9911796707
TMI Blog1984 (2) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 1,29,600 shares in it in exchange for 27,000 shares of Smith Nephew Ltd. The assessee had also purchased 12,500 shares in J.L. Morrison Jones Ltd. in 1974. Out of the above shares 74,000 shares were sold in 1975 at a profit of Rs. 60,672 which was taxed as capital gain in the assessment year 1976-77 and 12,500 shares were sold for a loss of Rs. 69,174, which was treated as capital loss in the assessment year 1977-78. During the accounting year 1977 relevant to the assessment year 1978-79, now under appeal, the assessee sold the balance of 55,600 shares for Rs. 5,56,000 and made a profit of Rs. 2,69,634. The assessee-company claimed that the above profit on the sale of shares was derived in the course of the business and so, it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s manufactured by the assessee only goes to show that the purchase was in fact made as an investment. In a purchase with such an intention the idea will be to hold the same as an investment and not to deal in shares. Consequently, the motive of trading in shares is absent. Thus, he upheld the action of the ITO in taxing the profit on sale of shares as short-term capital gain. 4. The learned counsel for the assessee strongly urged that the shares were purchased for improving the business of the company as the company in which the shares were purchased was the consumer of the products of the assessee-company. Thus, the purchase was for the purpose of business and the profits made on sale of shares is business income. He also submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was by way of investment and not as dealer in shares. Merely because the memorandum and articles of association authorises the assessee to purchase or sell shares does not prove that the assessee was a dealer in shares. In Kishan Prasad Co. Ltd. v. CIT [1955] 27 ITR 49 the Supreme Court observed that the circumstance whether a transaction is or is not within the company's powers has no bearing on the nature of the transaction or on the question whether the profits arising therefrom are capital accretion or revenue income. It is very clear from the facts of this case that the assessee purchased the shares with a view that the said company would purchase the assessee's products. This clearly shows that the purchase of shares was not for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alising his holding ; but it would be revenue, if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction. For instance, an assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade. The test often applied is, has the assessee made his shares and securities the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the instant case. In our view, the purchase of shares by the assessee was by way of investment and the profit made on the sale of shares was assessable as capital gain. Thus, the lower authorities were justified in assessing the profit on the sale of shares as short-term capital gain. We uphold the orders of the lower authorities on this point. 7. We will now take up the revenue's appeal. The point raised is whether the Commissioner (Appeals) was justified in directing the ITO to deduct the unabsorbed development rebate of Rs. 38,042 for the assessment year 1975-76 in computing the total income for this year. The ITO held that the unabsorbed development rebate has also to be treated on the same footing as business loss. The unabsorbed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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