Wort, A.C.J.
1. The case which has been stated by the Commissioner of Income Tax arises out of the following circumstances. The assessee purchased shares to the value of Rs. 8,75,000 in the Eastern Iron Co., Ltd., which went into liquidation in the year 1924. Out of that liquidation a new Company was formed known as Eastern Coal Syndicate Ltd. This company having acquired the assets of the old company, agreed to allot certain shares and debentures to members of the old company. In that agreement the assessee was promised 43 shares of Rs. 100 each and debentures to the extent of Rs. 5,72,000. This agreement was not fulfilled in as much as all the debentures were not granted to the assessee as promised. It will be seen from the figures I have given that the assessee has lost a considerable sum of the money of his original investment made in Eastern Iron Co., Ltd. His contention before this Court and the question which is submitted to this Court for opinion is whether that loss is to be treated as a capital loss or loss of income and, if the latter, whether it can be taken into consideration in assessing the assessee''s income for the purpose of Income Tax.
2. Sir Sultan Ahmed appearing on behalf of the assessee contends that in considering the matter the investment in the original company must be excluded from ones attention; that it must be treated merely as an agreement by the new company to grant these debentures ; and also that it must be treated as a loan by the assessee to the new company. That a debenture in essence is a loan and debenture in essence is a mortgage may be true, but it is impossible to accept the argument put forward by Sir Sultan Ahmed in this respect. Indeed it is a self-destructive one. First, it seems to disregard the original investment which cannot be done, because the right of the assessee under the investment is the basis of the contract entered into by the new company and is the consideration for that contract. Secondly, if we are to disregard the existence of the original investment, then all that we have is a promise by the new company to grant debentures to the assessee which, as my learned brother pointed out in the course of the argument, is a nudum pactum in the circumstances. If a mudum pactum, the assessee has lost nothing-neither income nor capital. But we are bound in deciding this question to take into consideration the fact of the original investment. Now, if the assessee had been a person whose business was to trade in shares, the loss which he has sustained might have been taken into consideration in computing his profits assessable to Income Tax ; but there is no such finding and it would be impossible in the circumstances to have arrived at any such finding. It is clear that the difference between what the assessee has in fact got and what he originally invested is a loss which is clearly a loss of capital and therefore it cannot be taken into consideration for the purpose of arriving at the assessable income.
3. The question submitted therefore must be answered in the negative. The Crown is entitled to costs assessed at five gold mohurs.
Manohar Lal, J.
4. I agree.
