If shares held as investments than loss on the sale thereof is capital loss and not Business loss

IN THE HIGH COURT OF DELHI AT NEW DELHI

ITA No. 137 of 2010

Pronounced on: 18^th November, 2011

THE COMMISSIONER OF INCOME TAX– II, NEW DELHI     

VERSUS

MODERATE LEASING & CAPITAL SERVICES LTD.         

ORDER

A.K. SIKRI, J.

1. This appeal was admitted on the following substantial question of law:

“Whether the findings of ITAT are perverse in holding that the loss on sale of shares holding as investment in the books of accounts was revenue loss and not capital loss?”

2. The respondent- assessee is a limited company and engaged in the business of leasing, investment in shares and to act as Managers to issue and offers, to give financial assistance in order and abroad, to act administrator or manager of an investment, trust, of fund, to give guarantee or other financial assistance for development of new enterprise, etc. The assessee filed its return of income for the Assessment Year in question, i.e., 2004- 05 and the same was assessed under the provisions of Section 143(3) of the Income Tax Act (hereinafter referred to as ^„the Act^‟).

3. During the assessment proceedings, the Assessing Officer (AO) noted from the Profit & Loss Account of the assessee that the assessee had debited loss on sale of shares amounting to Rs. 1,34,06,274/- as business loss. The assessee was asked vide order sheet entry dated 14.9.2005 to give the details of this loss and to explain why it should not be treated as capital loss in view of the fact these shares have been shown as investment in the balance sheet by the assessee company for a number of years. 4.  The assessee responded by submitting that it was an investment company and had been investing in shares of other companies, which was explained as its main business. Any profit and loss on sale of business loss had been accounted for business loss and having claimed in Profit & Loss account and in support thereof relied upon some judgements. The AO, however, was not convinced with this explanation. He was of the view that even an investment company could hold shares either as stock-in-trade or as an investment. In which particular segment, the assessee was holding particular shares would depend upon the initial purchase, as that would reflect the intention of such a company. If it is a case of stock-in-trade, the Profit & Loss arising from its transfer is stated as business income or business loss and in case the shares are held as investment, then the sale thereof may result in a short-term or a long-term capital gains with indexation benefits.