Law:

Section:

Section 10(1) of the indian income-tax act, 1922 [corresponding to section 28(i) of the Income-tax Act, 1961]-Business deduction/loss-Assessee-Company, a dealer in shares, purchased certain shares of company IJ through B who was closely related to director of assessee-It eventually sold all these shares to B's relatives and associates and claimed resultant losses-ITO found that transaction was not genuinely commercial but part of scheme meant to secure controlling interest for b in IJ and disallowed claim-Whether tribunal was justified in allowing assessee's claim on the finding that neither purchase price was higher than market price nor was sale price lower than market price-Held, on facts, yes Facts The assessee-company, a dealer in shares, agreed to buy certain shares of a company IJ at the rate of Rs. 225 per share through one B who was a close relative of a director of the assessee-company. The purchase of the shares was spread over two years. At the end of each year, the assessee valued the closing stock of shares at market price and claimed the resultant loss as a business deduction, for being carried forward and set off in later years. The ITO disallowed the claim on the grounds: (i) that the shares had not been acquired by the assessee as stock-in-trade in the normal course of its business of share dealing but were purchased as part of a scheme designed to help B to acquire controlling interest in IJ, with the result that the loss did not arise out of a genuine and ordinary commercial transaction; (ii) that to purchase the shares the assessee had resorted to heavy borrowals which was out of proportion to its capital; and (iii) that the shares had been sold to relatives and associates of B. The AAC upheld the ITO's order. The Tribunal, however, found that the price agreed to be paid by the assessee when the deal was put through was not higher than the market price at that time, and that the assessee had not sold the shares at less than market price. In the circumstances, it held that the losses were not of a capital nature but of revenue nature and were, hence, allowable. On reference : Held The Tribunal had borne in mind the relevant principles of law…

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