COMMISSIONER OF INCOME TAX Vs. NIRMAL TRADING CO

JUDGEMENT

(1.) THE assessee is an unregistered firm which deals in shares as well as in paper manufactured by Orient Paper Mills, Ltd. For the asst. yr. 1957-58 (the accounting year being the financial year ending on the 31st March, 1957), the assessee claimed deduction of a sum of Rs. 1,07,125 as business loss. This loss was due to purchases and sales of what are called renunciation letters. In March, 1957, the Indian Iron & Steel Co. Ltd. decided to issue 51,83,708 ordinary shares and offered its shareholders on the Calcutta register one of such shares for every share held by the shareholder at a premium of Rs. 3-8-0, i.e., Rs. 13-8-0 per share, the face value whereof was Rs. 10. THE share-holders were also given the right to renounce these new allotments in favour of another party and in the printed offer to the shareholders a printed form designate "Form of Renunciation" was enclosed. THE form is addressed to the directors of the company and the shareholder declares that he renounces his right to allotment of the shares comprised in the letter of rights in favour of the parties accepting the same and signing the form of acceptance in relation to such shares. THEse renunciation letters were dealt with in the Calcutta Stock Exchange and were regularly quoted.

(2.) THE assessee purchased renunciation letters giving the right to allotment of 75,000 shares for a total sum of Rs. 5,04,296. Subsequently, the assessee sold these letters of renunciation for a total price of Rs. 3,97,171, suffering a loss of Rs. 1,07,125. THE assessee admitted that it never had any intention of applying for the shares as per letters of renunciation, and merely dealt in those letters. THE assessee's contention was that theses letters of renunciation were "commodities" and as delivery had been given and taken the assessee's dealings in these letters were not speculative transactions and the loss was allowable as a business loss.

(3.) THE following question of law has been referred to this Court under s. 66(1) of the Indian IT Act, 1922 :