1970 (12) TMI 26 - HC - Income Tax

Acquisition of the shares of another transport company to eliminate competition - since assessee was not a dealer in shares, acquisition was not for carrying of assessee s business, therefore, loss in the sale of shares should be treated as capital loss

Summary

Issues:
Whether the loss arising from the sale of shares of another company is a capital loss or a business loss.

Analysis:
The case involved the assessee, a transport company, purchasing shares of another company to eliminate competition on certain routes. The shares were later sold at a loss, which the assessee claimed as a business loss. The income-tax authorities disallowed the claim, stating that the expense was of a capital nature. The High Court considered whether the loss of Rs. 32,278 from the sale of shares was a capital loss or a business loss.

The High Court noted that the assessee acquired the shares of the rival company to eliminate competition and increase its business prospects. However, it was not clearly demonstrated how the competition was eliminated. The court highlighted that under the Motor Vehicles Act, route permits are essential for transporters to operate, and acquiring shares could have been a means to secure these permits. The court outlined three possible ways in which the competition could have been eliminated, all of which involved acquiring a capital asset for long-term benefit.

The court emphasized that the expense incurred by the assessee in acquiring the shares was for a capital asset, namely the route permits that would enhance its income. It was observed that the assessee was not a dealer in shares and had made this investment as a one-time occurrence. Therefore, the loss incurred in selling the shares was deemed a capital loss as it was not essential for the regular business operations of the assessee.

In conclusion, the High Court held that the loss suffered by the assessee was of a capital nature rather than a business loss. The court ruled in favor of the revenue authorities, stating that the expense was incurred to acquire a capital asset for long-term income enhancement. As a result, the question was answered in the affirmative, favoring the revenue and against the assessee. No costs were awarded in the circumstances of the case.