Capital loss on shares held as investment, not trading stock, is not deductible as business expense

Shares acquired as an investment to secure a managing agency, held for about 13 years, and treated in the balance-sheet as investments rather than stock-in-trade were capital assets. The mere fact that the memorandum authorised dealings in shares did not change the character of this transaction. Because the sale was not in the ordinary course of a share-dealing business, the loss on sale was capital in nature and not deductible in computing business profits. The result was against the assessee and in favour of the Revenue.

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Issues: Whether the loss of Rs. 7,500 on sale of shares was a capital loss or a revenue loss deductible in computing business profits.

Analysis: The shares had been held for about 13 years before sale, were acquired in connection with obtaining the managing agency of the managed company, and were shown by the assessee itself in the balance-sheet as investments and not as stock-in-trade. The fact that the memorandum authorised dealings in shares did not determine the character of this transaction. On the findings recorded, the sale was not part of the normal course of a share-dealing business, even assuming such business existed.

Conclusion: The loss was a capital loss and was not allowable as a deduction from business profits; the answer is against the assessee and in favour of the Revenue.

Ratio Decidendi: Where shares are acquired as an investment to secure a managing agency and are not held or sold as trading stock in the ordinary course of a share-dealing business, loss on their sale is capital in nature and not deductible as revenue loss.

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