SANKAR PRASAD MITRA J. - The assessee is an unregistered firm which deals in shares as well as in paper manufactured by Orient Paper Mills, Ltd. For the assessment year 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 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 shareholders 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 designated '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 Exchanges and were regularly quoted.
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 assesses admitted that it never had any intention of applying for the shares as per letters of renunciation, and merely dealt in those letters. The assessees contention was that these letters of renunciation were 'commodities' and as delivery had been given and taken the assessees dealings in these letters were not speculative transactions and the loss was allowable as a business loss.
The Income-tax Officer held that the letters of renunciation were not goods or commodities which were traded in for their intrinsic worth. According to the Income-tax Officer, these letters were not documents of title also, the delivery whereof would be equivalent to delivery of actual goods. He was of opinion that the purchases and sales of these letters were transactions of a speculative nature and he treated the loss of Rs. 1,07,125 as speculation loss to be carried forward as such.
The Appellate Assistant Commissioner held that the letters of renunciation were neither 'commodity' nor 'scrip' but were more or less akin to pucca delivery orders used in the jute trade which were neither 'goods' nor 'commodity'. The Appellate Assistant Commissioner sustained the Income-tax Officers order. The Tribunal, following an earlier judgment, held that letters of renunciation were themselves a 'commodity' in the nature of share scrips and were regularly quoted and freely dealt with in the stock exchange like any other shares. In these premises, the Tribunal was of opinion that the loss in dealings in letters of renunciation was a revenue loss and allowed the assessees claim.
The following question of law has been referred to this court under section 66(1) of the Indian Income-tax Act, 1922 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the letters of renunciation were themselves a commodity in the nature of scrips and the loss of Rs. 1,07,125 arising from the assessees dealings in such letters of renunciation was a business loss allowable as a deduction, in the assessees assessment for the year 1957-58 ?'
Mr. A. K. Basu, learned counsel for the department, contends before us that a sale of letters of renunciation means a sale of shares which is not completed by actual delivery. But we are unable to accept this contention. Letters of renunciation are executed when a shareholder renounces his right to apply for shares in favour of some other person. They can be sold and traced in the stock exchange (see Palmers Company Law, 21st edition, pages 146 and 673). They confer on the renounce the right to apply for shares of a company but they are neither 'shares' nor 'commodities' which may come within the purview of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922. If they are not either 'shares' or 'commoditied' at all, the question of transactions cannot arise. In the premises our answer to the question in this reference is that letters of renunciation are not themselves 'a commodity' in the nature of scrips but, on the facts and in the circumstances of this case, the loss of the sum of Rs. 1,07,125 was a business loss allowable as a deduction. The Commissioner will pay to the assessee the costs of this reference.
SABYASHCHI MUKHARJI J. - I agree.