1970 (10) TMI 15 - HC - Income Tax

Assessee is a company which carries on the business of commission agency, hire purchase and mony-lending - claim for loss on sale of securities as revenue loss - whether claim is acceptable

Summary

Issues:
1. Classification of loss as business loss or capital loss.
2. Determination of whether the company was an investor in securities or a dealer.

Analysis:
1. The case involved the classification of a loss suffered by a company on the sale of Government securities as either a business loss or a capital loss. The company claimed the loss as a business loss, but it was disallowed by the Income-tax Officer, who considered it a capital loss. The Appellate Assistant Commissioner accepted the company's appeal, stating that the company was a dealer in shares and securities as per its memorandum of association. The Income-tax Appellate Tribunal then remanded the case to gather further evidence, including details of previous securities transactions and how profits and losses were treated. The Tribunal ultimately concluded that the loss was a capital loss, not a revenue loss, based on the company's motive of investing surplus funds to earn interest.

2. The main issue was to determine whether the company was an investor in securities or a dealer. The details of securities transactions over the years showed that the company had made few transactions over an eleven-year period. The company explained that the securities were purchased to invest surplus funds and earn interest, not for trading purposes. The Tribunal considered various factors, including the absence of evidence showing regular securities trading by the company, treatment of securities as non-trading investments in balance sheets, and the motive behind the sale of securities. The Tribunal concluded that the company's actions indicated investment of surplus funds rather than regular securities trading business. The absence of evidence showing active trading and the motive behind the transactions supported the Tribunal's decision that the company was an investor, not a dealer in securities.

In conclusion, the High Court upheld the Tribunal's decision that the company was an investor in securities and not a dealer. The Court agreed with the findings that the company's motive was to earn interest on surplus funds, and the transactions did not indicate a regular business of dealing in securities. The Court affirmed that the loss on the sale of securities was a capital loss, not a revenue loss. The Commissioner of Income-tax was awarded costs, and the question was answered in the affirmative.