Income from securities which formed part of the assessee's trading assets was part of its income in the business and therefore, the loss incurred in the business in the earlier year could be set off against that income also in the succeeding years.

Judgement

SUBBA RAO, J.: These appeals by special leave raise the question of construction of Section 24 (2) of the Indian Income-tax Act, 1922, hereinafter called the Act.

2. The material facts may briefly be stated. The Cocanada Bank Ltd., Kakinada, hereinafter called the assessee, is a private limited company carrying on banking business with its head office at Kakinada and a branch at Dayal Bagh. The assessee s sources of income are banking business and interest from Government securities. For the assessment year 1949-50 its income was assessed as follows: 48

Interest on securities Rs. 84,880

Other banking activities Rs. 64,400 (loss)

Net loss Rs. 55,912

The following tabular form shows at a glance the factual position in regard to the income of the assessee under different heads during the said three years.

Year of assessment Interest on securities Business income or loss (as finally decided by the A.A.C.) Total

(1) (2) (3) (4)

Rs. Rs. Rs.

1. 1950-51 5,191 886 6,077

2. 1951-52 2,174 1,177 3,351

3. 1952-53 1,885 9,121 11,006

For the three succeeding years the department showed the income under the said two separate heads but allowed the said loss to be set off against the income under the head "business" and disallowed it against the income under the head "interest on securities". The view of the Income-tax Officer was confirmed, on appeal, by the Appellate Assistant Commissioner and, on further appeal, by the Income-tax Appellate Tribunal. The following question was referred by the Tribunal to the High Court for its opinion:

"Whether on the facts and in circumstances of the case, the assessee was entitled to set off the business loss of Rs.55,912 brought forward from the preceding year against the entire income including interest on securities held by the assessee".

The High Court, having regard to the decision of this Court in United Commercial Bank Ltd. v. Commr. of Income-tax, West Bengal, 1958 SCR 79, remitted the case to the Income-tax Tribunal, Hyderabad Bench, for making a fuller statement of case on the question whether these securities in question formed part of the trading assets held by the assessee in the course of its business as a bank and whether its dealing with the securities from which it received interest was as much the assessee s business as receiving deposits from clients and withdrawals by them. The Income-tax Tribunal, on a further hearing, held that the receipt of interest from securities was as much the assessee s business as its other banking activities like receiving deposits from the clients and withdrawals by them. On receipt of the supplementary statement of case from the Tribunal the High Court answered the reference in favour of the assessee. Hence the present appeals.

3. Learned counsel for the Revenue argued that the income from business and securities fell under different heads, namely, S. 10 and S. 8 of the Act respectively, that they were mutually exclusive and, therefore, the losses under the head "business" could not be carried forward from the preceding year to the succeeding year and set off under S. 22 (4) of the Act against the income from securities held by the assessee.

4. Learned counsel for the assessee, on the other hand, contended that though for the purpose of computation of income, the income from securities and the income from business were calculated separately, in a case where the securities were part of the trading assets of the business, the income therefrom was part of the income of the business and, therefore, the losses incurred under the head "business" could be set off during the succeeding years against the total income of the business, i.e., income from the business including due income from the securities.

5. The relevant section of the Act which deals with the matter of set off of losses in computing the aggregate income in S. 24. The relevant part of it, before the Finance Act, 1955, read:

"(1) Where any assessee sustains a loss of profits or gains in any year unde