TMI Blog1953 (3) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs and also agreed to sell 19,76,000 shares of the Apollo Mills at the price of ₹ 4-4-0 per share, the total purchase price being ₹ 83,98,000 for the shares. The agreement also provided that the sale and transfer of the managing agency and the sale of the shares shall be completed simultaneously and the transaction with regard to the managing agency and the shares should be considered as one transaction, and neither the vendor nor the purchaser would be entitled to call for the completion of or be bound to complete the sale of the one without the other. The letter which records this agreement also states that the promoters proposed to form a registered limited company to take over the managing agency, and the Sassoon Co. agreed, if a limited company with a subscribed capital of ₹ 20 lacs was formed, to transfer the managing agency to such limited company. The assessee company sold 13,74,000 shares out of the shares that were purchased from the Sassoon Co. and in selling the shares the assessee company made a profit of ₹ 16,52,600. The balance of the shares, about 6,01,600, were retained by the assessee company. A formal tripartite agreement was entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retain these 13 lacs shares. The intention from the very commencement was to resell these shares at a profit. It has also been found as a fact that these shares were sold in the ordinary way. Agreements were entered into with five brokers for the sale of 10 lacs of shares and for the balance other brokers were engaged. It is also a rather significant fact that these shares were sold to the assessee company at the rate of ₹ 4-4-0 per share and the agreement to sell these shares which was entered into with the various brokers was at the rate varying between ₹ 5-8-0 and ₹ 5-13-0 per share. The Tribunal has also found as a fact on which considerable reliance has been placed by the assessee company that the principal object of the promoters was to acquire the managing agency of the Apollo Mills. On these facts the question that we have to consider and decide is whether the purchase and sale by the assessee company of 13 lacs shares of the Apollo Mills was an adventure in the nature of trade. It is not disputed that this is the only transaction which the assessee company has entered into of purchase and sale of shares. Therefore we are dealing with an isolated transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Brokers were employed, negotiations were carried on, prices were fixed, profit was realised, and the same activity and the same organization was apparent as would have been apparent if the assessee company was trading or doing business in the purchase and sale of shares. Therefore it is equally clear that the profit made by the assessee company cannot be characterised as a casual receipt arising out of a single transaction to which is not attached any of the attributes of a trade or business. Now, when we turn to the authorities on this aspect of the case on which Mr. Palkhivala has relied, the one fact which clearly emerges is that it is difficult and not desirable either to apply one case to another case where the facts and the circumstances are different. As we shall presently point out, the question whether a transaction is an adventure in the nature of trade is essentially a question of fact. That fact has to be ascertained from all the circumstances in the case, and the question of law that can only arise when a Tribunal has ascertained the fact is whether there was evidence to justify the finding of fact. If there was evidence, no question of law arises, but if the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral Commissioners were of the opinion that the assessee had acquired interest in the property with the sole object of turning it over again at a profit and that he at no time had any intention of holding it as an investment, and therefore they confirmed the assessment. The matter came before Mr. Justice Rowlatt and Mr. Justice Rowlatt remanded the matter to the Commissioners asking them to find whether what they had before them was a concern in the nature of trade. The learned Judge points out that all that the Commissioners had found was that the property was acquired with the sole object of turning it over again at a profit and without any intention of holding the property as an investment, and the learned Judge says that that may not be sufficient to arrive at the conclusion that the assessee was carrying on a trade, and he asked the Commissioners to consider what took place in the nature of organising the speculation, maturing the property and disposing of the property, and when they had considered all that, to say whether they think it was an adventure in the nature of trade or not. On remand the Commissioners held that the transaction in question was not a concern in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Mr. Palkhivala would have had some grievance if in this reference the Investigation Commission had held that the transaction by the assessee company of purchase and sale of 13 lacs shares was an adventure in the nature of trade merely because it had an intention of reselling those shares. But that is only one circumstance on which the Commission has relied. There are several other circumstances which in conjunction with the circumstance just mentioned have led the Commission to the conclusion that this particular transaction was an adventure in the nature of trade. The other case on which reliance has been placed is a judgment of the Calcutta High Court in Radha Debi Jalan v. Commissioner of Income-tax [1951] 20 I.T.R. 176. There a Hindu lady, wife of a member of an undivided family, the assessee, owned a substantial number of shares in company H. That company was the managing agent of another company N and the N company transferred 48,000 of its shares to the assessee and other ladies of the family, the assessee getting 4,300 shares. They were transferred at the rate of ₹ 11 per share when the market price was ₹ 15-10-0 per share and they were transferred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court came