TMI Blog1970 (7) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax, U.P.,.Lucknow, on the question of law set out hereinbelow. The respondent, Raja Jagdish Pratap Sahi, hereinafter referred to as the assessee ", was a big zamindar. Consequent on the abolition of zamindari in the year 1951, the assessee received compensation in the shape of zamindari abolition compensation (Z. A. C.) bonds and thereafter he started investing his money in shares and securities. During the previous years relevant to the assessment years 1957-58, 1958-59 and 1960-61, to which the present reference relates, the assessee sold some of the shares and purchased certain other shares. In some of these transactions the assessee earned a surplus over the cost price, while in other transactions the shares were sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res amounted to Rs. 9,49,000 out of a total holding of Rs. 10,41,000. The assessee contended that he had all along been an investor and never a dealer in shares and that the surpluses which he had received in the course of realisation of investments represented accretion to capital and was not taxable as profit in an adventure in the nature of trade. The Tribunal gave effect to the contention of the assessee and held that the amounts in question were received by the assessee in the process of his conversion of the investments and, as such, the same could not be taxed under section 10 of the Act as profits of a business. The Tribunal, therefore, directed that the amounts in question be deleted from the total income of the assessee for the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he years 1957-58, 1958-59 and 1960-61. The transactions of purchase and sale made by the assessee during these three years are recorded in the tabular statement given below : ----------------------------------------------------------------------------------------------------------------------------------------------- S.No. Name of the Co. No. of shares purchased sold Profit/loss on sale of shares. -------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 -------------------------------------------------------------------------------------------------------------------------------------------------- Assessment year 1957-58 Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sold away the preference shares of Tata Iron and Steel Co. Ltd. at a loss and acquired 2,250 Tata ordinary shares. The next year, relevant to the assessment year 1958-59, the assessee again acquired 805 Tata ordinary shares. This year the assessee, no doubt, acquired 287 shares of Associated Cement Co. Ltd., in addition to 115 shares of the same company acquired in the preceding year, but he sold away a lot of 345 shares of Associated Cement Company this year at a loss of Rs. 8,706. The remaining 57 shares of Associated Cement Company Ltd. were sold away by the assessee next year and the sale resulted in a surplus of Rs. 1,666. Besides these transactions, the assessee sold away certain Government securities this year. The total investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined to acquire only Tata ordinary shares, whether the sale resulted in a profit or loss. Then again, it is significant that not a single scrip of Tata ordinary shares was sold in any of those years. The assessee went on acquiring Tata ordinary shares every year with the result that, as already noted, by the end of the previous year relevant to the assessment year 1961-62, the shareholding of the assessee in Tata ordinary shares amounted to Rs. 9,49,000 out of a total investment of Rs. 10,41,000. The surpluses earned by the assessee in the first and the last years under reference were inconsiderable. These facts clearly point to the truth of the assessee's version that he was liquidating his investments, in Government securities, as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade, the problem must be approached in the light of the intention of the assessee having regard to the ' legal requirements which are associated with the concept of trade or business'. " Where the intention of the assessee at the time of the acquisition of the shares is to resell them at a profit when the market appreciates, the shares become his stock-in-trade and the surplus resulting from the sale of shares becomes profits assessable to tax. Where, however, the assessee's intention is, not to resell the shares for profit but to earn dividends therefrom, the assessee is an investor taxable only upon the dividends earned by him. When an ordinary investor (not being an investment company) changes his investments it is well-establislied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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