TMI Blog1970 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of 200 shares of Radha Films Ltd. was a venture in the nature of trade and whether the said amount of gain was of a 'capital nature' or ' an income from business' taxable under the Indian Income-tax Act ? " We shall first deal with the procedural adventure in this case. On December 22, 1953, a rule nisi was granted by this High Court for a reference. The rule was made absolute on April 7, 1955. The statement of the case was made by the Tribunal on the 24th January, 1956. The assessment year was 1946-47. When the reference was heard by this court, a Division Bench of this court on December 15, 1959, remanded the case to the Tribunal for findings on specific points after taking additional evidence. Such additional findings in a supplementary statement of the case were filed by the Tribunal before this court on 25th October, 1960. Thereafter, the Division Bench of this court decided the reference on June 21, 1963, answering the question in the negative and in favour of the assessee. The High Court refused to grant certificate to appeal to the Supreme Court on February 12, 1964. Thereafter, the Commissioner obtained special leave to go to the Supreme Court. The Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is received, proceed to hear and dispose of the reference. " We, therefore, have now to proceed to dispose of the reference. But before doing so, we shall set out here the steps taken. The High Court by its order dated the 4th May, 1967, directed the Tribunal to act in terms of the Supreme Court's order of remand. The Tribunal made such supplementary statement on the 16th February, 1968, which was filed in supplementary paper books on the 1st July, 1968. The facts giving rise to the question may now be stated briefly. The assessee is Premji Bhimji with the status of an individual. The assessment year is 1946-47 with the relevant previous year ending on the 4th November, 1945. From the assessment year 1944-45, previous to the instant assessment year, the assessee was being assessed on the income on his share of profit from a registered firm named Jayantilal Dwarkadas which firm carried on business in textiles. In the assessment year 1945-46, he carried on a business of silk piece-goods. During the previous year relevant to the instant assessment year, he carried on a business of his own in printed silk sarees and also business in the film line in the name of Premji Bhimji. He hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of investment in the purchase as was also borne out by the fact that the sale of the shares came within six months of their purchase. The Appellate Tribunal, therefore, held that the Income-tax Officer was justified in subjecting this income to tax. It may be stated here that the income was also subject to tax in this case not only by the Income-tax Officer but also by the Appellate Assistant Commissioner and the Tribunal. We shall now briefly refer to the facts found by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, specially because the first supplementary statement cannot now be used after the remand order of the Supreme Court and specially because the second supplementary statement of the facts after the Supreme Court's order is only a qualified statement. It is necessary to bear in mind that our answer should be based on facts already on record and as the Supreme Court has directed no additional evidence can at all be looked into. The order of the Income-tax Officer records the following facts. On scrutiny of the ledger account it appears that there is a squared-up account in the name of Kanai Lal Ghosal having cash entries of Rs. 60,000, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 3 thereof as follows : " One Mr. K. Ghosal with others was acquiring controlling interest in Radha Films Ltd. by purchasing shares from various persons and so he was particularly interested in acquiring further shares of the said company and as higher price was offered, the 200 shares were sold to K. Ghosal for Rs. 60,000 and payment was received on 31st August, 1945, by a cheque on New Standard Bank Ltd. " This was part of the facts which was admitted and/or found by the Tribunal and admitted to be so by the assessee himself and annexed as enclosure A to his application as aforesaid. The Appellate Assistant Commissioner in confirming the order of the Income-tax Officer records his findings as follows : " It appears that there was throughout the idea of profit. The character and nature of the shares bought and sold were such that they must need be sold and not owned and held as investments. Normally, investments are made out of surplus funds, through recognised stock brokers and in gilt-edged securities or in shares of public limited and dividend-yielding companies. In this case all these three factors are absent. The manner in which these were acquired and the funds that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness collaboration with the proprietor of Jyoti Cinema on whose advice these shares are said to have been purchased. It appears that the proprietor of the Jyoti Cinema and the assessee purchased the shares of Radha Films in February, 1945, as there were negotiations being carried on at that time for a change in the management. The proprietor of the Jyoti Cinema is a director of Radha Films Ltd. Within six months of the purchase of these shares these were sold away at a price six times the purchase price. All these facts indicate that the purchase was on the basis of inside information and was with a view to re-sell. There is no element of investment in the purchase as is also borne out by the fact that the sale of the shares came within six months of the purchase. " The Tribunal proceeds further to find and observe : " In the present case, it is clear that the appellant had substantial contacts with the cinema world at the time the shares were purchased. The purchase of the shares of a film company in collaboration with a director of that company about the time when the negotiations were being carried on about the change in the management of that company all indicate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled for a supplementary statement may be noted : " (1) Whether the assessee purchased 200 shares of the Radha Films Ltd. with borrowed capital ? (2) Whether the said shares were yielding dividend either before or at the time of the purchase and if so, in which years and at what rate and what is the face value of each share ? (3) Whether the said shares were registered in the assessee's name after the purchase ; if so, when ? (4) How many shares of Radha Films Ltd., if any, were sold by the proprietor of Jyoti Cinema between the dates of purchase and sale by the assessee of the 200 shares of the said company ? When did the assessee sell the said 200 shares ? (5) When and between whom did the negotiations for a change in the management of the Radha Films Ltd., as referred to in paragraph 4 of the statement of case start, and when were they completed and at what stage were the said negotiations at the time when the 200 shares were purchased by the assessee ? (6) Are there any other facts besides those, which have been found by the Tribunal and stated in the statements of cases, to justify the conclusion that there is no element of investment in the purchase by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal records. The date was 31st August, 1945. " Questions Nos. 5 and 6 : " These questions cannot be answered on the basis of the material already available on record. " On these answers certain points