TMI Blog1951 (6) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciation of capital. The facts which have given rise to the reference are these. The assessee is a public limited company incorporated in the year 1917 with the following objects:- (a) To undertake and carry on the general business and trade of commission agents, insurance agents, commercial agents, export and import agents, clearing and forwarding or house and land agents, bankers and merchants of every description or any other work calculated directly or indirectly to benefit the company; to raise or take up or advance moneys on loan, deposit, debentures, securities or otherwise, and to deal in money, notes, bills, hundies and other securities. (b) To take on lease, trust or in exchange and otherwise acquire lands, buildings, machinery, manufactures and other property; (c) To encourage, originate, finance or undertake the management of commercial and industrial undertakings, and to help or to support any charitable educational or public objects and institutions; and (d) To generally do and perform all such acts and things as may be necessary, incidental or conducive to the attainment of the above objects, and to do any other work or business of any other nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the value of three lacs of rupees, and, it would appear, performed their other obligations under the agreement. The third mill was not erected by the Sarswati Sugar Syndicate Limited within the year and the Syndicate paid to the assessee company ₹ 15,000 as commission in accordance with the terms of the agreement. Lala Kishan Prasad was made a director of the Sarswati Sugar Syndicate Limited but died in the year 1940. The assessee company desired that another of their directors should be made a director of the Sarswati Sugar Syndicate Limited, but negotiations fell through, and the assessee company then decided to sever all connection with the Sarswati Sugar Syndicate Limited and to realise their shares. In May, 1941, they sold two thousand of their shares in the syndicate and realised an amount of ₹ 2,000 in excess of what they had originally paid for the shares. The remaining one thousand shares held by the assessee company in the syndicate were not sold until the year 1943. A suit had been filed by a person who claimed to have entered into a contract with the assessee company to buy their shares and an injunction had been issued by the Court restraining the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question of law which can arise before us on the facts of this case can be simply stated as:- Whether there was material upon which the Income-tax Officer was entitled to hold that the two receipts were arising from the business of the assessee company? A large number of authorities have been cited before us. Mr. Bajaj for the assessee company has endeavoured to make out a case that, as the assessee company had consistently shown in their balance sheets the shares held by them in the Sarswati Sugar Syndicate Limited under the heading Investments and no question to this had been raised previously by the Income-tax authorities, the latter were bound to recognise the transaction as what it had always been shown and admitted to be. Against this argument of estoppel a similar argument could well be raised by the Income-tax Department, for in the two balance sheets of the material years the two amounts of ₹ 20,000 and ₹ 2,26,700 appear as profits on sale of shares . I think, however, the question falls to be decided on the true nature of the two receipts and not on any statements made in balance sheets by the assessee company. Mr. Bajaj relies very strongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be regarded as invested in a business of organising agents, it was invested with a prospect that it might be a temporary investment and not a permanent one-in other words that the capital might later be withdrawn from the business. The question in such a case as the present must be 'what is the object of the expenditure?' and it must be answered from the standpoint of the assessees at the time they made it-that is, when they were embarking upon the business of organising agents for the company. The deposit was clearly exacted by the company as a condition of the assessees being given an agency which they hoped to manage profitably. Their Lordships think that the purpose of being permitted to engage in such a business must be considered to be a purpose of securing an enduring benefit of a capital nature, and that the deposit cannot, upon a true view of the terms of the agreement and the circumstances of the case, be regarded as an expenditure made in the course of carrying on an existing agency, or any other business. From this passage it would appear that some stress at least was laid on the circumstance that this adventure was something entirely outside the ordinary b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of the managing agency of a commercial undertaking. It was an adventure contemplated by the Memorandum of Association of the assessee company, and under these circumstances whether the adventure was the first of its kind does not seem to be material. The dictum of Lord Justice Clerk in Californian Copper Syndicate v. Harris [1904] 5 Tax Cas. 159, at p. 165, has often been quoted and may be repeated:- It is quite a well settled principle in dealing with questions of assessment of income-tax, that where the owner of on ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of Schedule D of the Income Tax Act of 1842 assessable to income-tax. But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business. The simplest case is that of a person or association of persons buying and selling lands or securities speculatively, in order to make gain, dealing in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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