TMI Blog1963 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... anded an absolute majority in the meeting of the shareholders. In May, 1945, Shri S. P. Jain advanced a loan of Rs. 31,50,000 to Dalmia Cement and Paper Marketing Ltd. (D. C. P. M. Ltd.) for purchasing shares of New Central Jute Mills Co. Ltd. The said Cement and Paper Marketing Company purchased a lot of 2,932 shares of the jute company at the rate of Rs. 675, as against the market quotation of Rs. 603. In all, during the year 1945, the former company purchased 4,838 shares of the jute company, the average price of which was slightly below Rs. 680 per share. 4,700 shares had been purchased up to the 30th October, 1947, and this enabled Shri S. P. Jain, who was, in control of the Cement and Paper Marketing Co., to be appointed as a director of the jute company on November 2, 1945. On August 31, 1947, the Dalmia Cement and Paper Marketing Ltd. transferred the entire block of 4,838 shares of the jute company to the assessee-company at the rate of Rs. 680 per share, making a nominal profit of Rs. 1,430 only. It is important to note that the market quotation of the shares of the New Central Jute Mills Co. Ltd. on the date of transfer was Rs. 523 per share (Rs. 530 is a mistake in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cement and Paper Marketing and Mr. Jain and S. K. G. Ltd. was merely an intermediary made to share a part of the loss in this transaction. The Appellate Assistant Commissioner, while upholding the decision of the Income-tax Officer in this regard, has said : " The reason why D. I. Ltd. was inserted as an intermediary between the appellant-company and Shri S. P. Jain was that Shri S. P. Jain was the chairman of the appellant-company and he himself could not have, therefore, directly purchased the share from the appellant-company; that is why the appellant-company after absorbing the loss of Rs. 160 per share passed on the shares to D. I. Ltd., who in turn passed on the same at cost to Shri S. P. Jain who had originally financed the first purchase through D. C. P. M. Ltd.. " After examining the subsequent events, he also came to hold that : "....the management of New Central Jute Mills Co. Ltd. ultimately passed into the hands of Sahu Jain Ltd., the main concern of Shri S. P. Jain group. " He has then concluded : " It is clear from the chain of events narrated above that Shri S. P. Jain is the central figure of these transactions, that it was he who wanted to acquire the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 20 lakhs. As far as the role of the appellant-company in the whole chain of these transactions is concerned, it became the willing instrument of its chairman, Shri S. P. Jain, in the process of levelling down the artificial price paid for the 4,838 shares of New Central Jute Mills Co. Ltd. for acquiring controlling interest in and management of the jute mill by Shri S. P. Jain and his family at minimum cost to himself. This is evident also from the nature of the entries passed in the books of D.I. Ltd. and Shri S. P. Jain ; for example, when D.I. Ltd. received the shares on transfer from the appellant company ultimately, D.C.P.M. Ltd. was credited in its books and not the appellant-company and similarly when the shares passed on to Shri S. P. Jain from D.I. Ltd. it was again D.C.P.M. Ltd. that was credited in his books and not D.I. Ltd. It is clear, therefore, that the ultimate destination of the shares from D.C.P.M. Ltd. to Shri S. P. Jain was pre-determined but a circuitous route was adopted for the journey, via the appellant-company and D.I. Ltd. only with the ulterior motive of taking off some burden of the " artificial and inflated price and leaving it off at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that Shri S. P. Jain wanted to acquire a controlling interest in the management of New Central Jute Mills Co. Ltd. which he ultimately succeeded in doing and with that aim in view he cornered the shares in the market and purchased in big lots the shares of the said jute Co. through D.C.P.M. Ltd. The mere fact of paying higher price by the said purchasing company, as rightly observed by the Tribunal, cannot be a ground for disallowing the loss of rupees seven lakhs and odd claimed by the assessee-company. But the Tribunal has misdirected itself and committed a grievous error of law in appreciating the second transaction with which we are concerned in this case. No valid reason has been given by the Tribunal, nor could any be given by the learned counsel for the assessee, as to why the assessee-company purchased the entire block of shares from D.C.P.M. Ltd. on 31st October, 1947, at a fabulously high price of Rs. 680 per share as against the market quotation of Rs. 523 per share on that date. The observation of the Tribunal that " after the devaluation of the rupee in 1949, the jute market became duller and duller progressively " is irrelevant for the purposes of justifying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1948. In