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TMI Blog1965 (1) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 or under section 12. This, however, would not accurately describe the stand taken by the assessee as it has throughout contended that the amount was not income at all and could not be taxed. The facts, as taken from the statement of case, are as follows: The assessee is a private limited company. Its business, inter alia, is to deal in shares and securities. On September 30, 1954, it purchased 11,900 shares of Kedarnath Jute Manufacturing Company Ltd. from one Beharilal Nathani, share-broker, for a total consideration of Rs. 1,12,575. The purchase was effected in two lots, one at Rs. 9-8-0 per share and the other at Rs. 9-4-0 per share. These shares stood in various names from 1936 to 1945 ; the bulk of them stood in the name of Babulal Rajgaria, a director of Kedarnath Jute Manufacturing Co. Ltd., who held at least 11,250 shares all through the years 1936 to 1945 and had 9,850 shares registered in his name, shortly before the purchase of the shares by the assessee. Another block of 1,600 shares stood in the name of his mother. For some reason, which does not appear from the papers, a large amount of dividend declared on the 11,900 shares, between the years 1936 and 1945, had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the fact that the company was already a registered shareholder for these 11,900 shares about a fortnight prior to the date of the voucher. It appears, therefore, that the appellant was entering into a sort of adventure to tap this balance of unclaimed dividends of which he became aware and, as such amount could not be received otherwise than by being a substantial shareholder of the company, this purchase was arranged. " According to the Appellate Assistant Commissioner, the circumstances showed a certain plan and design which was an essential characteristic of an adventure in the nature of trade. The Tribunal held that the assessee had acquired these shares in the course of its business and the receipt formed an integral part of its income from the business carried on by him and so the amount of Rs. 43,925 had been properly taxed. It seems to us that there is a good deal of confusion of thought in this matter. When a company declares dividend, the same can only be paid to a person who is then the registered holder. A purchaser of shares becomes entitled to all dividends declared since his purchase but not before. If the purchase is made on the eve of declaration of divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Assistant Commissioner was right when he in effect said that the transaction was according to a plan hatched by the vendor, the share-broker and the assessee. There can be no doubt about this, although it is not for us to speculate as to the motive behind the scheme. Whatever may have been the object with which the transaction was carried out in the above manner, the position in law is that the arrear-dividends were not claimable by the purchaser by virtue of his right as such purchaser and could not become his income from the shares. He was to get the same because the vendor had contracted to pass the arrear-dividends on to him. They were the income of the vendors, i.e., the registered holders, but they could not become the income of the purchaser. In reality the transaction was like A selling a house to B for Rs. 1,12,000 informing B at the same time that there was a sum of Rs. 43,925 embedded under the floor of one of the rooms and that the vendor would allow the purchaser to have the same as a part and parcel of the contract. If everybody knew that the sum of Rs. 43,925 was there, the sum and substance of the bargain was that the house was being sold for a consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole transaction . . . . . The question which arises between the respondent and the Inland Revenue arises at the moment when the dividend was paid on these shares in May, 1920. That dividend was then, prima facie, income upon the shares, and what Mr. Watson has to make out in my view is that he is entitled to set off against that income certain capital expenditure which he made months previously to the effect of divesting that income of its revenue character and of clothing it with a capital character. For that operation I am unaware of any authority at all. " This case does not help the revenue. The income in Forrest's case did not arise or accrue until after the purchase of the shares and the declaration of dividend. It could only be Forrest's income and not his vendor's income, who had no interest in the shares after their sale or in the dividends declared thereon. So far as the present case is concerned, the dividends had been declared long back and in law belonged to the vendor (registered shareholder). As soon as they were paid to the registered shareholders, they would assume the character of income in their hands. The fact that by some arrangement with the company--which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplated by it was no more than a realization by degrees one after another of items of capital which had increased in value subsequently to their purchase and therefore were not income. Scott L.J., who delivered the judgment of the Court of Appeal, pointed out that the finding of the Commissioners was that the resultant profits were the fruit of capital invested and not the capital itself and if there was evidence to support the conclusion, this would be a sufficient answer to the point raised. His Lordship observed that " the circulating capital of a shopkeeper produces profits of an income tax nature. Purchases and sales of land may equally be income transactions, as is the case with every land company." According to his Lordship, the finding of the Commissioners that Mr. Barry was engaged in a concern in the nature of trade resulting in profits was based on evidence before them. His Lordship remarked that the assessee " showed great mathematical skill--an element in the business of an average adjuster, an under-writer, a banker or a financier. He continued to make his purchases in the commercial market over a period of eighteen months, i.e., until he had planted enough trees to y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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