Ajjt K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, made at the instance of the Revenue, the following questions have been referred by the Tribunal for the opinion of this court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal ignored relevant material in arriving at the finding that the assessee was acquiring and selling the share of Ochterlony Valley Estates (1938) Ltd. in the normal course of business as dealer in shares and whether such finding is otherwise unreasonable and/or perverse ? (2) Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the assessee-company was acquiring and selling shares of the said Ochterlony Valley Estates (1938) Ltd. not with the intention of having a controlling interest in that company but in the normal course of share dealing business is unreasonable or perverse ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the assessee was entitled to deduction on account of loss sustained by it in respect of the shares of Ochterlony Valley Estates (1938) Ltd. for the assessment years 1964-65, 1965-66 and 1966-67 ?"
(2.) The dispute in this case relates to the deduction claimed by the assessee on account of losses sustained in the previous years relevant to the assessment years 1964-65, 1965-66 and 1966-67 in the sales of shares of Ochterlony Valley Estates (1938) Ltd. (hereinafter for the sake of brevity referred to as "O.V.E. Ltd.").
(3.) The deductions claimed by the assessee on account of these losses in the assessments for the assessment years 1964-65, 1965-66 and 1966-67 are Rs. 5,979, Rs. 74,788 and Rs. 12,976, respectively. The Income-tax Officer disallowed the claim for deduction of these losses on the ground that the shares in question were acquired by the assessee as capital and not as stock-in-trade and, therefore, the losses, if any, arising from the sales of these shares could only be regarded as capital loss but not as business loss. The reasoning of the Income-tax Officer in disallowing the claim is as follows : "The assessee-company is one of a group of concerns controlled by one Sri Balmukund Bajoria. With a view to acquiring a controlling interest in Messrs. O.V.E. Ltd., the said Sri Balmukund Bajoria got the assessee-company and other concerns of that group to acquire a considerable number of shares of Messrs. O. V. E. Ltd. By virtue of the shares held by the assessee-company and other concerns of the group controlled by him, Sri Balmukund Bajoria became the managing director of Messrs. O. V. E. Ltd., with effect from April 1, 1966, which position he held till early 1969. If shares in a company were acquired with the object of acquiring the controlling interest over it, the obvious inference was that they were not acquired with the intention of dealing in them and the shares so acquired did not take the character of stock-in-trade. The deduction claimed by the assessee was, therefore, not admissible as a business loss. As regards the loss claimed for the assessment year 1965-66, the additional reason given by the Income-tax Officer for disallowing the claim was that the loss in respect of which the deduction was claimed was fictitious inasmuch as the shares 90,000 in number, were shown to have been sold to the share-broker, Messrs. Murarka Bros., who, in their turn, sold the same to Sri B.K. Jaipuria, a family member of Sri Balmukund Bajoria.";