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/Deductions - Allowable as - Assessment year 1959-60 - Assessee-firm carried on business of manufacture and sale of ice and aerated water and also acted as managing agents of a company - As per terms of managing agency assessee was required to hold company's share having value of not less than Rs. 1,00,000 - Assessee purchased 6000 shares of value of Rs. 50 each - In 1958 capital reduction of company was effected and paid up value of each share was reduced from Rs. 50 to Rs. 10 - Thereafter assessee wrote off Rs. 5 per share and debited same to profit and loss account for relevant account year - Assessee claimed loss on reduction of value of shares as revenue loss - Whether since loss owing to reduction of value of shares fell on assessee not as a person carrying on business but as owner of shares, and, therefore, said loss was capital loss and was not allowable as a revenue deduction - Held, yes FACTS The assessee-firm carried on the business of manufacture and sale of ice and aerated waters and also acted as the managing agents of a company. Under the managing agency agreement, the assessee had been appointed as the managing agents of the company for a period of thirty years, subject to the condition that it would continue to hold the company's shares having value of not less than 1,00,000. The assessee purchased 2,000 shares at Rs. 50 each in February, 1942 and 4,000 more shares at Rs. 50 each in June 1946. In 1956, it brought down the value of the 6,000 shares at Rs. 1,80,000 and wrote off the loss against the reserves of its accumulated profits. In 1958, capital reduction of the company was effected with the permission of the High Court and the paid up value of each share was reduced from Rs. 50 to Rs. 10. The assessee-firm wrote off Rs. 5 per share, and debited the same to the profit and loss account for the accounting year ended 30-9-1958. This claim of revenue loss was disallowed by the ITO, the AAC and the Appellate Tribunal on the ground that the loss was a loss of capital. On reference : HELD In the instant case, the loss owing…

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