1973 (5) TMI 2 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss of Rs. 36,035 incurred by the assessee-company on sale of preference shares of S. K. G. Sugar Co. Ltd. and Bengal Jute Co. Ltd. was a loss of capital nature ?

Summary

Issues:
Interpretation of loss on sale of preference shares as capital or revenue loss.

Analysis:
The case involved a question under section 66(1) of the Indian Income-tax Act, 1922, regarding the treatment of a loss incurred by an assessee-company on the sale of preference shares of two companies. The Income-tax Officer disallowed the claimed loss, stating that the transactions were not genuine and were inter-company transfers to create artificial losses. The Appellate Assistant Commissioner, however, accepted that the assessee was a dealer in shares and treated the shares as stock-in-trade. The Tribunal upheld the Income-tax Officer's finding that the losses should be considered of capital nature due to the nature of the shares and the length of holding. The Tribunal also considered the intention of the assessee in acquiring the shares and the method of dealings.

The Tribunal's decision was challenged in the High Court, which analyzed previous Supreme Court judgments on similar matters. The court emphasized that the intention of the assessee in acquiring the shares is crucial in determining whether a loss is capital or revenue in nature. Factors such as the length of holding, nature of dealings, and treatment of shares in accounts were considered. The court referred to cases like Ramnarain Sons (P.) Ltd. v. Commissioner of Income-tax and New Era Agencies (Private) Ltd. v. Commissioner of Income-tax to support its analysis.

The court differentiated between the treatment of two sets of shares - those of S.K.G. Sugar Ltd. and Bengal Jute Mills Ltd. The shares of Bengal Jute Mills Ltd., held for over 16 years and sold below market price, were considered to result in a capital loss. However, the shares of S.K.G. Sugar Ltd., held for 7 1/2 years and sold at market price, were not deemed to result in a capital loss. The court concluded that the Tribunal was not justified in treating the loss on shares of S.K.G. Sugar Ltd. as a capital loss but was justified in treating the loss on shares of Bengal Jute Mills Ltd. as a capital loss.

In the final judgment, the court answered the question by stating that the loss on S.K.G. Sugar Ltd. shares was not a loss of capital nature, while the loss on Bengal Jute Mills Ltd. shares was a loss of capital nature. The court decided on divided success, with each party bearing its own costs.

The judgment was delivered by SABYASACHI MUKHARJI J., with concurrence from S. HAZRA J.