TMI Blog1960 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt was also right in dismissing the notice of motion for an order directing the Tribunal to refer the question suggested by the appellants. If the acquisition of the shares was not acquisition of a stock-in-trade, but of a capital asset, the appellants, by valuing the shares at cost or market price whichever was lower, could not bring the difference between the purchase price and the valuation made by them into their trading account. Appeal dismissed. - - - - - Dated:- 5-12-1960 - Judge(s) : J. L. KAPUR., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by SHAH, J.--The High Court of Judicature at Bombay answered the following two questions referred by the Income-tax Appellate Tribunal, Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,321-8-0 per share and having obtained a controlling voting right, acquired the managing agency rights of the mills. The remaining one thousand shares were acquired from M/s. Sassoon J. David Co. Ltd. by the directors of the appellants at the rate of Rs. 1,500. At the material time, the ruling market price of the shares of the Dawn Mills was Rs. 1,610. In December, 1946, the appellants sold 400 out of the shares purchased by them, and thereby suffered a loss of Rs. 1,78,438. The loss suffered by the appellants in the year of account January 1, 1946, to December 31, 1946, by sale of shares including 400 shares of the Dawn Mills was Rs. 1,92,834. Crediting Rs. 1,05,907 earned as profit in certain other share transactions, the net loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incidental to their business of acquiring the managing agency, the loss on the sale of those shares was allowable as a revenue loss ; but the shares of the Dawn Mills were not the stock-in-trade of the appellants' business and they were not entitled to treat the difference between the purchase price and the value at close of the year of those shares, as a trading loss. Accordingly, the Tribunal allowed Rs. 1,78,438 as loss on sale of 400 shares of the Dawn Mills, but did not allow Rs. 7,04,000 as loss arising out of the valuation of the Dawn Mills shares at the end of the year of account. On the application of the Commissioner of Income-tax, the Tribunal referred to the High Court the questions set out hereinbefore. In the High Court, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mixed question of law and fact, and that the legal effect of the facts found by the Tribunal on which the assessee could be treated as a dealer or an investor, is a question of law. The Tribunal held that the shares of the Dawn Mills purchased by the appellants did not become their stock-in-trade. But they held that the transaction having been effected in the regular course of the business of the appellants, viz., the acquisition of managing agencies, the loss resulting from the sale of shares was incidental to that business and was a revenue loss. It is not easy to appreciate the process by which this conclusion was reached. The shares were purchased for the purpose of acquiring the managing agency of the Dawn Mills ; they were not purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being held by them merely as nominees of the appellants--the price per share was considerably in excess of the prevailing market rate. The only reason for entering into the transaction, which could not otherwise be regarded as a prudent business transaction, was the acquisition of the managing agency. If the purpose of the acquisition of a large block of shares at a price which exceeded the current market price by a million rupees was the acquisition of the managing agency, the inference is inevitable that the intention in purchasing the shares was not to acquire them as part of the trade of the appellants in shares. The Tribunal found that the Dawn Mills' shares were acquired by the appellants for obtaining the managing agency of the Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X
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