Share transaction loss treated as non-deductible where surrounding facts showed a circuitous device, not genuine trading

Loss on share purchase and sale was held not to be a deductible revenue loss because the transaction was not a genuine trading adventure. The court examined whether the assessee had entered the share dealings in the ordinary course of trading or whether the arrangement was a circuitous device linked to acquisition of control over a jute company. It relied on surrounding facts showing purchase at a price substantially above market and resale near market rate through an intermediary, and treated the issue as one of inference from proved circumstances. On those facts, the loss was not allowable as a revenue deduction.

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Issues: Whether the loss of Rs. 7,74,080 on purchase and sale of shares was a deductible revenue loss arising from trading in shares, or whether it was not allowable as a revenue deduction.

Analysis: The relevant enquiry was whether the assessee entered into the share transaction in the ordinary course of trading or whether the arrangement was a circuitous device to bear part of the loss connected with acquisition of control over the jute company by the chairman's group. The surrounding facts showed that the shares were purchased at a price substantially above market and then sold at about the market rate through another intermediary, while the primary facts found by the taxing authorities were not displaced by the Tribunal. The question was therefore one of inference from proved circumstances and not a pure finding of fact. On those facts, the transaction did not have the character of a genuine trading adventure giving rise to a revenue loss.

Conclusion: The loss was not allowable as a revenue loss and the answer to the reference was against the assessee and in favour of the Revenue.

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