TMI Blog1985 (5) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... convenient, therefore, first to deal with the last two questions as they are already covered by a reported judgment. In the assessee's own case for the assessment year 1958-59, this court has already decided in South Asia Industries (P.) Ltd. v. CIT [1981] 132 ITR 144, that amounts spent on the Commission of Enquiry expenses and amounts spent on account of expenses of the Law Department were allowable as business expenditure. Following that judgment, we would hold that questions Nos. 2 and 3 have to be answered in favour of the assessee in the affirmative and these expenses have to be treated as business expenses. The main question in this case is the one concerning the loss of Rs. 23,58,304, which is a loss resulting from sale of shares. The facts of this case are somewhat extraordinary. The company had purchased the shares of Asia Udyog Private Ltd. at Rs. 3 per share and sold them at the rate of Re. 0.05 per share and thus made a heavy loss. The number of shares was 7,99,425, but the entire lot was sold for Rs. 39,971 to a company, Manav Sahyog Private Ltd. The assessee company and the purchasing company were in the Dalmia group. The ITO held that this loss was entirely an art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee by reason only of the fact that the terms of the transactions were strikingly unfavourable to it. It was, therefore, not possible to brand the transactions as bogus or sham or artificial.. It was, however, not possible to uphold the claim of the assessee that the loss in question was a business loss. The shares in question could not be considered to be part of the trading stock of the assessee. The shares were such as could not possibly be treated as a part of the trading stock of a dealer. The shares were shares of private limited companies, the shares were not quoted at the stock exchange and the shares were not dealt in as a trading stock. The condition of the companies in question was also such that it would be ridiculous to suggest that their shares would be dealt with by dealers as part of the trading stock. Prima facie it looked as if the shares were just instruments in the hands of the controlling group either for securing or for continuing the control of other companies. These were transactions between different members of the same group in respect of shares of companies belonging to the same group. The only idea that became conspicuous was the idea of preserving the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se transactions. The Tribunal, however, seems to have come to the conclusion that in the present case the transactions should not be treated as business transactions, because the transactions were not voluntary and so did not amount to 'sales'. We are unable to find any material or justification for this conclusion of the Tribunal. " Mr. Sharma submits, on behalf of the assessee, that in this case also there is hardly any difference. The conclusion of the Tribunal Was different in the present case because it was observed as follows. The relevant part of the passage is again quoted here: " The shares in question could not be considered to be part of the trading stock of the assessee. The shares were such as could not possibly be treated as part of the trading stock of a dealer. The shares were shares of private limited companies, the shares were not quoted on the stock exchange and the shares were not dealt in as a trading stock. The condition of the companies in question was also such that it would be ridiculous to suggest that their shares would be dealt with by dealers as part of trading stock. Prima facie it looked as if the shares were just instruments in the hands of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving looked into their balance-sheets for the various years. Asia Udyog has been a company of negative value right from 1953 onwards and particularly after it had sold out its disposable stock of goods in 1966, it had been left with hardly any business; its books of accounts had been seized by the Special Police Establishment in 1953; and it had not prepared the balance-sheet for and from that year. All these facts were naturally known to the assessee-company, it being of the same group and being managed by the same group of persons and it, therefore, in the course of its assessment for the year 1958-59, admitted the knowledge of these facts about Asia Udyog (vide its letter dated February 18, 1963). It was also admitted in the aforesaid letter of the company that from July 1, 1956, the State Trading Corporation had taken over the distribution of cement and, therefore, even though Asia Udyog continued to be the sole selling agent for Dalmia Dadri Cement Limited, the quantum of selling agency work had been considerably reduced with effect from July 1, 1956. Thus the company knew full well that the worth of shares of Asia Udyog was nothing or negligible. All the same, the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are left with no choice, we would have to determine whether the assessee is a dealer or an investor in shares of M/s. Asia Udyog (P.) Ltd. The number of shares held by the assessee company was 7,99,425 shares which had all been acquired from other companies of R. Dalmia group. They were also sold only at 5nP. per share to Manav Sahyog (P.) Ltd., which is another company of Dalmia group. The gap between the purchase and sale of the shares was only a few months. As the Tribunal has held the purchase and sale to be genuine, we can take it for granted that the amount actually paid or the amount shown in the books of the assessee company was genuine and we can also accept the fact that these shares were sold for practically nothing to another company of the same group. But, the question is : Can this be described as the action of an investor or, can it be described as the action of a dealer ? The total loss resulting from the transaction was Rs. 23,58,304 as stated in the question referred to us. Turning now to the other cases. In Investment Ltd. v. CIT [1970] 77 ITR 533 (SC), certain securities worth Rs. 92,50,000 had been purchased between July, 1948, and March, 1949, which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restored the Tribunal's decision. The decision was based on the Supreme Court's conclusion that there was nothing to show that the assessee had established that the shares were part of its capital investment. In CIT v. Central Kurkhend Coal Co. Ltd. [1978] 113 ITR 483 (Cal), the shares of a member of the same group had been sold after dividend had been received. The resultant loss was treated as a revenue loss because the object of the investment was found to be one for making a profit and not for investment. If we are left with the choice of finding whether the transaction was one of investment or one in which the company had bought the shares for profit and for no other purpose, we are hard put to determine why the company entered into the transaction. As already noted earlier, M/s. Asia Udyog (P.) Ltd. was practically defunct company and was defunct for quite some time. The question we have to ask is whether any investor would buy shares of this type. We think that it is hardly likely that any investor would buy such shares. But then, would a dealer in shares buy such shares ? It is also unlikely that any dealer would buy such shares because there is hardly any chance of c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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