TMI Blog1949 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... pany ) of the face value of ₹ 4,00,000. It is conceded that these shares formed part of the stockin-trade of the assessee's share dealing business. The company went into voluntary liquidation as a result of which the liquidator sold up its assets and refunded to its shareholders their subscribed shares of ₹ 15,00,000 and a further sum of ₹ 3,11,328. The aggregate amount was, of course, distributed pro rata among the shareholders. The assessee received as its share a sum of ₹ 4,75,000 in the year of account relevant to 1942-43 assessment and a further sum of ₹ 8,021 in the following year (assessment year 1943-44). The result of the various dealings in shares, securities and debentures appearing from the ledger accounts stands as follows:- Rs. A. P. Rs. A. P. (a) G.P. Notes. Opening stock 5,500 0 0 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. A. P. (i) Dalmia Cement Limited shares sold 3,18,934 8 0 8 0 Profit 42,934 8 0 (ii) Difference on 1100 Basanti Cotton shares, Loss 1,950 0 0 40,984 8 0 (iii) 40,000 shares of Stone Suppliers Limited purchased for ₹ 4,00,000-0-0 yielded a return of ₹ 4,75,000-0-0 on liquidation of the company, profit 75,000 0 0 1,15,984 8 0 The above items of profit and loss have been treated by the assessee as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of by this Bench on the 29th of March, 1946. The detailed reasons in support of the decision are given in our appellate order relating to the assessment year 1942-43 (R.A.A. No. 100-Bihar of 1945-46). While disposing of the appeal relating to the following year the Bench merely adopted the reason given in the main order and did not deal with the matter over again in detail. Both the appeals were dismissed and the two sums of ₹ 75,000 and ₹ 8,021, that were involved in the appeals were treated as revenue receipts. The contention of the assessee was that although the shares of the Stone Suppliers, Limited, at one time formed part of the stock-in-trade of the share business, these cease to be so on the company going into liquidation. It was urged that the shares, on liquidation, merged into the capital assets of the company so that when the money value of those assets was distributed pro rata among the shareholders its character did not change and the portion received by the assessee continued to bear the impress of a capital sum in its hands. The contention of the department was that whatever was received by the assessee, whether it was sale proceeds of the shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar) of 1946-47 (Assessment year 1942-43).- Whether, in the circumstances of the case, the sum of ₹ 75,000 constitutes a revenue receipt assessable to Income-tax? 66 R.A.A. No. 7 (Bihar) of 1946-47 (Assessment year 1943-44).- Whether, in the circumstances of the case, the sum of ₹ 8,021 constitutes a revenue receipt assessable to Income-tax? B. N. Jain and K. P. Varma, for the assessee. S. N. Dutt, for the Commissioner. JUDGMENT MANOHAR LALL, J.- This is a reference under Section 66(1) of the Indian Income-tax Act by the Appellate Tribunal asking for the opinion of the Court upon the following questions:- (1) Whether in the facts and circumstances of the case the sum of ₹ 75,000 constitutes a revenue receipt assessable to income-tax? (2) Whether in the facts and circumstance of the case the sum of ₹ 8,021 constitutes a revenue receipt assessable to income-tax? The admitted facts are that the assessee is a limited company and inter alia carries on a business of dealing in shares and securities. The assessee held 40,000 ordinary shares of Stone Suppliers Ltd. Company (hereinafter called th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in delivering the judgment of the Judicial Committee in Punjab co-operative Bank Ltd. v. Commissioner of Income-tax** In a later Privy Council case, Kamakshya Narain Singh v. Commissioner of Income-tax, Bihar and Orissa***, known as the Royalty case, Lord Wright in delivering the judgment similarly observed at page 523: The profit realised on the sale of shares may be capital if the seller is an ordinary investor changing his securities, but in some instances at any rate it may be income if the seller of the shares is an investment or an insurance company. It cannot be doubted that the assessee had realised its shares for a large sum than what it had paid for acquiring those shares; but as the assessee carries on business inter alia of dealing in shares, the excess profits made must be treated as income. The matter can be looked at from another point of view. The shares of the assessee are its stock-in-trade. Is this not a realisation of this stock-in-trade? There is high authority for the view that if the assessee realises his stock-in-trade either by selling it or by receiving the value of it from the insurers as a result of the stock having been lost in fire the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the shares in the new company of the value of ₹ 4,300 and a promise of debentures to the extent of ₹ 5,72,000. The debentures were never issued and the new company also went into liquidation. In the result, the liquidator paid to the assessee only ₹ 77,400. The assessee's claim to set off the loss of about ₹ 5 lacs was disallowed on the finding that there was no evidence to show that the assessee had any business of trading in shares. In Commissioner of Income-tax, Bihar and Orissa v. Maharaja of Darbhanga**, the assessee was allowed to deduct a loss which was suffered by him on these facts. I am reading from page 126:- Mulchand Badri Narayan owned the value of the goods supplied to them by Kunwar Ganesh Singh as the agent of the firm Sadashiva Vishwanath on the security of certain shares pledged by the debtor. These shares, which were assigned to Kunwar Ganesh Singh, were assigned by him to the assessee on the April 30, 1925. Some of the shares were sold for a sum of ₹ 254 during the year 1344F. The remaining shares could not be sold because they were of the company or companies which had gone into liquidation. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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