again are abundantly clear. There is a clear finding, that the shares had been purchased by withdrawing the amount from the assessee's own personal account in his business books, by the Income-tax Officer. Although this finding was contested before the Appellate Assistant Commissioner and it was contended that the payment had been made initially by Jyoti Cinema and subsequently adjusted, the Appellate Assistant Commissioner accepted that contention of the assessee but the point was not mooted before the Tribunal at the stage of original hearings. Nevertheless, the Tribunal records this fact, which is already appearing on its own record, that the money for the purchase was initially furnished by Jyoti Cinema. All that the Tribunal says is that without additional evidence it cannot determine the further point, whether it was purchased out of borrowed funds or out of funds on temporary accommodation which is immaterial for the present purpose. It shows and proves that the money w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made. If they are, I do not see why the venture should not be regarded as 'in the nature of trade', merely because it was a single venture which took only three months to complete. " It is, therefore, wrong in our view to consider the Lord President Clyde's observation of a single swallow not making a summer to mean that a single transaction could never be regarded as an adventure " in the nature of trade " provided, of course, the characteristic test is present as indicated by Lord President Clyde. The second case on which Mr. Mitter for the assessee relies is Leeming v. Jones. Viscount Dunedin at pages 358-360 of the report in that case explained the theory of isolation and isolated transaction in this branch of the income-tax law. His Lordship approved of Rowlatt J.'s observation in Ryall v. Hoare, that, " a casual profit made on an isolated purchase and sale, unless merged with similar transactions in the carrying on of a trade or business is not liable to tax ". His Lordship also explained the theory of whether an investor should hold on to his investment or sell it and observed at page 360 of that report as follows : " The fact that a man does not mean to hold an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio of that decision appears to be that the fact that the property was purchased with a view to re-sell did not of itself establish that the transaction was an adventure in the nature of trade. We have already discussed this theory that the fact of the sale by itself would not establish an adventure in the nature of trade. But we are of the opinion that it might do so when taken along with other considerations which we have stated above. Lord Carmont, at page 392 of that report, expressed the view : " A transaction does not require to be unique in the life experience of a businessman to be treated as isolated. In ordinary parlance a thing is isolated when it is placed apart from some other thing. " In developing this theory of isolation, Lord Carmont also introduced the consideration of the quality of the goods when his Lordship observed at the same page 392: " ...in certain cases it is important to know whether a venture is isolated or not, that information is really superfluous in many cases where the commodity itself stamps the transaction as a trading venture, and the profits and gains are plainly income liable to tax. " This was illustrated by Lord Russell at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles and ratios discussed in all relevant cases on the subject that no rigid formula can be applied. The " total impression " must be gathered from all relevant facts and circumstances. Such facts and circumstances which we have stated above leave no hesitation in our minds to hold that this transaction in 200 shares in the instant reference before us is indelibly stamped with all the characteristics of an adventure in the nature of trade, even though it was a single transaction on the part of the assessee and even though share dealing was not directly in his line of business. The other case to which Mr. Mitter made a reference is Janki Ram Bahadur Ram v. Commissioner of Income-tax, another decision of the Supreme Court. There, on the particular facts and circumstances of the case, the Supreme Court held that the sale of property was not an adventure in the nature of trade. It lays down the principle that if a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may rightly be inferred. Equally, a similar inference would arise where a commodity is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference ; but it is not a matter of merely counting the number of facts and circumstances pro and con ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction ; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. " Now, this decision in Naidu's case is important because it lays down the proposition relating to presumption. It emphasises the principle that where the purchase is solely and exclusively with the intention to re-sell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it, the presence of such an intention is a relevant factor and unless offset it raises a strong presumption that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phasized that the answer to the question whether a transaction is an " adventure in the nature of trade " does not depend upon the application of any abstract rule, principle or formula but must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determines the character of the transaction. There, on the facts, it was held that the purchase of the site and the buildings of the factory was an adventure in the nature of trade and was in the course of a profit making scheme. The other case on which Mr. Pal for the revenue relied is P. M. Mohammed Meerakhan v. Commissioner of Income-tax, a decision of the Supreme Court emphasizing the same principle that it is not possible to evolve any single legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not and the answer must depend on the total impression and effect of all relevant factors and circumstances. It will be unnecessary to discuss that case in further detail. In the light of the above discussion and the case law cited above, we gather and draw the total impression and the ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis a commodity with a view to its resale at a profit. That, as it seems to me, is an adventure in the nature of trade.... " Here also it is plain that the whole motive and adventure were calculated to make a profit out of the purchase and sale of these shares in the circumstances mentioned above. The matters already on record and found in the orders of the Income-tax Officer or the Appellate Assistant Commissioner can always be looked into in these proceedings if the Tribunal has not upset them as the last fact-finding court. It will be unnecessary to discuss this point in detail, for the point is well established by such decisions as in Commissioner of Income-tax v. Jadavji Narsidas Co., and the observations made therein at pages 44-45 may be referred to in this connection. For the reasons and on the authorities stated above, we answer the question in the affirmative and in favour of the revenue. We hold that the Tribunal was justified in holding that the gain of Rs. 49,400 by sale of 200 shares of Radha Films Ltd. was an adventure in the nature of trade. We further hold that this gain was not of a capital nature but was an income from business taxable under the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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