of Section 73 of the Act cannot be treated as speculative loss in view of the Explanation appended to the said section.
(3.) At the hearing of this reference, Dr. Pal, appearing for the assessee, contended that the dividend income in the present case was Rs. 3,87,603 which is assessable under the head "Income from other sources". The assessee suffered a loss of Rs. 12,90,145 in the share dealing business and another loss of Rs. 7,97,447 in the speculative business. According to Dr. Pal, income by way of dividend being a positive figure of Rs. 3,87,603 was undoubtedly higher than the business loss which was a minus figure. He, therefore, contended that the gross total income of the assessee in this case mainly consisted of income chargeable under the head "Income from other sources" and, accordingly, the assessee should be treated as an "investment company" within the meaning of Section 109(ii) of the Income-tax Act, 1961.;