1970 (4) TMI 15 - SC - Income Tax

Shares and securities held by the company were its stock-in-trade, and the loss resulting from transactions relating thereto was revenue loss - company was a dealer in shares and securities and the loss resulting in the year of account of 1952-53 from sale of securities was liable to be treated in the A.Y. 1953-54 as revenue loss - assessee s appeal allowed

Summary

Issues:
1. Whether the loss incurred by a company from the sale of securities should be treated as a revenue loss or a capital loss for the purpose of income tax assessment.

Analysis:
The case involved a public limited company that claimed allowance for the loss suffered in the sale of securities during the assessment year 1953-54. The Income-tax Officer disallowed the claim, stating that the company was not in the business of dealing in securities and that the transactions did not appear to be a normal business venture. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal agreed with this view, leading to the company appealing to the High Court of Madhya Pradesh.

The High Court held that the loss incurred from the sale of securities was of a capital nature, based on certain findings by the lower authorities. However, the Supreme Court analyzed the facts and circumstances of the case, noting that the company was formed with the objective of dealing in shares, debentures, and securities. The Income-tax Officer had previously accepted the company's claims in other assessment years that the shares and securities were its stock-in-trade, and the losses were revenue losses.

The Supreme Court highlighted that the company had engaged in substantial transactions involving securities and shares, even though the frequency of transactions was not high. The method of accounting employed by the company, valuing stock at cost and describing them as "investments" in the balance sheet, did not conclusively indicate that the securities were not stock-in-trade. The Court emphasized that the nature of transactions should be considered in determining the treatment of losses for income tax purposes.

The Solicitor-General argued that the loss resulted from the "redemption of securities" and should not be allowed in income computation. However, the Court disagreed, noting that the company referred to the transactions as sales in its documents. Ultimately, the Supreme Court disagreed with the High Court's decision, answering the question in the negative and allowing the company's appeal, entitling it to costs in both courts.

In conclusion, the judgment clarified the distinction between revenue and capital losses in the context of securities transactions, emphasizing the importance of the nature and intention of the transactions in determining the tax treatment of losses.