1991 (12) TMI 94 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of the claim for deduction of Rs. 3 lakhs as business loss.
2. Nature and characterization of the shares acquired by the assessee.
3. Applicability of relevant case law.

Detailed Analysis:

1. Rejection of the Claim for Deduction of Rs. 3 Lakhs as Business Loss:

The appellant contested the order of the CIT (Appeals) which upheld the Assessing Authority's rejection of its claim for deduction of Rs. 3 lakhs as business loss. The assessee, M/s. Hind Marketing Corporation (P.) Ltd., claimed this amount as a loss on the sale of shares held in M/s. Madras Vanaspati Ltd., asserting it as a business loss. However, the Income-tax Officer disallowed this claim due to the assessee's failure to provide details and evidence regarding the sale of the investment. This disallowance was initially upheld by the CIT(Appeals), leading to the appeal before the Tribunal.

2. Nature and Characterization of the Shares Acquired by the Assessee:

The crux of the matter revolved around whether the shares in question were part of the assessee's stock-in-trade or an investment. The CIT(Appeals) argued that the shares were treated as an investment by the appellant and not as stock-in-trade, thereby rejecting the claim of business loss. The CIT(Appeals) also held that the adjustment of the purchase consideration against the loan did not convert the shares into stock-in-trade. This conclusion was supported by the decision in VR. KR. S. Firm v. CIT [1966] 61 ITR 661.

However, the Tribunal found that the shares were acquired in lieu of a money lending debt, thus forming part of the stock-in-trade of the money lending business. The Tribunal cited the assessee's own case for the assessment year 1969-70, where it was established that the acquisition of shares was part of the money lending business. This was further affirmed by the High Court, indicating that the shares retained their character as business assets.

3. Applicability of Relevant Case Law:

The Tribunal referenced the Supreme Court's decision in Pandit Narain Dutt Chhimwal v. CIT [1972] 83 ITR 413, which held that assets acquired in lieu of a money lending debt retain their character as business assets. This was directly applicable to the present case, where the shares were acquired as part of the money lending business. The Tribunal noted that the CIT(Appeals) erred in requiring the assessee to be a dealer in shares to classify the shares as stock-in-trade.

The decision of the Madras High Court in VR. KR. S. Firm was distinguished on the grounds that it did not involve shares acquired in lieu of a money lending debt. Therefore, the Tribunal concluded that the loss of Rs. 3 lakhs on the sale of shares was a revenue loss arising from the money lending business and was allowable in the computation of business income.

Conclusion:

The Tribunal allowed the appeal, holding that the loss of Rs. 3 lakhs on the sale of shares was a revenue loss incurred in the course of the assessee's money lending business and thus, deductible in the computation of business income. The Tribunal's decision was based on the established facts and supported by relevant case law, particularly the Supreme Court's ruling in Pandit Narain Dutt Chhimwal's case.