Intention behind share dealings determines capital loss treatment, while inquiry and law expenses were allowed as revenue expenditure.

Genuineness of a share transaction did not by itself determine the nature of the resulting loss; the decisive test was whether the assessee acquired and held the shares as an investor or as a dealer. On the facts, the shares were in a practically defunct, unquoted private company and were dealt with only within the same group, so the loss was treated as capital loss, not business loss. The commission of inquiry expenses and law department expenses were allowed as revenue expenditure because both claims were covered by the assessee's earlier year decision and treated as business expenditure.

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Issues: (i) whether the loss arising from sale of shares was a capital loss or a business loss; (ii) whether the commission of inquiry expenses were allowable as revenue expenditure; (iii) whether the law department expenses were allowable as revenue expenditure.

Issue (i): whether the loss arising from sale of shares was a capital loss or a business loss.

Analysis: The shares were purchased and sold in genuine transactions, but genuineness by itself did not answer the character of the loss. The decisive test was the intention behind the acquisition and holding of the shares, namely whether the assessee acted as an investor or as a dealer. The shares were of a practically defunct private company, were not quoted, were dealt with only within the same group, and the surrounding circumstances indicated that they were not acquired as trading stock or for ordinary business operations. On those facts, the loss could not be treated as a business loss.

Conclusion: The loss was a capital loss and the issue was decided against the assessee.

Issue (ii): whether the commission of inquiry expenses were allowable as revenue expenditure.

Analysis: The question was covered by the assessee's earlier year decision, where similar expenditure had been held to be business expenditure.

Conclusion: The commission of inquiry expenses were allowable as revenue expenditure and the issue was decided in favour of the assessee.

Issue (iii): whether the law department expenses were allowable as revenue expenditure.

Analysis: The question was also covered by the earlier year decision, which treated similar law department expenses as business expenditure.

Conclusion: The law department expenses were allowable as revenue expenditure and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered partly for the revenue and partly for the assessee, with the share-sale loss held to be capital in nature while the other two expenditure claims were accepted as business expenditure.

Ratio Decidendi: Where the genuineness of a share transaction is accepted, the character of the resulting loss must still be determined by the assessee's intention and the commercial nature of the transaction; a transaction that is neither an investment nor a trading adventure in substance cannot yield a business loss merely because it was genuinely carried out.

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