1971 (2) TMI 13 - HC - Income Tax

Whether certain shares purchased by an assessee were its stock-in-trade or by way of investment - whether loss on sale of these shares is allowable for deduction

Summary

Issues:
1. Whether certain shares purchased by the assessee were its stock-in-trade or by way of investment.

Analysis:
The judgment of the High Court of Allahabad involved the consideration of whether shares purchased by the assessee were stock-in-trade or investments for the assessment years 1951-52 and 1952-53. The assessee, a partnership firm dealing in shares, claimed losses on shares of Maheshwari Devi Jute Mills Co. Ltd. and Muir Mills Co. Ltd. The Income-tax Officer and the Appellate Assistant Commissioner treated the losses as capital losses, while the Appellate Tribunal ruled in favor of the assessee, stating that the shares were stock-in-trade. The matter was referred to the High Court to determine whether the shares were indeed stock-in-trade or investments.

The first set of shares discussed were those of the jute mills. The Appellate Assistant Commissioner highlighted various circumstances to support the view that the shares were purchased as investments. However, the High Court found that the circumstances raised only suspicion and were not conclusive in establishing that the shares were not stock-in-trade. The nature of the business of the assessee, supported by an affidavit filed, indicated that the shares were indeed stock-in-trade. The Court held that the department failed to prove that the shares were not stock-in-trade, and thus accepted the assessee's claim.

Moving on to the shares of Muir Mills, the Appellate Assistant Commissioner suggested that the shares were purchased to gain control over the company. However, the High Court found that the circumstances presented were not sufficient to prove that the shares were acquired as investments. The Court concluded that the assessee had successfully demonstrated that the shares in both transactions were stock-in-trade, and the department had not substantiated their claim that the shares were purchased as investments.

In conclusion, the High Court answered the question in favor of the assessee, stating that the shares in question were indeed stock-in-trade. The Commissioner of Income-tax, U.P., was directed to pay the assessee costs of the reference.