TMI Blog1968 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... f the holding by one Udaya Limited, in which the assessee was a director and her husband was the managing director, she purchased on March 31, 1952, 32,850 shares at Rs. 3-13-0 each, and for a total consideration of Rs. 1,25,342-8-0. On January 13, 1953, she sold 20,000 out of them through a broker of Bombay by name Naraindas and Company at Rs. 2-8-0 per share. The sale proceeds of Rs. 50,000 were received by her by cheque on January 15, 1953. She endorsed this cheque the next day in favour of Udaya Limited. We may mention that when she purchased the shares from Udaya Company the latter had owed her Rs. 98,375. After giving credit for this amount towards her purchase of the shares, the balance of the price of 32,850 shares remained due from her to Udaya Limited. On March 10, 1953, she sold the remaining 12,000 shares at the same rate per share through another broker. The shares would appear to have been delivered by her to the broker through the Indian Bank which, realised Rs. 30,000, being the total sale price, to her credit two days later. That is how, according to the assessee, she incurred a loss in the transaction relating to the 32,850 shares of Vanguard. The Tribunal has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee the reference has been made to us under section 66(2) of the Indian Income-tax Act, 1922, of the following question: " Whether, on the facts and in the circumstances of the, case, the disallowance of the loss of Rs. 42,534 resulting from the sale of 32,000 shares held by the assessee in Vanguard Fire and General Insurance Company Limited is lawful ? " The answer to this question will ultimately depend on the character of the holding by the assessee of 32,000 shares, as an investment or as a stock-in-trade. Having regard to the frame of the question, it is argued for the revenue that it does not cover the factual findings of the Tribunal, as they are called, both as to the character of the holding and the reality of the sales. We do not agree. The question, in our opinion, is comprehensive enough to include these matters. The propriety of the disallowance of the loss cannot be dealt with independent of them. If the findings of the Tribunal are not covered, we fail to see what other purpose the question under reference will serve to the assessee. The whole point at issue is whether the disallowance of the loss is legal and that is necessarily and inevitably intertwined w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion in that manner we think the Tribunal misdirected itself as to the proper criteria with reference to which the character of the shareholding should be ascertained. What a trading activity is, it is not easy to define with any comprehensiveness or precision. It is one of those matters which has to be judged having regard to the totality of the impression the circumstances of the case taken together make on the mind of the court. There are, however, certain badges of trade which may generally serve to distinguish it and which are collected in the report of the Royal Commission on the Taxation of Profits and Income, 1955 : " We have drawn up and set out below a summary of what we regard as the major relevant considerations that bear upon the identification of these 'badges of trade'. (1) The subject-matter of the realisation.--While almost any form of property can be acquired to be dealt in, those forms of property, such as commodities or manufactured articles, which are normally the subject of trading are only very exceptionally the subject of investment. Again property which does not yield to its owner an income or personal enjoyment merely by virtue of its ownership is mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrison (Watford) Ltd. the House of Lords had occasion to consider whether a loss which was sought to be set off in purchase and sale of certain shares by an incorporated company was a business loss. Just before the purchase of shares, the company had taken power in the memorandum of association to deal in shares. The majority opinion in that case held that the loss was a business loss. In dealing with that question Lord Morris stated : " In judging as to the essential nature of a transaction it will often be relevant and of assistance to consider the objects and intentions which are the inspiration of the transaction ... It is doubtless true to say that, in general, a trader embarks upon trade with the It is doubtless true to say taht, in general, a trader embarks upon trade with the intention of making a profit ; but it cannot be said that if this intention is lacking there is no carrying on of a trade. A trade may be carried on with the knowledge that losses will result. Equally it seems to me that if on any ordinary examination of them certain transactions must be regarded as trading transactions or adventures in the nature of trade they do not cease to be such because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inference from the other facts. It is here the badges of trade indicated by the Royal Commission earlier referred to are of assistance. The subject-matter of a transaction may be such as is commonly or usually dealt with in trade or commerce. For instance, often stocks and shares by their nature are transacted as a commercial deal, though occasionally there may be investment as such in shares and stocks. The length of their holding may perhaps be suggestive of the character of the holding. If the stocks purchased are held over a long number of years, it may be reasonable to conclude that it is a case of investment. But if there is frequency in the purchase and sale of shares in the course of a person's activities, that may lead to a just inference that he does so as a commercial deal and in the course of his business. There may be cases where the subject-matter itself may not suggest the intention. For instance, supposing a person buys a motor car, uses it for a number of years and then sells it, that is a clear case of not being in the course of business. On the other hand the same person while making use of a car for over a long time also indulges in purchase of cars and freq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igned to book a loss by sale of the shares in the accounting year cannot, in our opinion, alter the true character of the holding, provided the sale is not a sham. In taking that view, we think, we are supported by the principle of Griffiths v. J. P. Harrison (Watford) Ltd. The further question is whether, on a proper view of the facts and circumstances of the case, the Tribunal could at all have reasonably come to the conclusion that the sales by the assessee of the shares in Vanguard were not genuine transactions. The only circumstances, which according to the Tribunal led it to that conclusion, are that eventually the assessee's husband purchased the shares shortly after the sales by the assessee and that the account with Udaya Limited was a common account between them into which the sale proceeds of the shares had been credited. But the approach of the Tribunal in that manner has entirely overlooked the other facts which have a clear bearing upon and are determinative of the genuineness of the sales by the assessee. The first lot of 20,000 shares was sold to Naraindas and Company, a stock broker of Bombay, who passed a cheque for the full amount of the sale proceeds. This che ..... X X X X Extracts X X X X X X X X Extracts X X X X
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