Sabyasachi Mukharji, J. - (1.) In this case under Section 66(1) of the Indian Income-tax Act, 1922, a familiar question has been referred to this court: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss of Rs. 36,035 incurred by the assessee-company on sale of preference shares of S. K. G. Sugar Co. Ltd. and Bengal Jute Co. Ltd. was a loss of capital nature ?" The year in question is the assessment year 1959-60 for which the previous year is the year ending 31st March, 1959. For that year a return was filed showing a total income of Rs. 20,063. The assessee-company is a dealer in shares.
(2.) Before the Income-tax Officer, the assessee claimed deduction on account of loss of Rs. 36,035 consisting of alleged loss of Rs. 26,565 on sale of 1,000 preference B shares of S. K. G. Sugar Co, Ltd. and of loss of Rs. 9,470 on sale of 250 preference shares of Bengal Jute Co. Ltd. The Income-tax Officer found that 1,000 shares of S. K. G. Sugar Co. Ltd. had been purchased from Mugneeram Bangur & Co. on 28th March, 1951, at Rs. 91 per share. On 19th September, 1958, these shares were sold to Mugneeram Bangur & Co, at Rs. 65 per share giving rise to the said loss of Rs. 26,565. It appears that these shares were ultimately acquired by Messrs. Indian Textile Agency Ltd. numbering 300 shares and by the Calcutta Properties Ltd. numbering 700 shares. The Income-tax Officer observed that these two companies were controlled by the members of the Bangur family and disallowed the loss on the ground that the transaction in question did not take place in the ordinary course of business. The Income-tax Officer further held that the sales had been made to one of the controlled companies of the Bangurs by another of their controlled companies and the transaction could be described as one of inter-company transfer of investments with a view to create artificial losses. As regards 250 preference shares of the Bengal Jute Co. Ltd. it was found by the Income-tax Officer that these were purchased by the assessee from Mugneeram Bangur & Co. on 6th January, 1941, at Rs. 104 per share. On 19th September, 1958, these shares were sold to Messrs. Mugneeram Bangur & Co. at Rs. 67 per share giving rise to the aforesaid loss of Rs. 9,470. The Income-tax Officer further found that on the same date, i.e., on 19th September, 1958, Messrs. Mugneeram Bangur & Co, sold the shares to Indian Textile Agency Ltd. at Rs. 67.25 per share. The Income-tax Officer disallowed this loss also as not arising in the ordinary course of business. The Income-tax Officer also found that this was also an inter-company transfer of investment and had been done with a view to create artificial losses.
(3.) There was an appeal to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, it was contended that the assessee had all.along been held to be a dealer in shares and the shares under consideration had all along been treated by the assessee as a stock-in-trade and the dealings in shares was its main business. This contention was not opposed, it appears, before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner further observed that the shares had been purchased at the market rate and the intention at the time of purchase could only be made out by the subsequent course of dealings. The Appellate Assistant Commissioner further observed that it was the assessee's contention that these shares were purchased in the course of their share dealing business and the Income-tax Officer had not been able, according to the Appellate Assistant Commissioner, to prove that these shares were acquired for investment purposes. So far as the shares of S.K.G. Sugar Co. were concerned, the Appellate Assistant Commissioner held that the shares were sold at the market rate. But, so far as the shares of Bengal Jute Co. Ltd. were concerned, the Appellate Assistant Commissioner observed that the shares were purchased on 6th January, 1941, at Rs. 104 per share and these were sold at Rs. 67 per share on the 19th September, 1958. The market rate on 17th January, 1958, till the end of September, 1958, was Rs. 72.50 per share and, thereafter, Rs. 77 per share. It was contended before the Appellate Assistant Commissioner that though the market rate shown was Rs. 72.50 per share it had to be taken as a nominal quotation and the very fact that the share prices remained stationary for a period of 9 months showed that there was no transaction and as such what the assessee got was the best price available at that time and there was no reason to suspect the genuineness of the sale price. The Appellate Assistant Commissioner, therefore, found that the sales in the aforesaid cases in fact had taken place and at real prices.;