1966 (1) TMI 10 - HC - Income Tax

Business of buying and selling shares - Whether the loss arising on the sale of shares was an admissible deduction as a loss arising in the course of the assessee s business of dealing in shares

Summary

Issues:
Whether the loss arising from the sale of shares is an admissible deduction as a loss in the course of the assessee's business of dealing in shares.

Analysis:
The case involved a dispute under section 66(1) of the Indian Income-tax Act regarding the admissibility of a loss of Rs. 1,24,668 arising from the sale of shares in certain limited companies as a deduction in the assessee's business of dealing in shares for the assessment year 1953-54. Initially, the Income-tax Officer and the Appellate Assistant Commissioner considered the loss to be of a capital nature due to the absence of a trade element in the share transactions. However, the Appellate Tribunal took a different view based on the evidence presented by the assessee regarding share capital, voting power, and market prices, concluding that the loss was incurred in the regular course of the business of dealing in shares without any extra commercial element involved.

The revenue's counsel argued that the shares in question were acquired when the companies were floated, suggesting that the assessee's intention was not initially to profit from the transactions. However, the Tribunal found no evidence to support this claim and determined that the shares disposed of were only a portion of the assessee's overall holdings, contradicting the revenue's contention. The Tribunal also rejected the assertion that the assessee aimed to control the management of the companies through share acquisition, as there was no supporting evidence for this claim. The Tribunal's factual findings were deemed valid, especially since they were not challenged by the department during the reference process.

Additionally, the revenue contended that the assessee held the shares for a longer period than typical share dealers and that the sale was made to companies in which the assessee had a significant interest. However, the Court dismissed these arguments, noting that the sale was not below market rate and that there was no legal prohibition on transactions between associated companies. The absence of any extra commercial element in the sale further supported the conclusion that the loss was incurred in the ordinary course of the assessee's share dealing business.

In conclusion, the Court held that the loss of Rs. 1,24,668 from the sale of shares was an admissible deduction in the assessee's business of dealing in shares, based on the evidence presented and the absence of any extra commercial elements. The reference was disposed of in favor of the assessee, who was awarded costs amounting to Rs. 250.