Loss – Capital or revenue loss – Investment in shares as stock-in-trade – Loss in sale of portion of shares – Transaction in course of business – Revenue in nature – Not capital loss

46.  Calibre
Financial Services Ltd. vs. ACIT; 409 ITR 410 (Mad) Date of the order: 31^st October, 2018 A. Y. 2001-02 Section 45 of ITA 1961

Loss – Capital or revenue loss – Investment in shares as
stock-in-trade – Loss in sale of portion of shares – Transaction in course of
business – Revenue in nature – Not capital loss

The assessee was engaged in financial advisory and syndication services
and the memorandum of association of the company authorised it to deal in
shares and stocks. For the A. Y. 2001-02, the Assessing Officer treated the
loss that arose from the transaction of sale of mutual fund units as capital
loss as against the claim of the assesee that it was revenue loss and passed an
order u/s. 143(3) of the Act accordingly.

The Commissioner (Appeals) allowed the appeal and held that it was a
revenue loss. The Tribunal reversed the order and held that there was no
evidence available to indicate that the intention of the assessee to treat the
holding as stock-in-trade.

The Madras High Court allowed the appeal filed by the assesse and held
as under:

“i)   The Tribunal erred in concluding
that there was no evidence available on record to indicate that the intention
of the assessee was to treat the holding as stock-in-trade. The Assessing
Officer had extracted the written submission made by the assesse, in which it
had stated that the assesse was a financial service company which rendered
financial advisory and syndication services and also traded in shares, units of
mutual funds, etc. The memorandum of association of the assessee authorised it
to deal in shares and services. Further, it stated that as authorized, the
assessee had purchased mutual fund units during the financial year 2000-2001
and sold the units during the same year. The trading in such units was done in
the ordinary course of its business and the loss was revenue in nature.

ii)   Further, the assessee had
stated that it had treated the transaction as revenue transaction and debited
the loss incurred to the profit and loss account as in the earlier financial
year also, in which it was allowed by the Assessing Officer. Similar
transactions had been held to be revenue in nature. For the A. Y. 2006-07, the
Assessing Officer did not agree with the assessee but the Commissioner
(Appeals), had held that the assessee had acquired equity shares, which it held
as stock-in-trade and out of which, a portion was sold incurring a loss which
was accounted as business expenditure and that the method of accounting and the
principle of accounting for loss or gains from investments or stock-in-trade
had been consistently and regularly followed by the assesse and accordingly,
the claim of the assessee with regard to loss that arose from trading in shares
was to be allowed as a business loss as claimed by the assesse.

iii)  Thus, for the above reasons,
we are of the considered view that the Tribunal fell in error in reversing the
order passed by the Commissioner (Appeals). In the result, the appeals filed by
the assessee are allowed and the orders passed by the Tribunal, which are
impugned herein, are set aside. Accordingly, the substantial questions of law
are answered in favour of the assesse and against the Revenue.”