1965 (9) TMI 5 - HC - Income Tax

assessee purchases shares from business funds and shows them as an asset of the business - in the absence of evidence to show that the shares formed part of the stock-in-trade of the business, the loss cannot be allowed as a business loss

Summary

Issues: Deductibility of business loss on the sale of shares under section 10 of the Income-tax Act for the assessment year 1958-59.

Analysis:
The case involved a firm of partnership owning rubber gardens and other properties in Malaya, claiming a deduction of a loss of 21,819 dollars on the sale of shares for the assessment year 1958-59. The firm had purchased 200 shares of a company in 1940 and sold them during the assessment year for a loss, which it contended was a revenue loss deductible under section 10 of the Income-tax Act. However, the Income-tax Officer and subsequent appeals held that the shares were purchased as an investment, not as part of the firm's stock-in-trade, and thus the loss was considered a capital loss. The Tribunal concurred, stating that the shares represented only an investment, not stock-in-trade of the firm's business. The Tribunal's order highlighted the lack of evidence showing the shares were treated as part of the firm's stock-in-trade in its money-lending business. The court emphasized the need for cogent evidence to establish shares as part of the stock-in-trade and found that in this case, no such evidence was presented. Consequently, the court ruled against the assessee, affirming that the loss on the sale of shares was a capital loss, not a deductible business loss under section 10 of the Income-tax Act for the assessment year 1958-59.

In summary, the judgment centered on the classification of the loss on the sale of shares as a business loss under section 10 of the Income-tax Act. The court scrutinized whether the shares were part of the firm's stock-in-trade or merely an investment. It emphasized the importance of providing substantial evidence to demonstrate the treatment of shares in the business to establish them as stock-in-trade. The court concluded that in the absence of such evidence, the loss incurred on the sale of shares was considered a capital loss, not eligible for deduction as a business loss under section 10. The decision highlighted the necessity for a clear nexus between the shares and the business activities to claim them as part of the stock-in-trade, ultimately ruling against the assessee and upholding the categorization of the loss as a capital loss.