Law:

Section:

JUDGMENT D.K. Mahajan, J.-The Income-tax Appellate Tribunal (Delhi Bench 'C') has referred the following question of law for our opinion: "Did the Tribunal misdirect itself in law in coming to the finding that the loss of Rs. 4,80,988 arising from the sale of shares was not deductible from the profits of the company?" The assessee-company, Messrs Patiala Biscuit Manufacturers Private Limited, Rajpura, is a private limited company, and was floated for the manufacture of biscuits. This company belongs to the Dalmia Jain group. In the year 1947, the company purchased 11,950 4½ per cent. second preference shares worth Rs. 12 lakhs and odd of Rohtas Industries Limited, Dalmianagar. The company did not possess sufficient funds. A loan of Rs. 9,46,000 was raised by it from the Gwalior Bank at 3½ per cent. to finance the purchase. In the year 1950, the company raised a further loan of Rs. 11,50,000 from Bharat Fire and General Insurance Company. Both the Rohtas Industries Limited and the Bharat Fire and General Insurance Company belong to the Dalmia-Jain group of companies. The loan of Rs. 11,50,000 was paid off in the following manner: (1)The assessee-company issued 50 redeemable mortgaged debentures of Rs. 10,000 each to the Bharat Fire and General Insurance Company; Rs. 5,00,000 and (2)Rs. 6,50,000 were paid off in cash by the sale of 11,950 second preference shares through Messrs. Eajpal Chadha and Company. The preference shares were purchased by the Bharat Fire and General Insur ance Company. Rs. 6,50,000 Rs. 11,50,000 This sale of shares resulted in a loss to the company to the extent of Rs. 4,80,988 on 6 th of October, 1951. This loss was ultimately transferred to the profit and loss account of the company for the year ending 31st of December, 1951. In the revenue account, the loss was described as: "To loss on sale of joint stock company shares." In the assessment year 1952-53, the company, before the Income-tax Officer, claimed that this loss being a revenue loss was deductible from its business income. This contention was negatived by the Income-tax Officer. The Income-tax Officer held as follows: "The facts pointed out above clearly show that the shares were…

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