TMI Blog1969 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... x in respect of an amount of Rs. 3,99,587 received by it as profit on sale of shares. The plea of the firm that the amount was "capital gain" and was on that account not taxable was rejected. In the view of the Income-tax Officer the profit arose from "a well planned business activity in which the assessee had fully utilised its resources". The Appellate Assistant Commissioner affirmed the decision of the Income-tax Officer. The Income-tax Appellate Tribunal dismissed the appeal filed by the firm. The Tribunal, amongst others, referred the following question to the High Court of Allahabad for opinion : "Whether the surplus realised by the sale of the shares of Aluminium Corporation of India Ltd., J. K. Investment Trust and Raymond Woo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a net profit of Rs. 72,364. Before the departmental authorities the firm claimed that it had taken over the entire share capital issued by Raymond with a view to secure its managing agency and had thereafter distributed the shares of Raymond to the various associates of the firm, and the transaction being one to facilitate acquisition of a capital asset being a capital investment, the profit realised by sale of the shares was not liable to be assessed to income-tax. The firm also claimed that when a part of the new issue of capital of Aluminium was not taken over by the public, the firm as financiers of the J.K. Group of Industries took over the shares and the debentures not subscribed within the time allowed. This transaction, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. The firm used to promote companies. One of its activities was to finance "sister concerns" known as J. K. Industries. The case of the firm that the shares had to be sold on account of "financial embarrassment" was plainly untrue. The Tribunal was, in our judgment, right in inferring that the "purchase and sale of shares was a business activity which was continuous", and since the firm "had entered upon a well-planned scheme for earning profit and that in furtherance and execution of that profit making scheme they sold the shares at the opportune time" and that "the sale of the shares was not merely on account of pecuniary embarrassment" as claimed, the profit realised by the firm by the sales of shares could not be characterised as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and also carried on business as managing agents of other companies. With a view to acquire the managing agency of a company, the appellant company purchased from the managing agents a large block of shares at a rate approximately 50 per cent. above the ruling market rate. Two months later the appellant company sold a small lot out of those shares at a loss and claimed the loss as a trading loss. It was found in that case by the Tribunal that the intention of purchasing the shares was not to acquire them as part of the stock-in-trade of the taxpayer's business in shares, but to facilitate the acquisition of the managing agency of the company which was in fact acquired, and on that account loss incurred by the sale of a small lot could be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng agency. It was claimed that the shares were taken over because the public did not accept those shares. It was one of the objects of the firm to finance its allied concerns and, in taking over shares which the public did not subscribe, the firm was acting in the course of its business. The firm commenced selling the shares soon after they were purchased. Aluminium shares were purchased between January 26, 1945, and April 5, 1946 (except a few which were retained), and sold at profit. Whereas the first lot was purchased on January 26, 1945, the first sale was made on February 1, 1945. It could not be said that this was an investment in shares independent of the trading activity of the firm. The story that the shares had to be sold on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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