4. CAPITAL LOSSES VS REVENUE LOSSES
Distinction has to be made between revenue losses and capital losses of the business because under the provisions of this Act Capital Losses are dealt with under the Chapter “ Capital Gain” whereas Revenue Looses are treated as Business Losses and as such are treated under the head “ Profit and Gains of Business or Profession”.
Distinguish has to be made between Revenue Losses and Capital Losses of the business because under the provisions of this Act, Capital Losses can be set off against the Income from Capital Gain only, whereas the Revenue Losses are business losses and as such can be set off against any other income of the assessee.
It is very difficult to distinguish between a Capital Loss and a Revenue Loss on the basis of certain principles. On the basis of court judgment, following decisions have become distinguishing points :
(i) Loss due to sale of Assets : Where there is loss on selling a Capital Assets, it is a Capital Loss whereas any loss incurred during the sale of Stock-in-Trade is a Revenue Loss.
(ii) Loss due to embezzlement : Where there is embezzlement done by an employee and this causes loss to the business, it is of Revenue Loss.
(iii) Loss due to withdrawal of money from bank : Oncethe amount is deposited in Bank and then it is withdrawn by an employee and is misappropriated , is a Capital Loss.
(iv) Loss due to liquidation of company : Amount deposited by a person with manufacturing industry to get its agency and lost due to company being liquidated is a Capital Loss.
(v) Loss due to Theft by an employee : Losses occurring due to theft or embezzlement of misappropriation committed by an employee is Revenue Loss.
State , giving reasons, whether the following are Capital or Revenue Receipts :
Compensation received for compulsory vacation of place of business.
Bonus shares received by a dealer of shares.
Money received by a Tyre Manufacturing company for sale of technical know-how regarding manufacture of tyre.
Dividend and interest for investment.
Revenue receipt as it is in compensation of assessee’s profit which it would have earned.
If the assessee has also converted the bonus shars into stock in trade then it is a revenue receipt otherwise it is an accretion in the capital assets.
Revenue Receipt but in case the sale of technical know-how results into substantial reduction in value of the tyre company or company closes down its business in that particular line then the receipt would be a Capital Receipt.
Assessee gets the income of dividend and interest regularly and form a define source and it is a return for the use of his asset by somebody else and so it is a revenue receipt.