TMI Blog1983 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head `Business'? " The assessee is a company having its registered office at Gwalior (M.P.) and carries on business at and from Gwalior. According to the memorandum and articles of association of the assessee-company, it was authorised to hold shares by way of investment as well as by way of stock-in-trade, i.e., it was an investor in shares and also a trader in shares. The relevant assessment years are 1962-63 and 1963-64, the corresponding accounting years ending on March 31, 1962, and March 31, 1963. In the two years under consideration, the assessee-company's resources were mainly utilised in holding shares by way of investment rather than by way of stock-in-trade, as is noticeable from the following data available from its balance-sheets: --------------------------------------------------------------------------------------------------------------------------------------------------Date of balance- Shares/stock- Shares/invest- Total invest sheet in-trade ments ments -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 31-3-1962 8,63,240 34,36,873 45,54, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Indore Products Company Ltd., at the stage of the amalgamation in October, 1960, 260 right shares of the value of Rs. 13,560 and thus it held on March 31, 1961, 744 right shares of the total value of Rs. 89,280 It further received on September 30, 1961, 186 bonus shares by virtue of its holding of 744 right shares, the corresponding value of which was Rs. 18,600. Thus, by the end of September, 1961, the assessee-company held 930 shares of the total value of Rs. 1,07,880. Out of these above-mentioned Century shares, the assessee-company sold on February 10, 1962, 167 shares for Rs. 1,19,185 and the corresponding gain has been determined in the assessment for 1962-63 at Rs. 95,545. Out of the balance of 763 shares, the assessee-company sold 7 shares on February 1, 1963, for Rs. 3,675 and the corresponding gain of Rs. 2,871 has been included in the assessment for 1963-64 as the profit relating to trading transactions. The assessee-company was then left with a balance of 756 shares on March 31, 1963, and it held on to these holdings up to March 31, 1971. The assessee-company then in the year ended on March 31, 1972, sold 287 more shares and there was a corresponding gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares out of the total of 1,340 shares; (ii) there was only one transaction of sale in each of the two years (iii) it did not enter into any transaction of sale thereafter till 1972; (iv) the Revenue had held in the assessment for the assessment year 1972-73 that the profit made in that year was in the nature of a capital gain. Before we proceed to dwell upon the individual questions referred for our decision, we would like to point out that the learned counsel for the parties referred to the various authorities of the Supreme Court in support their respective arguments relating to the forequoted two questions, which are listed hereinbelow : (i) Rameshwar Prasad Bagla v. CIT [1973] 87 ITR 421 (SC); (ii) Ramnarain Sons (P.) Ltd. v. CIT [1961] 41 ITR 534 (SC) (iii) Raja Bahadur Kamakhya Narain Singh v. CIT [1970] 77 ITR 253 (SC); (iv) Manipur Administration v. Nila Chandra Singh, AIR 1964 SC 1533 ; (v) Ashoka Viniyoga Ltd. v. CIT [1972] 84 ITR 264 (SC); (vi) CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 (SC); (vii) CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706(SC); and (viii) Dalhousie Investment Trust Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the income-tax authorities smug in the belief that, as the courts do not interfere with the findings which form the bed-rock upon which the law will be based, they can act on that assumption in finding facts or by their mere ipsi dixit that they are findings of fact wish it to be so assumed irrespective of whether they are sustainable in law or on the materials on record." It would also be relevant to point out that the Supreme Court in Sutlej Cotton Mills Supply Agency's case [1975] 100 ITR 706, while deciding the question " whether the inference of the Tribunal that the profit of Rs. 2,13,150 arising from the sale of Rs. 1,58,200 shares of Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. is assessable as business profit is correct ? " at one stage observed (p. 710): " The question which the Tribunal had to consider in the appeal and which was referred to the High Court was a mixed question of law and fact, namely, whether the profit from sale of the shares in question was revenue or a capital receipt." and in the ultimate analysis, on a survey of the various cases, held (p. 715): " The finding that loss or profit is a trading loss or profit is primarily a finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, and relied on the decisions of the Supreme Court in Rameshwar Prasad Bagla's case [1973] 87 ITR 421 and Ramnarain Sons (P.) Ltd.'s case [1961] 41 ITR 534. The third point submitted by the learned counsel was that, as stated in the statement of the case in paragraph 18(iv) at page 9 of the paper book and also in paragraph 10 of the order of the Tribunal at page 63 of the paper book, the Tribunal has taken into account the magnitude of the purchase of shares in arriving at the impugned conclusion, but the magnitude is not that much. The proportion of these shareholdings qua the total assets and investment is not much. The Tribunal in its order, in paragraph 16, has, as summarised in the statement of the case in paragraph 18(v) at page 9 of the paper book, taken the quoting of the shares on the Stock Exchange as a factor to conclude that the transaction in question were in the nature of trading activity of the assessee-company, but it is a neutral factor as even an investor would make investment looking to the quotations at the Stock Exchange. Thus, what is true about the trading activity in relation to the Stock Exchange would be true about investment also. The learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We now proceed to decide the question. In order to avoid repetition and making the order cumbersome, we propose to deal with all these points as a package. It cannot be gainsaid that where there is evidence to consider, the decision of the Tribunal is final, even though the court might not, on the material, have come to the same conclusion if it had the power to substitute its own judgment. To put it differently, the possibility of this court coming