Judgment

GROVER, J.: These appeals by special leave from a judgment of the Calcutta High Court arise out of certain questions of law which were referred relating to the assessment for the assessment year 1956-57, the relevant accounting year being from September 1, 1954 to August 31, 1955.

2. The assessee owned a colliery called the Western Kajoria Colliery, hereinafter referred to as "colliery". It entered into an agreement with another company on November 29, 1954 to sell the colliery to it. According to this agreement the vendor was to sell and the purchaser was to buy as on and from September 1, 1954 all the underground rights etc. of the colliery with the machinery and other articles detailed in the schedules annexed to the agreement. It is not necessary to give the details of the other stock-in-trade which the purchaser was to purchase. The sale was to be completed within one year from the date of the execution of the agreement. According to clause 7 of the agreement pending completion of the sale or delivery of possession of the premises to the purchaser the vendor was to carry on business on behalf of the purchaser and run the said colliery as on and from September 1, 1954 on the account and at the cost of the purchaser. The purchaser was to get all the profits and was liable for all the losses from that date.

3. The price fixed for the colliery was Rs. 3,50. 000. The book value of the assets was Rs. 4,80,290/-. In the relevant assessment year the loss of Rupees 70,290/- was claimed by the assessee. The Income-tax Officer rejected the claim for deduction of the loss from the assessee s other income on the ground that during the accounting period the assessee did not carry on the business of colliery since the transfer took place with effect from September 1, 1954. After making adjustment for certain assets which, according to the Income-tax Officer, were not entitled to depreciation he determined the figure of loss to be Rs. 11,257/-. This loss was also disallowed. The appellate Assistant Commissioner upheld the order of the Income tax Officer. The Appellate Tribunal, however, accepted the contention of the assessee that it carried on business till November 29, 1954 but did not allow the loss as the Tribunal was of the view that it had resulted from a closing down sale.

4. There was another item of dividends received from certain shares held by the assessee during the relevant accounting year. The Income-tax Officer included these dividends in the Company s income under S. 12 of the Income-tax Act, 1922, hereinafter called the "Act". The assessee failed to satisfy the authorities that the income received on account of the dividends could be set off against the loss in business of earlier years brought forward. The Tribunal made a reference of the following two questions under S. 66 (1) of the Act:

"(1) Whether on the facts and in the circumstances of the case the sum of Rs. 11,257/- being a claim for loss on sale of assets on which depreciation was allowable in earlier years is allowable under Section 10 (2) (vii) in computing the total income of the assessee?

(2) Whether on the facts and in the circumstances of the case dividend income was to be taken as income, profits and gains of business of the company and set off against losses brought forward from earlier years under section 24 (2)?"

Since certain other questions had been sought to be referred by the assessee in respect of which the Tribunal declined to make a reference the assessee moved the High Court and the High Court directed that the following questions be referred:

"(3) Whether in the facts and circumstances of the case, the interest income from Western Kajoria Collieries Ltd. is income taxable under Section 10 of the Indian Income-tax Act or under Section 12 of the said Act?

(4) Whether on the facts and circumstances of the case there was any material to hold that the loan of M/s. Shree Vijoy Corporation Ltd. was an accommodation loan not advanced during the norm