Law:

Section:

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business loss - Allowable as - Assessment year 1959-60 - Assessee company was a dealer in shares - It purchased shares of two companies namely 'SKG' and 'BJ' - 'BJ's' shares were sold after holding same for 16 years, while shares in 'SKG' were sold after 7½ years - Assessee claimed losses sustained in both the transactions as deduction but was disallowed by ITO - Whether so far as shares of company 'BJ' were concerned, in view of fact that those shares were held for over 16 years, and they had been sold at price considerably less than market price, Tribunal was justified in holding that loss on sale of said shares was loss of capital nature - Held, yes - Whether, however, as regards shares of company 'SKG', in view of fact that those shares were sold at market price and were held for 7½ years, Tribunal was incorrect in holding that loss on sale of those shares was capital loss - Held, yes FACTS The assessee company was a dealer in shares. It claimed deduction on account of loss of Rs. 36,035 consisting of alleged loss of Rs. 26,565 on sale of 1,000 preference B shares of S.K.G. and of loss of Rs. 9,470 on sale of 250 preference shares of 'BJ'. The ITO found that 1,000 shares of 'S.K.G.' had been purchased from 'MB' on 28-3-1951, at Rs. 91 per share and on 19-9-1958, these shares were sold to 'MB' at Rs. 65 per share giving rise to the said loss of Rs. 26,565. Those shares were ultimately acquired by 'ITA' numbering 300 shares and by the 'CP' numbering 700 shares. The ITO observed that these two companies were controlled by the members of the Bangur family and disallowed the loss on the ground that the transaction in question did not take place in the ordinary course of business. ITO further held that the sales had been made to one of the controlled companies of the Bangurs by another of their controlled companies and the transaction could be described as one of inter-company transfer of investments with a view to create artificial losses. As regards 250 preference shares of the 'BJ' it was found by the ITO that these were purchased by the assessee…

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