to a conclusion different from the one arrived at by the Tribunal, if the evidence is reappraised, would not entitle this court to interfere with the finding of the Tribunal treating it as a question of law. When conclusion has been reached by the Tribunal on an appreciation of a number of facts established by evidence, the question whether the conclusion is sound or not must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting in the picture as a whole. Thus, the argument of the learned counsel that the Tribunal has committed an error of law in taking into account the facts, which, in his submission were neutral, i.e., co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s." The time-lag in the dates of purchase of the preference shares, their conversion into ordinary shares and the sale of these ordinary shares is not very much, and then there is no rule of thumb that if the transactions are at a particular specified interval, it would then only be in the commercial spirit, otherwise it would be by way of an investment. It cannot also be said, as a rigid formula, that only when there would be a chain of transactions or a plurality of transactions, then alone that activity would be concluded to be in the commercial spirit or a trading activity. It would be relevant at this stage to quote with advantage the observation of their Lordships of the Supreme Court in Sutlej Cotton Mills Supply Agency's case [1975] 100 ITR 706 at p. 711 : " The principles underlying the distinction between a capital sale and an adventure in the nature of trade were examined by this court in G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC), where this court said that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case. Ultimately, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n inference of fact that the transactions were in the nature of trading activity of the assessee-company. The Tribunal, in the context of the facts that the ordinary shares were being quoted at a far higher premium and that the preference shares were convertible, found that the magnitude of the purchase of the preference shares worth about Rs. 12 lakhs, when the assets and the total investments were to the tune of Rs. 40 lakhs and Rs. 30 lakhs, respectively, was in the course of commercial spirit, i.e., trading activity, as rightly found by the Tribunal, is reinforced from the subsequent conduct of the assessee-company, i.e., of conversion and sale of the converted shares. Further, it is in this setting of the facts that the Tribunal gave importance to arrive at its conclusion that the transactions in question were in the nature of trading activity of the assessee-company and to the fact that the shares were quoted on the Stock Exchange, because it cannot be gainsaid that on account of the quotations in the Stock Exchange, the buyers as well as the sellers have a ready access for knowing the fluctuations in the price, and thus the buyers can easily find sellers and vice versa. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee-company and is mentioned in paragraph 18(iii), we are unable to understand as to how it would have a material bearing on the question. What has been stated by the Tribunal in paragraph 3 of its order, at pages 59-60 of the paper book, is by way of statement of a fact. The learned counsel was also unable to demonstrate the bearing of this point so as to indicate the likelihood of the balance being titled in favour of the assessee-company. The upshot of the foregoing discussion is that the Tribunal has considered the evidence on record and applied the correct test. There is no scope for interference in the findings of the Tribunal. We, therefore, answer question No. (1) in the affirmative, i.e., against the assessee-company and in favour of the Department. We now proceed to consider question No. (2) regarding transactions relating to the Century shares. The Tribunal has decided the question relating to the transactions of the Century shares bearing in mind the same principle which it bore in mind while deciding the question relating to the transactions of the shares of Hindustan Motors Ltd., as would be indicated from its observation: " We have indicated earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court (to which reference was made by the Tribunal) in CIT v. Maniklal Chunnilal and Sons Ltd. (Income-tax Reference No. 16 of 1948) that bonus shares received by a shareholder who carries on business in shares and securities 'ipso facto become accretion to his stock-in-trade.' Bonus shares would normally be deemed to be distributed by the company as capital and the shareholder receives the shares as capital. The bonus shares are accretions to the shares in respect of which they are issued, but on that account those shares do not become stock-in-trade of the business of the shareholder. A trader may acquire a commodity in which he is dealing for his own purposes, and hold it apart from the stock-in-trade of his business. There is no presumption that every acquisition by a dealer in a particular commodity is acquisition for the purpose of his business; in each case, the question is one of intention to be gathered from the evidence of conduct and dealings by the acquirer with the commodity. Bonus shares having been received by the assessees in respect of their stock-in-trade did not, therefore, become part of their stock-in-trade merely because they were accretions to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the circumstances for treating the gain in the transactions for the assessment year 1972-73 as a capital gain were different from those in the assessment years 1962-63 and 1963-64 and, as such, the finding has to be consistent. The Tribunal has, therefore, not committed any error. In this respect, we would like to set out hereinbelow an excerpt from the decision of the Orissa High Court in CIT v. Belpahar Refractories Ltd. [1981] 128 ITR 610 at pp. 613614: " Chagla C.J., speaking for the court, in the case of H.A. Shah and Co. v. CIT [1956] 30 ITR 618, 625 (Bom), indicated : `Therefore, in our opinion, an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. We should also like to sound a note of warning especially with regard to a Tribunal like the Appellate Tribunal, that it should be extremely slow to depart from a finding given by an earlier Tribunal. Even though the principle of res judicata may not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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