1969 (2) TMI 39 - HC - Income Tax

Question whether the assessee s transactions amounted to dealing in shares and properties or in investment, is a mixed question of law and fact and the legal effect of the facts found by the Tribunal on which the assessee could be treated as a dealer or an investor, is a question of law

Issues Involved:
1. Whether the assessee was rightly held to be a dealer in shares of Messrs. Khardah & Co. Ltd. and whether the losses claimed were rightly allowed.
2. Whether the transfer charges incurred for acquiring the shares were properly allowed as revenue expenditure.

Detailed Analysis:

1. Dealer in Shares and Loss Claims:

The primary issue was whether the assessee was a dealer in shares of Khardah Co. Ltd. and if the losses claimed for the assessment years 1952-53, 1953-54, and 1955-56 were rightly allowed. The Income-tax Officer (ITO) initially disallowed the losses, treating them as capital losses, arguing that the shares were acquired to help Anderson Wright Ltd. retain the managing agency of Khardah Co. Ltd. and preserve the Kedia family's controlling interest. The ITO noted that the assessee was not dealing in shares before the assessment year 1952-53 and that the resolution authorizing share dealing was passed retrospectively.

The Appellate Assistant Commissioner (AAC) overturned the ITO's decision, accepting the assessee's claim that the shares were acquired for dealing purposes and not merely as an investment. The AAC's decision was influenced by the fact that Anderson Wright Ltd., which had significant dealings in Khardah Co. Ltd. shares, was also considered a dealer in shares.

The Income-tax Appellate Tribunal (ITAT) upheld the AAC's decision, emphasizing the assessee's intention in acquiring the shares, the manner of acquisition, and the fact that the shares were acquired with borrowed money. The ITAT dismissed the appeal, concluding that the shares were acquired for dealing purposes and not for retaining control over Khardah Co. Ltd.

2. Transfer Charges as Revenue Expenditure:

The second issue involved whether the transfer charges incurred for acquiring the shares were allowable as revenue expenditure. The ITO had disallowed these charges, treating them as capital expenditure. However, the AAC allowed the deduction of these charges, and the ITAT upheld this decision.

Arguments and Judgments:

The revenue argued that the shares were not acquired for share dealing but to retain control over Khardah Co. Ltd. They pointed out that the shares were acquired at lower prices than the market rates, were not sold when prices were high, and were acquired with borrowed money. They also highlighted the retrospective resolution authorizing share dealing and the fact that the shares were used to secure an overdraft.

The assessee countered that the shares were acquired for dealing purposes, and the ITAT had correctly considered the intention and conduct of the assessee. The ITAT had noted that the shares were acquired in different quantities and from sister concerns, indicating a dealing intention rather than a control retention purpose.

The High Court, after considering the arguments and the ITAT's findings, concluded that the ITAT had correctly applied the principles and had fairly considered the main points of controversy. The court noted that the ITAT had examined the substantial nature of the transactions, the manner of acquisition, and the use of borrowed money, which generally indicates a dealing in shares. The court found no reason to interfere with the ITAT's conclusion that the shares were acquired for dealing purposes and not for retaining control over Khardah Co. Ltd.

Conclusion:

The High Court answered both questions in the affirmative and against the revenue, upholding the ITAT's decision that the assessee was a dealer in shares and that the losses and transfer charges were rightly allowed as revenue expenditure.

← Previous Next →