Share loss treated as capital loss where no evidence showed shares were stock-in-trade of the money-lending business.

Mere purchase of shares with business funds, or their entry in business accounts, does not by itself make them stock-in-trade of a money-lending business. To characterise the shares as business assets, there must be clear evidence that they were held and dealt with in the ordinary course of that business, such as pledge, sale, or use of the proceeds for the business. On the facts, no such evidence was shown, so the shares were treated as an investment and the loss on sale was not deductible as a business loss but was a capital loss.

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Issues: Whether the loss on sale of shares was deductible as a business loss under section 10 of the Income-tax Act, 1922, or was a capital loss.

Analysis: Shares purchased, even if out of the funds of a money-lending business or entered in the business books, do not by that fact alone become stock-in-trade of the business. To treat such shares as part of the stock-in-trade, there must be cogent evidence showing that they were dealt with in the course of the money-lending business, such as pledge, sale, or utilisation of the proceeds in that business. On the facts found, no such evidence was shown, and the shares were treated as an investment.

Conclusion: The loss was not a business loss deductible under section 10 and was rightly treated as a capital loss, against the assessee.

Final Conclusion: The reference was answered against the assessee, affirming that the share loss was not allowable as a business deduction.

Ratio Decidendi: Mere purchase of shares with business funds or their entry in business accounts does not make them stock-in-trade of a money-lending business unless there is clear evidence that they were held and dealt with as part of that business.

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