ORDER SHEET ITA 270 OF 2004 IN HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE DYNAMIC FOUNDATIONS PVT. LTD. Versus COMMISSIONER OF I.TAX - I, KOLKATA BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 23rd March, 2015. For Appellant/Petitioner : Mr.B.K.Murarka,Advocate For Respondent/revenue : Md.Nizamuddin,Advocate Court : subject matter of challenge in this appeal is judgement and order dated 12th January, 2004 pertaining to assessment year 1998-99. questions formulated, at time of admission of appeal, are as follows : i) Whether, on facts and in circumstances of case, finding of Appellate Tribunal that amount of Rs.15 Lakhs paid by assessee to subscribe for Preferential Equity Warrants was investment and not stock-in-trade and was not for business purpose was perverse and contrary to materials on record ? ii) Whether on facts and in circumstances of case Appellate Tribunal was justified in law in holding that loss of 2 Rs.15 lakhs on forfeiture of application money for Preferential Equity Warrants was capital loss and not revenue loss ? facts, briefly stated, are as follows. assessee is investor. He does not deal in shares; he is mere investor. assessee, pursuant to rights issue floated by KND Engineering Technologies Ltd applied for 1,50,000 Preferential Equity Warrants of Rs.100/- each. application money paid by assessee was at rate of Rs.10 each. assessee, therefore, invested sum of Rs.15 lakhs. Soon after application money was paid shares of KND Engineering Technologies Ltd were traded at Rs.17/18/- per equity share. Naturally, assessee could not have proceeded to pay call money with respect to each equity warrant at rate of Rs.90/-. assessee, therefore, in his books of accounts treated sum of Rs.15 lakhs as advance recoverable in cash or kind under head current assets . fact that investement made by assessee was not advance nor was same recoverable has not been disputed by Mr.Murarka before us. Therefore, treatment given by him to aforesaid investment was obviously to salvage damage so that loss can be passed on as business loss. In facts of case, assessing officer, CIT (Appeal) and learned Income Tax Appellate Tribunal have unanimously held that loss was capital loss and not revenue loss. It is this order which is under challenge. 3 In so far as first question is concerned, it cannot be said by any stretch of imagination that authorities took view which is perverse. authorities definitely took possible view. Therefore, first question is answered in negative and against assessee. So far as second question is concerned, Mr.Murarka has drawn our attention to judgement in case of CIT v. Madan Gopal Radhey Lal reported in (1969) 73 ITR 652 wherein following opinion was expressed : Held, (i) that, at relevant time, under Income-tax Act, 1922, issue of bonus shares by capitalisation of accumulated profits was not treated as distribution of dividend; and it was well settled that bonus shares given by company in proportion to holding of equity capital by shareholder were, in absence of any express provision to contrary, liable to be treated as capital and not income. bonus shares, by mere fact that they were received by assessees in respect of their stock-in-trade, and as accretion thereto, did not become part of their stock-in-trade; bonus shares were received as capital and they could be converted by assessees into their stock-in-trade or retained as their capital asset. Mr.Murarka has also relied on judgement in case of CIT v. Associated Industrial Dvelopment Co.(P)Ltd. reported in (1971) 82 ITR 586. Mr.Murarka drawn our attention to following views expressed by Apex Court : Whether particular holding of shares is by way of investment or forms part of stock-in-trade is matter which is within 4 knowledge of assessee who holds shares and it should, in normal circumstances, be in position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. assessee, in present case, made no attempt whatsoever to make out case that shares which had been sold were part of its capital investment. Nor did it place any material from which it could be established that those shares had been treated in its books differently from other shares held by it. mere fact that sale proceeds were paid into overdraft account in which admittedly proceeds of sale of all shares held by assessee were being credited as and when sales were made and that these shares had not been sold with any amount of frequency could not be regarded as sufficient to establish that these shares had been held by way of investment. Mr.Murarka placed strong reliance upon aforesaid view expressed by Apex Court but we have not been impressed by submission. question which Their Lordships were considering in case of Associated Industrial Development Co.(P)Ltd. is nature of holding : whether it is investment or stock-in-trade. But question before us is not case of holding because shares were never fully subscribed by assessee. He merely deposited application money. Thereafter he did not deposit balance. Therefore, 5 shares were never received by assessee. Therefore, question involved in case of Associated Industrial Development Co.(P)Ltd does not at all have any application to facts and circumstances of case. question in this case is whether loss suffered by assessee is capital loss or revenue loss. answer to question shall depend upon further question as to whether if investment had resulted in profit, whether profit would have been capital gain or revenue gain. answer, according to us, is that profit would have been capital gain. We are also supported in aforesaid view by judgment in case of Madan Gopal Radhey Lal (supra). Therefore, loss suffered by assessee is capital loss as rightly held by assessing officer, CIT (Appeal) and learned Income Tax Appellate Tribunal. Therefore, second question is answered in affirmative. For aforesaid reasons, appeal is dismissed. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) ssaha AR(CR) Dynamic Foundations Pvt. Ltd. v. Commissioner of I.Tax - I, Kolkata