the case of Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income-tax the appellant-company was a dealer in shares and securities and also carried on business as managing agents of other companies. In order to acquire the managing agency of a textile mill, the appellant-company purchased from Sassoon David and Co., who were the managing agents thereof, 1,507 shares of the mill at Rs. 2,321-8-0 per share at a time when the market price of the shares was Rs. 1,610. The remaining 1,000 shares of the mill held by Sassoon David and Co. were acquired by the directors of the appellant-company. Two months later the appellant-company sold 400 of those shares at a loss of Rs. 1,78,438 and this loss was claimed as a trading loss. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the loss because, in their view, the shares were purchased by way of capital investment and the loss suffered by sale therefore, could not be allowed as a trading loss. The Income-tax Appellate Tribunal held that the managing agency of the Dawn Mills was acquired by the appellants as a part of their business activity and the shares of the mills having been purchased in the regular c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company." The Income-tax Officer and the Appellate Assistant Commissioner, with reference to this clause of the memorandum of association, came to the conclusion that S.K.G. Ltd. did not acquire these shares in order to promote or advance the interest of this company but did so or was apparently made to do so with the ulterior object of helping the chairman of its board of directors and not with the intention of dealing in shares of the jute company. In Commissioner of Income-tax v. National Finance Ltd. the facts were similar to the ones in the instant case. The National Finance Ltd. belonged to a group of companies controlled by one Lala Yodh Raj Bhalla and certain persons associated with him, conveniently described in the judgment of the Supreme Court as " Yodh Raj Bhalla group ". These companies were (1) Jaswant Sugar Mills Ltd., (2) Jaswant Straw Board Ltd., (3) National Finance Ltd., (4) National Construction and Development Corporation Ltd., (5) Ganesh Finance Corporation Ltd., and (6) Raghunath Investment Trust Ltd. The interrelation of these companies was very intimate, and they were practically owned by the Yodh Raj Bhalla group. In July, 1948, Yodh Raj Bhalla, who wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object of a particular venture" (the underlining is mine). The question before the Supreme Court was : " Whether the assessee-company in purchasing the shares merely wished to deal in those shares as stock-in-trade, or was acquiring a capital asset of an enduring nature." And, it was observed : " This question is not one of fact, pure and simple, but one of an inference in law from the proved circumstances of the case. " After discussing the facts of the case, the ultimate conclusion drawn was : "All this shows that the affairs of these companies were centrally arranged, and the intention was to benefit the assessee-company by the acquisition of a large block of shares at a very much larger price than obtaining in the market, to acquire certain agencies of a profitable character." Although the finding of the Income-tax Officer that : " S. K. G. Ltd. is not a share-dealer nor holding of investment for a brief period in jute mill (?) promote or advance its interest as a sugar manufacturing company " has not been upset either by the Appellate Assistant Commissioner---rather he has approved it---or by the Income-tax Appellate Tribunal, I shall assume that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a genuine loss and is in the nature of revenue loss has been arrived at by a misdirection in law and in the absence of any legal, valid and relevant material. Learned counsel for the assessee-company submitted on the authority of Raja Bahadur Vishweshwara Singh v. Commissioner of Income-tax, Ashoka Marketing Ltd. v. Commissioner of Income-tax and Rajputana Textiles (Agencies) Ltd. v. Commissioner of Income-tax, that the finding is a finding of fact and no question of law arises therefrom. In Raja Bahadur Vishweshwara Singh's case, Das C. J. posed the question in the following terms : " The question before us is whether the Appellate Tribunal applied the right principles and had material or facts before them on which they could hold that the assessee was engaged in trading transactions in the matter of shares and securities. " It is well established, as was observed in that case also, that, if an inference or conclusion is drawn by the Tribunal without any material, it becomes a question of law. In the same case the same view was approved by the Supreme Court in Raja Bahadur Vishheswara Singh v. Commissioner of Income-tax. In the case of Ashok Marketing Ltd., my Lord the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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