1977 (4) TMI 36 - HC - Income Tax

Summary

Issues:
1. Allowability of depreciation on acquired share in S. B. Sugar Mills, Bijnor
2. Characterization of loss on sales of shares of M/s. Jaswant Sugar Mills Ltd.

Analysis:

Issue 1: Allowability of Depreciation on Acquired Share
The court referred to a previous decision involving the same assessee and concluded that depreciation is not allowable on the acquired share in S. B. Sugar Mills, Bijnor. The counsel for the assessee failed to establish the need for reconsideration of the previous decision or its inapplicability to the present case. Therefore, the court upheld the decision that the assessee was not entitled to claim depreciation on the acquired share.

Issue 2: Characterization of Loss on Sales of Shares
The assessee, a Hindu undivided family, sold shares in companies to its individual members and recorded a loss on the sale of shares in its profit and loss account. The income-tax authorities disallowed this loss as a capital loss. The Tribunal found that the assessee was not a dealer in shares and that the shares were acquired as an investment. The court noted that the shares were held since 1952 and were sold in the current year, indicating an isolated transaction. The burden of proof to establish the shares were held as stock-in-trade was on the assessee, which it failed to discharge.

The court distinguished a Supreme Court decision involving a company dealing in shares and securities, emphasizing that the present case involved a solitary transaction not in the nature of trade. The counsel for the assessee argued that the sale of shares constituted an adventure in the nature of trade, citing a different case, but the court found this argument inapplicable as the transaction was not part of the assessee's business line. Consequently, the court held that the loss on the sale of shares of M/s. Jaswant Sugar Mills Ltd. was of a capital nature, affirming the Tribunal's decision.

In conclusion, the court ruled against the assessee on both issues, denying depreciation on the acquired share and affirming the characterization of the loss on the sale of shares as a capital loss. The department was awarded costs, and the counsel's fee was assessed accordingly.