1971 (8) TMI 29 - SC - Income Tax

Loss on sale of shares - Tribunal was justified in drawing the inference that the loss in question was a capital loss. That is also the view taken by the High Court

Summary

Issues:
Determining whether a loss is a capital loss or a revenue loss based on the facts and circumstances of the case.

Analysis:
The Supreme Court judgment in Civil Appeal No. 1126 of 1971 dealt with the assessment year 1955-56 and the sale of shares by the assessee. The Income-tax Officer initially rejected the claim of the assessee that the loss incurred from the sale of shares was a trading loss. The Appellate Assistant Commissioner disagreed with the Income-tax Officer's findings and concluded that the loss was a capital loss. The Tribunal, on further appeal, also agreed that the loss in question was a capital loss, assuming the transaction was genuine. The Tribunal's decision was based on various findings, including the shares being purchased as investment shares and not being sold when their prices were high. The Court emphasized that determining whether a loss is capital or revenue depends on the facts of each case and the inference drawn by the Tribunal. The Tribunal's inference that the loss was a capital loss was considered reasonable based on the circumstances, such as the long holding period of the shares and the absence of a trading motive.

The Court highlighted that the locking up of shares for about 14 years was an unusual feature if they were trading assets, suggesting they were investment shares. The Tribunal's reliance on the shares being shown as investments in the books and balance-sheet was considered a relevant circumstance in determining the nature of the loss. The Court rejected the assessee's argument that the shares were held due to company law provisions, emphasizing the lack of explanation for not selling the shares earlier despite opportunities for higher prices. Additionally, the Court questioned the decrease in the value of the shares during profitable years of the company, further supporting the Tribunal's inference of a capital loss. Ultimately, the Court upheld the Tribunal's decision and dismissed Civil Appeal No. 1126 of 1971 with costs.

In Civil Appeal No. 1747 of 1968, the Court revoked the certificate granted by the High Court due to lack of supporting reasons. Since the decision in Civil Appeal No. 1126 of 1971 addressed the same case, there was no need to remand the case back to the High Court. Consequently, Civil Appeal No. 1747 of 1968 was also dismissed without costs.