SC dismisses I-T dept's plea against Escorts Asset Management

A bench headed by Justice S H Kapadia rejected the department's contention that the loss of more than Rs 42 lakh claimed by EAML was a speculative loss and not a normal capital loss that arose from sale of shares of other companies as claimed by the assessee to avail tax benefits.

The apex court upheld both the Income Tax Appellate Tribunal's and the Delhi High Court order saying that the assessee was not carrying the business of sale of shares of other companies but was having the shares as investments, thus the loss suffered on the sale of investments was therefore be treated as long-term capital loss.

Attorney General G E Vahanvati said that Section 73 of the Income Tax Act 1962 specified only "shares of the company" and does not make any distinction between trading of shares held as investment and trading of shares held stock-in-trade.

According to the petition, EAML, which manages assets of Escorts Mutual Fund, had shown both income received from dividends out of investments in other companies and the sale of shares of other companies in its books of accounts.

Vahanvati said as the asset management company had shown the shares under the head 'investment' in the balance sheet, the loss on sale of shares was required to be treated as speculation loss since there was no distinction between shares held as investment or stock-in-trade under the Act.

After the assessee filed its returns declaring a total loss of Rs 18.40 lakh for assessment year 2002-03, the assessing officer had given a showcause notice to the company noting that the latter had claimed long-term capital loss on investment amounting to Rs 42.41 lakh.

The tax authorities rejected Escorts' contention that the loss under the head 'Business' was on account of securities held by it as investments and treated its capital loss as speculative loss.