TMI Blog1967 (2) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ng agency and the control of the company or the shares constituted his stock-in-trade ? (ii) Even if the shares in question did not constitute the stock-in-trade of "the assessee", whether the profit made on the sale of shares did not constitute capital gain chargeable to income-tax under section 12B of the Act?" The assessment year with which we are concerned in this reference is 1947-48. The accounting year is Dassera 2002-2003, corresponding to October 16, 1945, to October 5, 1946. The assessee, Sri Rameshwar Prasad Bagla (hereinafter referred to as the assessee), is a partner of a partnership firm known as Agarwal and Co. The India United Mills Ltd. is a large unit of textiles and was under the managing agency of M/s. E. D. Sassoon and Co. Ltd. of Bombay. The said E. D. Sassoon and Co. Ltd. held share blocks of ordinary and deferred shares in India United Mills Ltd. In 1943, negotiations were entered into between M/s. E. D. Sassoon and Co. Ltd., one party, and Agarwal and Co., the other party. The negotiations matured into a deal. The agreement relating to the deal was recorded in a document dated January 26, 1945. E. D. Sassoon and Co. agreed to assign the managing age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res on 19-7-1946. He made a profit of Rs. 1,80,220. This amount was utilized by him for purchasing shares of the Swadeshi Cotton Mills Ltd., Kanpur. The rest of the shares remained in possession of the assessee during the relevant previous year. The assessee did not disclose the profit mentioned above in his return. The Income-tax Officer, however, made an enquiry from the assessee in this respect and the latter sent a letter dated March 30, 1949, to the Income-tax Officer in the course of which he stated I have already brought to your honour's notice in the course of assessment proceedings and would like to confirm that I had certain share transactions in which there has been appreciation to the tune of Rs. 1,51,927-1-11. Since it is common ground that the assessee is not dealing in shares as business, the said appreciation in capital should have been normally disclosed as capital gain in the return but I regret that the amount could not be shown, so the return already filed may be treated as amended accordingly." Admittedly, the sum of Rs. 1,51,927-1-11 includes surplus realised in the sale of the aforesaid 43,300 shares of the India United Mills Limited. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The shares held by the assessee as partner of Agarwal and Co. were already sufficient to qualify him for the managing agency and the managing partnership so that the object in purchasing the 62,500 shares could not be to obtain the managing agency. Clearly it was to sell the shares for a profit. In view of the fact that the interval between the purchase of India United Mills shares and their sale was not big, it is clear that the idea was not to retain these shares by way of investment. The statement of case is clear that first Agarwal and Co. paid for the 5 lakhs shares and only thereafter transferred the same to Poddar and the Khetan groups (the assessee belonged to the Bagla group). The shares were sold in small lots thereby indicating that the idea was to earn profit and sales were cautiously made in order to catch the best market. Under the agreement it was Agarwal and Co. which had to purchase the shares and not the assessee. Consequently the assessee's theory that he had purchased the shares with a view to obtain the managing agency cannot be accepted. Again, the assessee made investment with borrowed capital. Normally, a person would not purchase shares or any other art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason the sum of Rs. 2 lakhs received by the assessee was not in the nature of income liable to tax. It is clear from the judgment of their Lordships that the circumstances on the basis of which they decided the case against the department was "that beyond this isolated transaction of purchase and sale the assessee-company did not deal in shares." Their Lordships were also of the opinion that the circumstances of the case indicated that the object of the company in buying shares was only to obtain a managing agency of the third mill which no doubt would have been an asset of an enduring nature and would have brought the assessee-company profits but there was from the inception no intention whatever on the part of the assessee-company to resell the shares either at a profit or otherwise deal in them. This case, therefore, is clearly distinguishable. In our case, as already pointed out earlier, there was not an isolated transaction of sale and purchase but a series of transactions. Secondly, there was not and there could not be at the time when the shares were purchased any question of acquiring the managing agency. Lastly, the cumulative effect of the circumstances as mentioned earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was interested in the managing agency of the mills and not whether Agarwal and Co. was or was not. The agreement was between Agarwal and Co. and the Sassoons. It was Agarwal and Co. which was interested, if at all, in the managing agency of the mills. That being the position we cannot find out any clear circumstance either in the statement of the case or in the assessment order passed by the Income-tax Officer, the appellate order passed by the Appellate Assistant Commissioner and the orders of the Tribunal to the effect that the assessee was either a party to the agreement or was interested in obtaining the managing agency of the company. Mr. Mehrotra has also not been able to point out to us any circumstance on the basis of which it could reasonably be held that it was the assessee who was interested in obtaining the managing agency or that the shares were purchased with a view to obtain the managing agency or with a view to making an investment and not with a view to earn profits. We would, therefore, answer question No. 1 by saying that there was no material for the finding that the shares in question were purchased by the assessee with a view to acquire the managi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
