SEN, J. - (1.) THE Tribunal has referred the following question of law under S. 256 (1) of the IT Act, 1961 ('the Act') :- "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss of Rs. 4,57,844 arising to the assessee on the nationalisation of the coal industry was not an admissible deduction being a capital loss."
(2.) IN this proceeding the assessment year involved is 1974-75 for which the relevant year of account is the year ended on 30th Nov., 1973. The facts found by the Tribunal are as under:- The assessee is a firm which maintains accounts under the mercantile system of accounting. In respect of the previous year ending on 30th Nov., 1973 relevant to the asst. yr. 1974-75 the assessee submitted initially a return showing a loss of Rs. 1,08,139 which was subsequently revised showing enhanced loss of Rs. 2,09,091. Along with the revised return the assessee submitted copies of revised P&L A/c and balance sheet. The ITO on scrutiny of the balance sheet found that the assessee debited an amount of Rs. 4,57,844 in the P&L A/c being loss sustained by the assessee on compulsory acquisition of collieries owned by it. The ITO held that the loss debited in the accounts to the tune of Rs. 4,57,844 was in the nature of capital loss and, hence, disallowable in computing the business income of the assessee. On appeal, the CIT (A) in allowing the assessee's appeal directed the ITO to treat the loss as arising from business and the reasoning given in that regard vide paragraph 7 of his order is as follows:- "Sec. 28 (ii) (d) enacts that any compensation paid for or in connection with the resting of the management of any property or business in the Government or a Government controlled corporation shall be deemed to be business profits. In such cases therefore the question whether the compensation is a capital or income receipt cannot now arise. In the present case the management of the appellant's coal mines was taken over initially on 31st March, 973 followed by complete nationalisation or take over from 1st May, 1973. Since the loss of Rs. 4,57,844 arose appropos of the compensation in pursuance to the taking over or nationalisation it should be deemed to be business loss and treated as such." The Department being aggrieved with the CIT (A) order came up in appeal before the Tribunal and the only contention raised was that the CIT (A) was not justified in holding that the sum or Rs.
(3.) ,57,844 was a business loss and not a capital loss as held by the ITO. The Tribunal reversed the order of the CIT (A) by observing inter alia, that S. 28 (ii) (d) of the Act had no application to the assessee's case and it was held that the loss of Rs. 4,57,844 was a capital loss and not a business loss. The reasoning given by the Tribunal may be found in paragraph 2 of their order which reads as follows:- "The CIT (A) held that as there was a provision for treating the compensation received as business income if there was a loss in the matter of take over of the business by the Government, the loss would be a business loss on the same analogy. The Departmental representative argued that here not only the management was taken over but all the assets were taken over and compensation given for the same. It was argued that S. 28 (ii) (d) which has been relied upon by the CIT (A) would operative only if merely the management had been taken over by the Government and not the property or business (sic) only the management but all the assets and business were taken over and hence the provisions of S. 28 (ii) (d) are not applicable. The Authorised Representative argued that the order of the CIT (A) was correct and he referred to the Memorandum pertaining to the said amendment of S. 28 vide Finance Bill 1973.We have gone through the said memorandum and we do not find that there is any thing therein which would support the case of the assessee. We have given our due consideration. The Authorised Representative has also referred to page 1093 of Sampath Iyenger (7th Edition) .We have gone through even the said book and we do not find that there is anything any where to support the view that even where assets and business were taken over by the Government, S. 28 (ii) (d) would come into play. We hold that the order of the Commissioner of Income-tax (Appeals) was not a correct order at all and that section 28(ii)(d) was not applicable. The appeal of the Department is allowed and the loss of Rs. 4,57,844 is held to be a capital loss and not a business loss." 4. It has now been contended on behalf of the assessee that there is a further question of S. 32 (1) (iii) of the Act. The assessee's case is that what the assessee received by way of compensation was less than the depreciated value of some of the assets, which were taken over by the Government. It has been stated that in such a situation the assessee was allowed to claim depreciation on the loss. A part of the loss was on account of compensation paid on the depreciable assets.;