1970 (6) TMI 9 - HC - Income Tax

Adventure in the nature of trade - assessee exhibitor of cinemas buys shares in film company with intention to re-sell it - whether it is adventure in nature of trade

Summary

Issues Involved:
1. Whether the gain from the sale of 200 shares of Radha Films Ltd. was a venture in the nature of trade.
2. Whether the gain was of a 'capital nature' or 'income from business' taxable under the Indian Income-tax Act.

Detailed Analysis:

Issue 1: Venture in the Nature of Trade

Procedural Background:
The procedural history of this case spans 17 years, starting with an income-tax reference under section 66(2) of the Indian Income-tax Act, 1922, in 1953. The High Court initially ruled in favor of the assessee, but the Supreme Court remanded the case, emphasizing that the High Court improperly directed the Tribunal to collect additional evidence.

Facts:
The assessee, engaged in the business of textiles and silk piece-goods, entered the film business by controlling Jyoti Cinema. On February 17, 1945, he purchased 200 shares of Radha Films Ltd. for Rs. 10,600, which he sold within six months for Rs. 60,000, making a profit of Rs. 49,400.

Findings:
1. The assessee had significant contacts in the cinema world and collaborated with the proprietor of Jyoti Cinema, who was also a director of Radha Films Ltd.
2. The shares were purchased based on inside information about a change in the management of Radha Films Ltd.
3. The shares were sold within six months at a price six times the purchase price, indicating a lack of investment intent.

Legal Analysis:
The Tribunal, Income-tax Officer, and Appellate Assistant Commissioner all concluded that the transaction was an adventure in the nature of trade. The Supreme Court's remand emphasized that the High Court should base its decision only on the evidence already on record, which supported the conclusion that the purchase and sale of shares were motivated by profit and not by investment intent.

Case Law:
- Commissioners of Inland Revenue v. Livingston: Emphasized that the nature of operations, rather than the isolation of the transaction, determines if it is a trade.
- Leeming v. Jones: Highlighted that the intention to sell an investment does not alone determine if it is a trade.
- Commissioners of Inland Revenue v. Reinhold: Stated that the nature of the commodity and the transaction's context are crucial in determining if it is a trade.
- G. Venkataswami Naidu & Co. v. Commissioner of Income-tax: Established that the intention to re-sell at a profit creates a strong presumption of trade.

Conclusion:
The High Court held that the transaction was an adventure in the nature of trade, given the calculated manner of acquiring the shares, the short holding period, and the significant profit made. The assessee's intention to re-sell at a profit was evident, and there was no intention to hold the shares as an investment.

Issue 2: Nature of Gain

Facts:
The gain of Rs. 49,400 was realized within six months of purchasing the shares, and the funds for the purchase were initially provided by Jyoti Cinema, not from the assessee's surplus funds.

Legal Analysis:
The Tribunal, Income-tax Officer, and Appellate Assistant Commissioner all treated the gain as income from business, taxable under the Indian Income-tax Act. The High Court, in its final judgment, agreed with this conclusion, emphasizing that the transaction's nature and the assessee's intent to make a profit confirmed that the gain was not capital but income from business.

Case Law:
- Wisdom v. Chamberlain: Harman L.J. stated that a short-term transaction for profit is an adventure in the nature of trade.
- Commissioner of Income-tax v. Best Co. Ltd.: Discussed the shifting of the burden of proof when sufficient evidence is presented by the revenue.

Conclusion:
The High Court concluded that the gain from the sale of shares was income from business and not a capital gain, thus taxable under the Indian Income-tax Act. The transaction's nature, the intention to make a profit, and the lack of investment intent were decisive factors in this determination.

Final Judgment:
The High Court answered the question in the affirmative, holding that the gain of Rs. 49,400 by the sale of 200 shares of Radha Films Ltd. was an adventure in the nature of trade and taxable as income from business. Each party was ordered to bear its own costs.