1969 (5) TMI 18 - HC - Income Tax

Assessee is an unregistered firm which deals in shares - loss in purchase and resale of renunciation letters - whether such loss is a speculation loss or business loss - held that such loss is allowable as business loss

Summary

Issues:
Assessment of business loss claimed by an unregistered firm due to purchases and sales of renunciation letters. Determination of whether renunciation letters are commodities and if the loss incurred is allowable as a business loss.

Analysis:
The assessee, an unregistered firm, claimed a deduction of Rs. 1,07,125 as a business loss for the assessment year 1957-58, resulting from the purchase and sale of renunciation letters related to shares offered by a company. The Income-tax Officer considered these transactions speculative and disallowed the claimed loss, treating it as speculation loss to be carried forward. The Appellate Assistant Commissioner upheld this decision, stating that renunciation letters were not commodities or scrip. However, the Tribunal disagreed, viewing renunciation letters as commodities akin to share scrips, regularly quoted and traded on the stock exchange.

The primary question referred to the High Court was whether the Tribunal was correct in considering renunciation letters as commodities, thereby justifying the claimed loss as a business loss. The court, after considering the nature of renunciation letters and their tradability, concluded that renunciation letters do not fall under the category of commodities or shares as per the Income-tax Act. Therefore, the court allowed the assessee's claim for the business loss of Rs. 1,07,125, emphasizing that the loss was allowable as a deduction.

In the judgment, it was clarified that renunciation letters are distinct from shares or commodities, as they represent the renouncement of the right to apply for shares in favor of another party. The court highlighted that renunciation letters can be sold and traded on the stock exchange but do not qualify as shares or commodities under the relevant tax provisions. Consequently, the court held that the loss incurred by the assessee in dealing with renunciation letters was a business loss and should be allowed as a deduction in the assessment for the year 1957-58.

In conclusion, both judges, SANKAR PRASAD MITRA and SABYASACHI MUKHARJI, agreed that the loss of Rs. 1,07,125 arising from the assessee's dealings in renunciation letters was a business loss allowable as a deduction, as renunciation letters were not classified as commodities or shares under the Income-tax Act. The court directed the Commissioner to pay the costs of the reference to the assessee.