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Issues Involved:
1. Characterization of the shares as investment or stock-in-trade. 2. Legitimacy of the disallowance of the business loss claimed by the assessee. 3. Genuineness of the sales transactions of the shares. Detailed Analysis: 1. Characterization of the Shares as Investment or Stock-in-Trade: The core issue revolves around whether the shares held by the assessee in Vanguard Fire and General Insurance Company Limited were an investment or constituted her stock-in-trade. The Tribunal concluded that the shares were an investment, basing its decision on several premises: - The long interval between the sale of Government securities by the assessee in 1949-50 and the purchase of Vanguard shares. - The assessee did not revalue the shares as an ordinary share-dealer would at the end of the accounting year. - The large block of shares in a company where her husband was an important official suggested a purpose other than regular dealing. However, the Court found the Tribunal's view flawed, noting that the proper criteria for determining the character of the shareholding were not considered. The Court emphasized the "badges of trade" as outlined in the Royal Commission on the Taxation of Profits and Income, 1955, which include factors like the subject-matter of realization, length of ownership, frequency of similar transactions, supplementary work on the property, circumstances of realization, and motive. The Court highlighted that the assessee had a history of purchasing and selling shares and securities, indicating a pattern of trading activity. The shares were sold within months of acquisition, which is inconsistent with the behavior of an investor. The Court concluded that the shares were held as stock-in-trade, not as an investment. 2. Legitimacy of the Disallowance of the Business Loss: The assessee claimed a business loss of Rs. 42,534 from the sale of 32,850 shares during the accounting year ending March 31, 1952. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal disallowed this claim, considering the transactions as investments and not genuine sales. The Court disagreed with the Tribunal's approach, stating that the question of disallowance is intertwined with the character of the stockholding and the genuineness of the sales. The Court noted that whether a transaction is an investment or trading activity is a mixed question of law and fact. The Court found that the Tribunal's conclusion was not reasonably deduced from the primary facts and that the assessee's activities indicated a commercial motive. 3. Genuineness of the Sales Transactions: The Tribunal held that the sales of the shares were not genuine, primarily because the assessee's husband eventually purchased the shares and the sale proceeds were credited to a common account with Udaya Limited. The Tribunal suspected that the brokers were interposed to make the sales appear real. The Court found this conclusion unreasonable, noting that the sales were conducted through recognized brokers, and the sale proceeds were duly credited. The Court emphasized that the Tribunal overlooked significant facts, such as the receipt and endorsement of a cheque from Naraindas and Company and the realization of sale proceeds through the Indian Bank. The Court stated that these transactions were genuine and should be recognized as such. Conclusion: The Court concluded that the shares were held as stock-in-trade, not as an investment. The disallowance of the business loss was not justified, and the sales transactions were genuine. The Court answered the question in favor of the assessee, allowing the claimed business loss and awarding costs of Rs. 250.
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