to the conclusion that this was not a transaction which could be considered to be an adventure in the nature of trade. The Court was at pains further to point out that if the High Court could hold that there was evidence before the Tribunal on which it could properly take the view that profits had been derived from the adventure in the nature of trade, it would not be entitled to say that the Tribunal was wrong although there might be other evidence pointing to the opposite direction. Now, it is difficult to see how this decision can possibly help the assessee in this case. We are neither dealing here with a lady, nor are we dealing with a purchase or sale of a small number of shares. We are dealing with a case where an assessee company has purchased a large number of shares, an assessee company which had made up its mind to sell those shares before the contract of purchase had gone through, and we are dealing with a case where several brokers were employed to enter into transactions of sale and where the profit was made certain before even the shares were purchased. The next case on this branch of the argument to which reference might be made in another decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce that the Commission has drawn that this was an adventure in the nature of trade. The other contention put forward by Mr. Palkhivala is that the assessee company wanted to buy the managing agency and to earn profits by being the managing agents of the Apollo Mills, and the purchase of the shares was an obligation attached to the purchase of the managing agency and without carrying out this obligation the assessee company could not have acquired the managing agency, and, therefore, says Mr. Palkhivala, where you have to buy something, or to acquire something not because you want to do so but because you are compelled to do so and because you want to acquire something else to make profits, then the acquisition or purchase of the former object is on capital account and not on revenue account. On a true construction of the agreement it would not be true to say that there was an obligation attached to the purchase of the managing agency, nor could it be said that the purchase of the shares was subsidiary to the purchase of the managing agency. The agreement between the promoters and E.D. Sassoon Co. was a composite agreement which dealt with the purchase and sale of two distinct an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first is Commissioner of Income-tax v. Motiram Nandram [1940] 8 I.T.R. 132. In that case the assessees were appointed the organising agents of an oil company and in order to be so appointed they had to deposit with the oil company a sum of ₹ 50,000 which earned interest at 7 per cent. The deposit was to be returned after a certain lapse of time and part of the deposit was so returned, but before the whole of it could be returned the oil company went into liquidation and the assessee lost a substantial amount of the deposit and they claimed this amount as loss in their business, and the question that the Privy Council had to consider was whether the deposit was a loan as urged by the assessees or it was a capital expenditure, and Sir George Rankin delivering the judgment of the Judicial Committee points out that the ₹ 50,000 was doubtless laid out with a view to earning profits in the business of organizing agents in addition to the interest of 7 per cent. but it was not so laid out with reference to any particular transaction carried out in the course of such business. Further, the question in such a case as the present must be 'what is the object of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Commissioner of Income-tax [1937] 5 I.T.R. 202. In that case Tata Sons Ltd. were the managing agents of Tata Power Co. and two financiers advanced moneys to Tata Power Co. on condition that in addition to the interest payable to them by Tata Power Co. on the moneys advanced they would also receive from Tata Sons Ltd. 12? per cent. of the commission earned by them under their agency agreement with Tata Power Co. Later on Tata Sons Ltd., assigned their entire rights under the managing agency agreement to the assessees, the Tata Hydro-Electric Agencies Ltd., and the Tata Hydro-Electric Agencies entered into an identical agreement with the two financiers which had advanced moneys to Tata Power Co., and the question that arose was whether the assessee company was entitled to deduct from its income the 12? per cent. commission which it paid to the two financiers. Their Lordships of the Privy Council at page 209 point out how difficult it is to discriminate between expenditure which is, and expenditure which is not, incurred solely for the purpose of earning profits or gains. They point out that in the present case the expenditure was not made in the process of earning profits, and they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be taxed in the hands of the assessee company. A novel and a rather ingenious argument was put forward by Mr. Palkhivala that the agreement to purchase the shares was entered into by the promoters, that the sales were effected by the promoters, that the company cannot adopt or ratify the contract made by the promoters, and therefore the transaction in question was the transaction of the promoters and not of the company, and Mr. Palkhivala went on to suggest that the promoters out of the generosity of their hearts made a gift of the small sum of ₹ 19 lacs to the company and therefore in any view of the case this gift which came into the coffers of the company was not liable to tax. It is clear from the report of the Commission that this point was never considered by it, nor has it expressed any opinion on the validity of the argument advanced by Mr. Palkhivala. But Mr. Palkhivala says that on the facts found this question of law arises and he is entitled to urge it. In our opinion, it is not open to Mr. Palkhivala to raise this contention. There is a clear recital in the tripartite agreement of the 1st November, 1943, that the 19 lacs shares of the Apollo Mills had been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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