9911796707
TMI Blog1961 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Apollo Mills Co. Ltd. of Bombay with a capital of Rs. 50 lakhs divided into 25 lakhs shares of Rs. 2 each had as its managing agents M/s. E. D. Sassoon & Co. Ltd., who for the sake of brevity, will be referred to in this judgment as " the Sassoons ". They held 19,76,000 shares out of the 25 lakhs. The promoters of the assessee company entered into an agreement with the Sassoons on April 27, 1943, by which the Sassoons agreed to transfer their managing agency in the mill company for Rs. 12 1/2 lakhs to the promoters of the assessee company and the whole of their holding of 19,76,000 shares at Rs. 4-4-0 per share, i. e., for Rs. 83,98,000. These shares were to be transferred to the promoters or to the company which they were proposing to float. By clause (3) of this agreement the sale of the managing agency and the transfer of the shares was to be simultaneously completed and neither party could require the completion of the one without the other. On November 1, 1943. a tripartite agreement was entered into between the Sassoons as assignors, the promoters of the company as confirming parties and the assessee company as assignees. By that agreement the managing agency rights wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act ? " The High Court reformulated the question as follows : " Whether there were materials to justify the finding of the Tribunal that the transaction of purchase and sale of 13,74,000 shares was an adventure in the nature of trade ? " and answered the question so formulated in the affirmative and therefore against the assessee company. In its application for reference under section 8(5) of the Act the assessee company wanted some other questions also to be referred but the Investigation Commission only referred the question which has been set out above. The assessee company therefore took out a notice of motion on November 8, 1952, which was dismissed by the High Court on the ground that either the questions which were sought to be raised did not arise out of the finding of the Commission or they were included in the question which had been referred and answered by the High Court. Although the High Court did not so hold, the notice of motion was barred by time, being filed after more than six months allowed under section 66(2) of the Indian Income-tax Act. Against this judgment and order of the High Court the assessee company has come in appeal to this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs odd shares which they intended to sell and did sell. (5) That the intention to sell which the assessee company, entertained from the very outset was a complete answer to the argument that the acquisition was in the nature of an investment. In giving its finding the Commission said : "Aggregating the 12 1/2 lakhs paid for the managing agency right and the full price of 6 lakhs and odd shares at Rs. 4-4-0 per share, the capital investment must amount to 12 1/2 lakhs and 25 1/2 lakhs, i.e., 38 lakhs and odd. By deducting therefrom the profits of Rs. 16,52,600, the company showed a capital investment of Rs. 21,54,200 and with the addition of a few sundry items, it was brought up to Rs. 22,06,408." From this finding the inference drawn by the Commission was that the sale of 13 lakhs odd shares was an adventure in the nature of trade. The High Court reformulated the question which has already been quoted and it was contended that the High Court was in error in narrowing down the scope of the question referred by the Commission. It is not necessary to adjudicate upon this argument because in our opinion taking the question as referred to be a proper question arising out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich distinguish that case from the present case. It was held in that case that the question had to be decided in the light of the intention of the assessee and the assessee in that case had purchased the shares of the Dawn Mills not as a business transaction. That was clear from the fact that the assessee had purchased the shares at Rs. 2,321-8-0 per share and the market price was only Rs. 1,610 and the purposes of acquisition of such a large block of shares at a price exceeding the market price by a million rupees was the acquisition of the managing agency, which yielded the inference that the intention of purchasing the shares in that case was not to acquire them as a part of the trade of the assessee in shares but for obtaining the managing agency of the mills. There was no separate price paid for the managing agency and the shares purchased and the managing agency acquired were both assets of a capital nature and the shares did not constitute stock-in-trade of a trading venture. In the present case the facts as shown were entirely different. Counsel for the assessee company also relied on Kishan Prasad Co. Ltd. v. Commissioner of Income-tax. In that case the managing directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use they are clearly distinguishable in material respects and were decided on their own special facts. In Tata Hydro-Electric Agencies' case the question for decision was whether 25% of the commission earned which was paid to the two financiers was expenditure deductible under section 10(2)(ix) and it was held that it was not because the obligation to make the payment was in consideration of acquiring the managing agency and the right to conduct business and not for the purpose of producing profits in the conduct of business. Similarly, in Commissioner of Income-tax v. Motiram Nandram the expenditure was for securing the agency which was to carry on business. Sir George Rankin said at page 138 : " 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." Jones v. Leeming was a case of an isolated transaction. The finding was that it was not in the nature of trade. Commissioners of Inland Revenue v. Reinhold was decided on its own facts. Another case decided by this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck of shares held by the Sassoons was in our view the profit of an adventure in the nature of trade. The two groups, Morarka and Bubnas, put Rs. 20 lakhs into the assessee company which was floated for the acquisition of the managing agency and shares of the mill company which were beyond the holding capacity of the assessee company. That company never intended to hold the whole block of shares. It or its promoters before even entering into the agreement of purchase and during the course of negotiations for the purchase had entered into arrangements with different brokers for the sale of shares or at least of a bulk of those shares which were subsequently sold at a profit and but for that sale the transaction could not have been completed by the assessee company. The purchase of shares was not with the intention of holding them, the intention of the assessee was just the contrary and by the sale at a profit of the shares actually sold the assessee company expected to and did finance the completion of the transaction and thus was enabled to secure the managing agency and keep 6 lakhs shares. This inescapably was a transaction of a commercial nature. It had all the attributes of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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