1990 (12) TMI 334 - HC - Income Tax

Summary

Issues:
Whether the loss on the sale of shares claimed as a business loss by the assessee should be treated as a capital loss?

Detailed Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1972-73. The primary question was whether the Tribunal erred in law by disallowing the loss on the sale of shares as a business loss, considering the assessee's intention and conduct regarding the acquisition of shares. The assessee, a limited company, claimed a loss of Rs. 1,46,136 in shares as a business loss. The Income Tax Officer (ITO) initially treated the loss as a capital loss since the assessee was deemed an investor based on previous assessments. However, after multiple appeals and reassessments, the Commissioner (Appeals) concluded that the loss was a capital loss, not a business loss, as the assessee was not a dealer in shares but a partner in a firm holding directorship in various companies.

The Tribunal found that the shares were held by the assessee as qualification shares to obtain directorship in different companies, not for trading purposes. The Tribunal emphasized that the assessee's intention was crucial in determining the nature of the loss, especially considering the absence of share transactions in the past five years and the treatment of previous profits as capital gains. The Tribunal concluded that the loss incurred was a capital loss, given the assessee's investor status and the purpose of acquiring the shares for directorship benefits.

The High Court affirmed the Tribunal's decision, highlighting that the intention behind acquiring the shares and the assessee's past conduct supported the categorization of the loss as a capital loss. The Court referenced a Supreme Court case to emphasize the importance of factual findings by the Tribunal and the limited scope of judicial review. The Court reiterated that the Tribunal's role is to ascertain facts, and unless a question of perversity is raised, the Court cannot reevaluate evidence. In this case, the Court found that the shares were acquired for obtaining directorship, qualifying the loss as a capital loss. Consequently, the Court upheld the Tribunal's decision, ruling in favor of the revenue and denying the claim for a business loss.

In conclusion, the Court determined that the loss on the sale of shares claimed as a business loss by the assessee should be treated as a capital loss based on the assessee's investor status, intention behind acquiring the shares, and past conduct, affirming the Tribunal's decision and ruling in favor of the revenue.