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TMI Blog1971 (7) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the conclusion that the loss of Rs. 5,44,580 (rupees five lakhs forty-four thousand five-hundred and eighty) was not a revenue loss but a capital loss ? " The assessee, Messrs. New Prahlad Mills (P.) Ltd., is engaged in the business of manufacture and sale of textiles. Its affairs were formerly managed by the Bombay Company Ltd., but in February, 1946, the whole of its share capital was purchased by Amrit Vanaspati Company who were appointed as its managing agents. The affairs of the Amrit Vanaspati Company were managed by two persons called G. L. Bajaj and T. P. Khetan. In the assessment year 1949-50 for which the corresponding accounting year ended on the 31st of March, 1949, the assessee showed a loss of Rs. 5,44,580 on the sale of its holdings in two companies, the Jupiter Insurance Company Ltd. and the East and West Insurance Company Ltd. (hereinafter called " Jupiter " and " East and West ", respectively). The controversy before us centres round the question whether the loss claimed by the assessee is a revenue loss or a capital loss. The case of the assessee being that the transactions, in purchase and sale of shares spreading over a period of three years constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee valued these shares at the market price of Rs. 67,443. On the basis of this valuation it claimed the loss of Rs. 5,44,580. During the course of assessment proceedings, the Income-tax Officer asked the assessee to state what was the object of purchase of the various shares and in reply the assessee stated that its object was to " raise their market values and resell them with a view to earn profit. " The Income-tax Officer rejected this explanation and held that the shares were purchaed by the aseessee, not for the purpose of dealing in them, but as an investment to acquire a controlling interest in Jupiter. The Appellate Assistant Commissioner and the Tribunal also took the same view. The Tribunal dismissed the assessee's appeal in regard to the loss claimed by it, but it expressed itself equivocally by saying that "the assessee was not merely interested in the purchase of the shares, wait for a rise in prices, and then to sell the shares at profit, but it was interested in having a hold in the insurance companies" and "the purchase and the sale of shares in this case, as pointed out, involves something more than the mere idea of realising a higher price on the sale of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's transactions amount to dealing in shares or to investment is a mixed question of law and fact and the legal effect of the facts found by the Tribunal, on which the assessee could be treated as a dealer or an investor, is a question of law. In Commissioner of Income-tax v. National Finance Ltd., the Supreme Court has reiterated the same view by saying that though the question whether a particular loss is a trading loss or a loss on the capital side, depends on the facts of each case, the question is not one of pure fact but a mixed question of fact and law, and the decided cases indicate how the matter is to be viewed in the context of the facts. The case of the assessee is that it purchased the shares of Jupiter for boosting up their prices and then selling them at a profit and not for acquiring control either of that company or of East and West. Now, in regard to the latter company, the Tribunal has found that the assessee never wanted to purchase the shares of that company but it was obliged to purchase them along with the shares of Jupiter, because the vendor stipulated for a block sale. It cannot, therefore, be said that the assessee had any intention to acquire a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat company. The total number of votes in Jupiter was 1,49,980, 50 per cent. of which is 74,990. If the assessee had not parted with 25,000 preference shares, it would have held 25,804 preference shares in all, which commanded 12,902 votes. The assessee was then holding 62,893 ordinary shares of Jupiter which commanded as many, that is, 62,893 votes. Thus, the assessee could have controlled 12,902 plus 62,893 equal to 75,795 votes, which was more than 50 per cent. of the total number of votes in Jupiter. The three relevant annual general meetings of Jupiter were held on the 17th of July, 1947, 7th of June, 1948, and 15th of September, 1949. On none of these dates did the assessee have control over more than 50 per cent. of the voting rights in Jupiter, even if the holding of East and West in Jupiter is taken into account. What is even more significant is that though the assessee, through its own holding and the holding of East and West in Jupiter, had come to control more than 50 per cent. voting rights in Jupiter in February, 1948, it sold 70,000 shares of East and West in April, 1948, and it also sold 63,000 ordinary shares and 25,000 preference shares of Jupiter in January, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases made by the assessee from Sir Alagappa Chettiar were for a consolidated consideration of Rs. 17,87,500 and that amount could not be split up for the purpose of working out whether in the year ended the 31st of March, 1948, a profit or loss had accrued. It is then said that the assessee had not valued its stock-in-trade on the 31st of March, 1948, at the market rate which shows that the transactions are not trading transactions. Now, in appreciating this contention, it must be borne in mind that the assessee had purchased the shares in bulk and the price paid by it was far higher than the price which ruled in the market. In the very nature of things, therefore, it would not have been possible for the assessee to value the shares on the 31st of March, 1948, at the market rate. Then again, as observed by the Supreme Court in Investmost Ltd. v. Commissioner of Income-tax : "Valuation of stock at cost is one of the recognised methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade." Counsel for the revenue contends that the assessee had no power under its memorandum t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this behalf to the salient fact that the assessee sold its holdings in Jupiter at a time when it could have captured control of that company. If the intention was to purchase the shares of that company for the purpose of acquiring control over its affairs, it is unthinkable that at a crucial moment the assessee would have sold its holding in that company. Earlier, we have demonstrated how if the assessee had continued to hold 25,000 preference shares which it sold on the 30th April, 1948, it could have controlled more than 50 per cent. voting rights in Jupiter. Counsel for the department has drawn our attention to the decisions in Commissioner of Income-tax v. Ramnarain Sons Ltd., Ramnarain Sons (P.) Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. National Finance Ltd. and Raja Bahadur Kamakhya Narain Singh v. Commissioner of Income-tax, but these cases, in our opinion, have no application. The decision of this High Court in Commissioner of Income-tax v. Ramnarain Sons Ltd. was carried in appeal to the Supreme Court and the judgment of the Supreme Court is reported, as Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income-tax. Both the High Court and the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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