Managing agency-linked shareholdings were treated as investment, making the sale loss capital in nature and disallowable.

Shares acquired primarily in connection with the acquisition or retention of a managing agency were treated as investment and not stock-in-trade, so loss on their sale was capital in nature. Although the assessee was accepted as a dealer in shares and the sales were genuine, the decisive inquiry was the character of the holding on the admitted primary facts. The Court upheld the inference that the bulk of the shares had been retained for a long period and were linked to the managing agency arrangement. It rejected reliance on balance-sheet description, alleged market price, or supposed absence of a favourable market as sufficient to displace that inference, and sustained the disallowance.

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Issues: Whether the loss of Rs. 1,04,592 on sale of shares of Karamchand Thapar & Sons Ltd. was rightly disallowed as a capital loss.

Analysis: The assessee was accepted as a dealer in shares and the sales were treated as genuine, but the decisive question was whether the shares were held as stock-in-trade or as investment. The Court held that the Tribunal was entitled to draw the inference, on the admitted and primary facts, that the bulk of the shares had been acquired in connection with the acquisition or retention of the managing agency and had been held for a long period without sale. The Court further held that the adverse findings based merely on balance-sheet description, alleged market price, or supposed absence of a favourable market could not displace that inference, but the inference regarding the managing agency connection was supported by material and was not perverse.

Conclusion: The loss was held to be a capital loss and the disallowance was upheld against the assessee.

Ratio Decidendi: Where shares are acquired primarily in connection with the acquisition or retention of a managing agency, the resulting holding is investment and not stock-in-trade, and loss on its sale is capital loss unless the contrary is shown by a legally sustainable inference from the proved facts.

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