2011 (7) TMI 544 - HC - Income Tax

Loss suffered on sale of shares - business loss or a loss under the head capital gains - Held that - It is not in dispute that the Tribunal had found, that the assessee had made the investments only due to commercial expediency - As deicded in Patnaik & Co. Ltd., V. Commissioner of Income Tax, Orissa (1986 (7) TMI 6 - SUPREME Court) held that Where Government bonds or securities are purchased by an assessee with a view to increasing his business with the Government or with the object of retaining the goodwill of the authorities for the purpose of his business, the loss incurred on the sale of such bonds or securities is allowable as a business loss - Decided in favour of assessee.

Summary

Issues:
1. Whether the loss on the sale of shares is to be treated as a business loss or a loss under the head capital gains?

Analysis:
The judgment pertains to an appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the treatment of the loss incurred on the sale of shares. The main issue raised was whether the loss should be categorized as a business loss or a loss under the head of capital gains for the assessment year 1989-90.

The assessee, engaged in the pharmaceuticals field, had incurred a loss on the sale of shares of two companies. The Revenue argued that the investments were not shown as expenditure in the balance sheet, and thus, the loss should not be considered a business loss. They relied on a Supreme Court decision stating that profits on the sale of shares constitute capital gains. However, the Tribunal found that the investments were made for commercial expediency to secure consultancy services, aligning with a Supreme Court decision allowing a business loss on the sale of bonds for business purposes.

The Tribunal held that the investments were made as part of the regular business activities to enhance the viability of projects and ensure smooth technology transfer. The investments were deemed necessary for the business, and the loss incurred was considered a business loss rather than a capital loss. The Tribunal's decision was based on the commercial expediency of the investments and the intention behind them, aligning with legal precedents.

In conclusion, the High Court dismissed the Tax Case Appeals, upholding the Tribunal's decision in favor of the assessee. The judgment emphasized the commercial expediency of the investments and the business purpose behind them, leading to the classification of the loss as a business loss rather than a capital loss. The decision was supported by legal precedents and binding on the Revenue, resulting in the dismissal of the appeals filed by the Revenue.