TMI Blog1967 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares of Elphinstone Mills also and the profit and loss in the dealings of Elphinstone Mills was taken by the appellant to its revenue account during these years. At the end of the year 1948, the appellant held 5,137 ordinary shares and 1,131 preference shares of the Elphinstone Mills. During the years subsequent to the year 1948, the appellant did not effect any sale in the Elphinstone Mills' shares, excepting a solitary transaction of 160 shares in the year 1952. On the other hand, the appellant purchased some more shares and added to its holdings in the shares of the said mills. Therefore, in the year 1953, the appellant held in all 8,693 ordinary shares and 2,117 preference shares of the Elphinstone Mills. It appears that during the years from 1948 onwards there was a slump in the price of the shares of the Elphinstone Mills and the prices of the ordinary and preference shares on the material date in 1953 were Rs. 37 per ordinary share and Rs. 88 per preference share. On September 25, 1953, Mulraj Kersondas wrote a letter to K. D. Jalan, a well-known businessman of Calcutta, making an offer of sale of 25,000 ordinary shares and 10,000 preference shares of the Elphinston ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appealed to the Income-tax Appellate Tribunal which allowed the appeal, set aside the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. Thereafter, at the instance of the appellant, the Income-tax Appellate Tribunal stated a case to the High Court under section 66(1) of the Indian Income-tax Act, 1922, on the following question of law : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,34,230 was the income of the assessee ?" On the direction of the High Court, the Tribunal submitted a supplementary statement of the case and referred the following additional questions of law : "(2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 10,42,990 received by the assessee, as allotted by Mulraj Kersondas out of the sum of Rs. 45 lakhs received by him from Shri K. D. Jalan, represents exclusively the price of the shares or includes therein any consideration for the procuring of the resignation of the present directors, for obtaining the appointment of the directors, of the choice of Shri K. D. Jalan and for the resignation of the present managing agents of the Mills. (3) If so, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du and Co. v. Commissioner of Income-tax. With regard to the first question, Mr. Sanat P. Mehta appearing on behalf of the appellant argued that the sum of Rs. 2,34,230 was a capital accretion on the sale of shares and did not represent income from the business in shares of the appellant. It was stated that though the appellant was a dealer in shares it was not acquiring the shares of Elphinstone Mills as its stock-in-trade. The argument was put forward that the appellant was a controlled concern of Mulraj Kersondas and it was a shareholder also of the managing agency company and therefore it was interested in the managing agency. The appellant had purchased the shares of the Elphinstone Mills not with a view to deal with them as a dealer in shares but with a view to support the managing agents of the Elphinstone Mills. In our opinion, there is no justification for the argument put forward on behalf of the appellant. It is admitted that the appellant is a dealer in shares and that it had actually dealt with the shares of Elphinstone Mills during its business from the years 1943 to 1948. The appellant had carried forward its profits and losses in the entire share business carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when a suitable opportunity occurred. The argument was further stressed on behalf of the appellant that it had purchased the shares of the Elphinstone Mills with a view to support the managing agents of the Mills since the appellant itself had an interest in the managing agency company, being one of its shareholders. It was therefore contended that the holding of the appellant in the shares of Elphinstone Mills must be treated as a holding on capital account and the sale thereof must also be regarded as on capital account. We do not think there is any warrant for this argument. As pointed out by the Appellate Tribunal, there is no material on the record to suggest that the main object of the appellant in acquiring the shares of the Elphinstone Mills was to give support to the managing agents. The conduct of the appellant in disposing of large number of shares of Elphinstone Mills during the years 1943-1948 is not consistent with the theory that the appellant was acquiring shares for the purpose of supporting the managing agents. There is also nothing on the record to show that during the years 1949-1953 when no sales were effected it was necessary to conserve the holding in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 45 lakhs, the balance of Rs. 35 lakhs was distributed by Mulraj Kersondas among the 25,000 ordinary shares and 10,000 preference shares. It was pointed out for the appellant that, at the material time when the transaction had gone through, the market price for Elphinstone Mills shares was Rs. 37 per ordinary share and Rs. 88 per preference share, but when Mulraj Kersondas distributed Rs. 35 lakhs among the ordinary and preference shares, each ordinary share was paid at the rate of Rs. 80 and each preference share was paid at the rate of Rs. 150. According to the appellant, therefore, the excess amount paid by the purchaser over and above the market price was paid by him for the controlling interest which was being transferred along with the shares. In other words, the contention of the appellant was that the profit on the sale of the shares made by the appellant must be calculated on the basis of what it got for the sale price of the shares only and not on the basis, of the entire consideration received by it which was a composite payment received for the price of the shares and for parting with the controlling interest. We are unable to accept this argument as correct. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was promptly obeyed by them. As pointed out by the High Court, the circumstances of the case indicate that Mulraj Kersondas was, by reason of his influence and power, in a position to command obedience of his wishes from his nominees and associates concerned. When Mulraj Kersondas decided to enter into a transaction for the sale of the shares to K. D. Jalan, he called upon the appellant to keep at his disposal the holding which the appellant had in its shares of the Elphinstone Mills. No controlling power was held by the appellant itself in the Elphinstone Mills and it was not in a position to procure the resignation of the directors or to bring about the appointment of the persons of the choice of K. D. Jalan as directors. Nor was it in a position to call upon the managing agents to relinquish their office. All these were, however, possible to Mulraj Kersondas because of the influence and power which he possessed. The part taken by the appellant in the transaction with K. D. Jalan was merely a passive part, viz., keeping at the disposal of Mulraj Kersondas its holding in Elphinstone Mills shares which it had held in its business as a dealer in shares. So far as the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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