HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Western States Trading Co. Ltd. v. Commissioner of Income Tax, Central Calcutta
Civil Appeals Nos. 589 and 590 of 1967
[1971] 3 SCR 383 ·
Indian Income-tax Act, 1922: sections 6, 10(2)(vii), 12(1A), 24(2) and 66
Sources & disclosures includedDownload original judgment / order
3-judge bench · J. C. Shah, C.J. · K. S. Hegde, J. · A. N. Grover, J.
Assessment years: 1956-57
01 · Facts of the case
The company agreed on 29 November 1954 to sell its colliery, contractually allocating operations to the purchaser from 1 September, but in fact operated until the agreement. It claimed a written-off balancing loss on depreciable assets. It also received dividends from shares held as stock-in-trade and sought to set brought-forward business losses against that income. The Tribunal found part-year operation but treated the asset loss as arising from a closing-down sale; the High Court rejected both claims.
Source: SCR pp. 383-386 / PDF pp. 1-4
02 · Discussion by the Hon’ble Court
The unchallenged factual finding established actual business operation until 29 November. Section 10(2)(vii) did not require operation or asset use for the whole year: the business operated, the machinery was used, the sale occurred in the year and the loss was written off. For section 24(2), dividend classification under a separate head did not change its business character when the shares were trading assets; income tax remained one tax despite computational heads.
Source: SCR pp. 386-388 / PDF pp. 4-6
03 · Judicial decision
Both appeals were allowed with costs. The High Court’s answers to questions 1 and 2 were set aside and answered for the assessee. The Court did not disturb the answers to the other referred questions.
Source: SCR p. 388 / PDF p. 6
04 · Outcome / in whose favour
The assessee succeeded on the depreciable-asset loss and the set-off against dividends from stock-in-trade. The judgment did not allow set-off against every dividend regardless of the shares’ business character.
Source: SCR pp. 387-388 / PDF pp. 5-6
05 · AKHB REVIEW POINT
AKHB analysis: establish actual operating dates rather than relying only on a contract’s retrospective allocation. For loss set-off, document whether securities were capital investments or trading stock and identify the source business. Re-test both issues under the applicable current provisions.
Source: AKHB analysis based on SCR pp. 386-388 / PDF pp. 4-6
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Statutory scope
The ruling applies historical 1922 Act provisions to a part-year business, depreciable-asset sale and dividend income from shares held as stock-in-trade. Current depreciation, cessation and loss-set-off provisions require separate verification.
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