1966 (1) TMI 7 - HC - Income Tax

Nature of expenditure - revenue/capital - loss on sale of share - litigation expenses - loss in speculation

Summary

Issues Involved:
1. Nature of losses incurred on the sale of shares.
2. Admissibility of litigation expenses as business expenditure.
3. Admissibility of losses arising in the course of business dealings in shares.
4. Admissibility of speculation losses.

Detailed Analysis:

1. Nature of Losses Incurred on the Sale of Shares:
Issue:
Whether the losses incurred on the sale of shares by the assessee-companies were of a revenue nature.

Judgment:
The Tribunal found that the assessee-companies were consistently dealing in shares and had been recognized as such by the income-tax department. The losses incurred were genuine business dealings and should be allowed as revenue losses. The Tribunal directed the allowance of these losses subject to adjustment according to market rates prevailing on the dates of sale. The High Court upheld this view, noting that the transactions were genuine and within the ordinary course of business, and the losses were incurred during business dealings, making them revenue losses.

Conclusion:
The Tribunal was justified in holding that the losses incurred on the sale of shares were of a revenue nature.

2. Admissibility of Litigation Expenses as Business Expenditure:
Issue:
Whether the litigation expenses incurred by the assessee constituted expenditure laid out wholly and exclusively for the purpose of the assessee's business.

Judgment:
The Tribunal held that the litigation expenses were incurred to maintain and save the existing possession of the assessee and were therefore revenue expenses. However, the High Court disagreed, ruling that the expenses were incurred to acquire a fixed capital asset in the future and not for maintaining existing assets. Consequently, the expenses were not revenue in nature.

Conclusion:
The Tribunal was not justified in holding that the litigation expenses constituted expenditure laid out wholly and exclusively for the assessee's business.

3. Admissibility of Losses Arising in the Course of Business Dealings in Shares:
Issue:
Whether the losses arising on the sale of shares were admissible deductions as losses arising in the course of the assessee's business of dealing in shares.

Judgment:
The Tribunal found that the transactions were genuine and that the losses were incurred in the ordinary course of business. The High Court upheld this view, noting that the transactions were genuine business dealings. The Tribunal's direction to adjust the amount of loss according to market rates was also upheld.

Conclusion:
The losses arising on the sale of shares were admissible deductions as losses arising in the course of the assessee's business of dealing in shares.

4. Admissibility of Speculation Losses:
Issue:
Whether the claim of Rs. 21,93,000 as loss in speculation was an admissible deduction in the assessment of the assessee.

Judgment:
The Tribunal found that the speculation losses were genuine and allowable. The High Court agreed, noting that the department had no substantial case against the allowance of these losses based on the facts recorded.

Conclusion:
The claim of Rs. 21,93,000 as loss in speculation was an admissible deduction.

Summary of the Judgment:
1. The Tribunal was justified in holding that the losses incurred on the sale of shares were of a revenue nature.
2. The Tribunal was not justified in holding that the litigation expenses constituted expenditure laid out wholly and exclusively for the assessee's business.
3. The losses arising on the sale of shares were admissible deductions as losses arising in the course of the assessee's business of dealing in shares.
4. The claim of Rs. 21,93,000 as loss in speculation was an admissible deduction.