2020 (3) TMI 1272 - AT - Income Tax

Investment in silver bars - characterization of income - capital gain or business income - plea of the appellant that the silver trading transaction entered by the appellant is Adventure in the nature of Trade. and hence allowable as business loss - HELD THAT - This is a solitary transaction under taken by the assessee in investing in silver bars and the assessee has neither invested in silver bars prior to this solitary transaction nor invested later in silver bars post completion of this transaction of sale of silver bar on 16.02.2020. As based upon entire material on record, said investment made by the assessee is not a business transaction but rather it is an investment made by assessee to earn capital gains and the same is to be considered for taxation under the head 'Capital Gains'. As observed that the assessee is a company and not an individual and there is no question of any personal loss in the case of the company as it could not been shown that this transaction is for the benefit of the Directors or the shareholders and hence we held it to be capital investment, income and loss are to be brought to tax under the head 'capital gains'. So far as locker rent is concerned, the assessee is a corporate entity and it is claimed that the documents and other valuables were kept in the locker for safe custody. We accept the contention of the assessee as the assessee is in business of builders and dealing with valuable property documents which needs safe keeping and we also accept the same keeping in view smallness of the amount.

Summary

Issues involved:
1. Disallowance of loss incurred in silver trading
2. Disallowance of locker rent as business expense

Analysis:

Issue 1: Disallowance of loss incurred in silver trading
The appeal was against an appellate order confirming the assessment of the total income of the appellant company at a higher amount than returned. The appellant claimed a loss of a significant amount incurred in silver trading, arguing it should be allowed as a business loss or capital loss. Both the Assessing Officer and the Commissioner of Income Tax (Appeals) rejected the claim, considering it a personal loss not eligible for deduction. The appellant contended the silver trading was an adventure in the nature of trade, but this was not supported by the main object clause of the company's activities as building promoters. However, the appellant claimed another object clause in the Memorandum of Association allowed trading in silver. The tribunal observed the company's financial position, the solitary nature of the silver investment, and the absence of prior or subsequent similar transactions. It concluded the investment was for capital gains and not a business transaction, thus taxable under 'Capital Gains.' As the transaction was not for personal benefit, the loss was to be treated as a capital investment, and income and loss were to be taxed under 'capital gains.'

Issue 2: Disallowance of locker rent as business expense
Another disallowance was related to locker rent claimed as a business expense. Despite the appellant's assertion that the locker was used for keeping property documents and valuables related to the business, both authorities disallowed the deduction. The tribunal, considering the nature of the appellant's business as builders dealing with valuable property documents, accepted the claim for locker rent as a business expense, acknowledging the need for safekeeping. The tribunal allowed this deduction due to the business nature of the appellant and the minimal amount involved.

In conclusion, the tribunal partly allowed the appeal, ruling in favor of the appellant on the disallowance of locker rent as a business expense but against the claim of loss incurred in silver trading as a business or capital loss. The judgment was pronounced on March 17, 2020, in Chennai.