Law: Income Tax Act, 1961

Section: 256(2)

Income-tax--- ----Business loss---Purchase of shares in company for purposes of increasing business with company---Loss on sale of shares---Deductible as business loss. The assessee claimed a loss of Rs.39,000 arising on sale of shares in a company as business loss. The assessee supported the claim by producing correspondence between it and the company to show that the shares were purchased only on being pressurized by the said company and with the intention of obtaining more business from them. The assessee also submitted that because of these purchases, there was a phenomenal increase in the business of the assessee with the company. The Income-tax Officer disallowed the claim and this was upheld by the Tribunal. On a reference: Held, that the shares were purchased because of coercion by the company and also with a view to increase the assessee's business with the company. Hence, there was a nexus between the business of the assessee and the purchase of the shares. The sum of Rs.39,000 was allowable as a business loss . Patnaik & Co. Ltd. v. CIT (1986) 161 ITR 365 (SC) fol. CIT (Addl.) v. B. M. S. (P.) Ltd. (1979) 119 ITR 321 (Mad.); CIT V. Dhandayuthapani Foundry (P.) Ltd. (1980) 123 ITR 709 (Mad).; CIT v. Gobald Motor Service (P.) Ltd. (1975) 100 ITR 240 (Mad).; CIT v. Industry and Commerce Enterprises (P.) Ltd. (1979) 118 ITR 606 (Orissa) and Ramnarain Sons (P.) Ltd. v. CIT (1961) 41 ITR 534 (SC) ref. JUDGMENT GULAB C. GUPTA, J.---This is a reference under section 256(2) of the Income Tax Act, 1961, in accordance with the direction of this Court referring the following three questions for the opinion of this Court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in its conclusion that a sum of Rs.39,000 cannot be allowed as a business loss? (2) Whether the Tribunal having come to the conclusion that the investment in the shares in question for the purpose of acquiring more business is justified in rejecting the claim that the amount in question cannot be allowed as a deduction in business loss? (3) Whether the conclusion of the Tribunal that the sum of Rs.39,000 is not a business loss, is a fair and reasonable…

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