TMI Blog1975 (7) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... referred was : " Whether the inference of the Tribunal that the profit of Rs. 2,13,150 arising from the sale of 1,58,200 shares of the Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. is assessable as business profit is correct ? " When the reference came up for hearing before the High Court, the High Court found that, although the Tribunal was of the view that the question referred was a mixed question of law and fact, it had not stated all the facts and circumstances on which it based its conclusion that the profit of Rs. 2,13,150 was a business profit and so the court called for a supplementary statement of the case and a supplementary statement of the case was submitted to the court by the Tribunal. The material facts in the statement of the case were as follows. The assessee is a public limited company and it is controlled by the Birlas. The assessee applied for certain shares of the Gwalior Rayon Silk Manufacturing (Weaving) Company Ltd. (hereinafter referred to as the " rayon company "), also a company controlled by the Birlas. This company was floated on August 25, 1947, with a paid up capital of Rs. 5 lakhs made up of 50,000 ordinary shares of Rs. 10 each. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y available to it ; the assessee did not make the sales on account of any pressing necessity to meet existing liabilities but had in fact kept a part of the sale proceeds as liquid cash in the United Commercial Bank Ltd ; the assessee had, in the past, dealt in shares as business transaction and had claimed for the assessment year 1951-52, Rs. 1,29,214 as loss on account of its dealing in shares of M/s. Titaghur Paper Mills Ltd. ; it also claimed Rs. 6,30,000 as loss on account of devaluation of the shares of M/s. Pilani Investment Corporation though that was not allowed ; there had recently grown a business practice of investing large sums of money in shares in new ventures with an eye on their appreciation for obtaining by sale substantial profits in future. The High Court, in its judgment, said that there was no provision in clauses 10, 12, 13, 28 and 29 of paragraph 3 of the memorandum of association of the assessee which authorised the carrying on of the business of purchasing and selling shares, although some of these clauses did authorise the assessee to acquire and sell shares in other similar companies ; that the inclusion of the profit of Rs. 2,13,150 in the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned judge said that for the purpose of ascertaining whether profits made upon a sale of an article are taxable profits, the question to be asked is : " Is the article acquired for the purpose of trade ? " If it is, the profit arising from its sale must be brought into revenue account and that the profit is chargeable as capital gains if the sale is of a capital asset, and as business profit if the sale is in the course of business or the transaction constitutes an adventure in the nature of trade. The line between capital sales and sales producing income has been drawn by Lord Justice Clerk in Californian Copper Syndicate v. Harris in a passage which has become classical : " It is quite a well-settled principle in dealing with questions of assessment of income-tax that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit ...... assessable to income-tax. But, it is equally well-established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters of the trade ; but mere purchase/sale of shares---if that is all that is involved in the plunge---may fall short of anything in the nature of trade. Whether it is in the nature of trade will depend on the facts and circumstances. Where the purchase of any article or of any capital investment, for instance, shares, is made without the intention to resell at a profit, a resale under changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character (see Commissioner of Income-tax v. P. K. N. Co. Ltd.). Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale (see Jenkinson v. Freedland ; Radha Debi Jalan v. Commissioner of Income-tax, India Nut Co. Ltd. v. Commissioner of Income-tax, Mrs. Sooniram Poddar v. Commissioner of Income-tax, Ajax Products Ltd. v. Commissioner of Income-tax, Gustad Irani v. Commissioner of Income-tax and Mrs. Alexander v. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming to the conclusion. The assessee had been dealing in shares from 1951 to 1953. For the assessment year 1951-52, the assessee claimed a sum of Rs. 1,29,214 which was shown in the profit and loss account and the balance-sheet of the company for the year ending March 31, 1951, as a loss in the dealing of shares of M/s. Titaghur Paper Mills Ltd. This claim was allowed by the Income-tax Officer. According to the Tribunal, this would show that the assessee had been buying and selling shares even though as an isolated adventure in the nature of business. The High Court has not upset this finding, but has only said that this is an isolated transaction. That apart, in the same year, a sum of Rs. 6,30,000 was debited to the profit and loss account on devaluation of the shares of M/s. Pilani Investment Corporation. Such a debit was permissible only on the footing that the shares constituted the stock-in-trade of the assessee. It is no doubt true that the department did not allow this claim. But that was on the basis that the claim that the shares have fallen in value was not proved to the satisfaction of the Income-tax Officer, and not on the basis that the shares were not held as stock-i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As already stated, the main reason why the High Court came to a different conclusion, is stated as follows in the judgment : " Undoubtedly, there are some elements which are contra-indicative of investment but there are other considerations which detract from their value as elements indicating an adventure in the nature of trade, the main being, that the assessee-company, which is controlled by the Birlas, purchased the shares with a view to assisting a sister company controlled by the same persons, and not to embark upon a venture in the nature of trade." At no time had the assessee a case that the shares were purchased with a view to help a sister company controlled by the Birlas. No such case was set up by the assessee either before the Income-tax Officer or the Appellate Assistant Commissioner, nor was it urged before the Appellate Tribunal. Nowhere in the statement of case or the supplementary statement of case prepared by the Tribunal and filed in the High Court was there any finding on the question. The whole conclusion of the High Court is based on unwarranted assumption of facts which must have been taken from the argument of the assessee before the High Court. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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