2001 (10) TMI 54 - HC - Income Tax

Tax Tribunal rules in favor of assessee's stock-in-trade claim on private company shares, rejecting Commissioner's directive.

Commissioner of Income Tax Versus Prakash Chand Maheshwari (Huf).

Commissioner of Income Tax Versus Prakash Chand Maheshwari (Huf). - [2002] 254 ITR 170, 173 CTR 442, 122 TAXMANN 847, [2002] 38 SCL 1002 (RAJ.) Issues:1. Assessment of loss on shares of private limited companies as stock-in-trade.2. Commissioner's authority under section 263 of the Income-tax Act.3. Tribunal's rejection of the application under section 256(1) for referring a question of law to the court.Analysis:1. The case involved the assessment of a loss claimed by the assessee on shares of private limited companies treated as stock-in-trade for the assessment year 1985-86. The assessing authority initially accepted the income returned by the assessee but later, the Commissioner of Income-tax under section 263 deemed the order erroneous and prejudicial to the Revenue's interests. The Commissioner directed the Assessing Officer not to consider the loss from shares of private limited companies as 'Profit and gains from business.' The Tribunal eventually accepted the assessee's contention based on previous years' decisions, allowing the loss related to shares of private limited companies as stock-in-trade.2. The Commissioner's authority under section 263 of the Income-tax Act was invoked to correct the assessing authority's order deemed erroneous. The Commissioner's intervention led to the direction to exclude the loss from shares of private limited companies while computing the assessee's income. This action was upheld in subsequent appeals, showcasing the Commissioner's role in ensuring proper assessment procedures and protecting the Revenue's interests.3. The Tribunal's rejection of the Commissioner's application under section 256(1) to refer a question of law to the court was based on the premise that determining whether shares of a company can be considered stock-in-trade or capital investment is a question of fact, not law. However, the High Court disagreed, emphasizing that the nature of shares of private limited companies, governed by statutory provisions like the Companies Act, raises a legal question. The High Court allowed the application, modifying the question to focus on whether shares of a private limited company can be treated as stock-in-trade considering the Companies Act's provisions.In conclusion, the judgment delves into the assessment of loss on shares of private limited companies, the Commissioner's authority under section 263, and the Tribunal's handling of applications under section 256(1) regarding legal questions arising from statutory provisions governing shares' treatment.