1. The assessee, M/s. Gondhara Transport Company Private Ltd., Faridkot, is a transport company operating on Faridkot to Ablu, Kotkapura to Bhagta and Bhatinda to Kotkapura routes. In the financial year 1953-54 it purchased 1,543 shares of Rs. 100 each of M/s. Janta Transport Co. Ltd., for Rs. 1,01,654 with a view to eliminate competition as that company was also operating on the said routes. The purchase of the shares of M/s. Janta Transport Co. Ltd. enabled the assessee to appoint two of its nominees on the board of directors of M/s. Janta Transport Co. Ltd., which consisted of four directors. The nominees of the assessee-company were successful in eliminating the competition. In the financial year corresponding to the assessment year 1959-60, these shares were sold by the assessee-company to Shri Gurraj Singh for Rs. 49,376 which resulted in a loss of Rs. 52,278. In its profit and loss account, the assessee-company adjusted Rs. 20,000 on account of the reserve against this amount and showed a loss of Rs. 32,278. This loss was claimed as a business loss in the assessment for the year 1959-60, but was disallowed by the Income-tax Officer. The Appellate Assistant Commissioner also concurred with the Income-tax Officer and so did the Tribunal on further appeal. Aggrievedby that decision the assessee-company filed an application under Section 66(1) of the Income-tax Act, 1922, which was allowed by the Tribunal and the following question of law along with the statement of the case has been referred to this court for opinion :
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the loss of Rs. 32,278 arising out of the sale of shares of M/s. Janta Transport Company Ltd. was loss of a capital nature ?'
2. The reason given by the income-tax authorities was that the expense was of a capital nature and not of a revenue nature. What the assessee-company was acquiring were the shares of another rival company with a view to augment its business by elminating competition. It has, however, not been stated in what manner that competition was eliminated. Ever since the enactment of the Motor Vehicles Act, 1939, no transporter can operate any private or public carrier without obtaining the route permits from the regional transport authorities. The competition could be eliminated only in one of the three ways, that is (i) making applications for route permits on the routes which were common to the assessee-company and M/s. Janta Transport Co. Ltd., and managing that the latter company would not object to the grant of route permits to the assessee-company; (ii) by working and operating on the route permits of M/s. Janta Transport Company Ltd., and (iii) by sharing the income of M/s. Janta Transport Co. Ltd. in proportion to the number of shares purchased by the company. In either case the assessee-company was acquiring a capital asset to be made a source of its income and, therefore, the expense incurred for acquiring that asset has necessarily to be termed capital expenditure. It has not been shown how this expense was necessary for carrying on the business of the assessee-company. The aSsessee-company was acquiring an asset for a long term benefit that is, to increase its income. Route permits which enable a transporter to ply its buses is a capital asset and this v/as the asset that was being acquired by the assessee-company by this investment It has not been shown that the assessee-company was a dealer in shares. The record shows that this was the only investment in shares that the assessee-company made and, therefore, the loss suffered in the realisation of that investment is also a capital loss as the investment was not necessary for earning profits or carrying on the business of the assessee. Looked at from any point of view, the loss suffered by the assessee was of a capital nature and, for this reason, the answer to the question referred to us for opinion is in the affirmative, that is, in favour of the revenue and against the assessee. In the circumstances, however, we make no order as to costs.