TMI Blog1961 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... , J. C. SHAH., T. L. VENKATARAMA AYYAR JUDGMENT The judgment of the court was delivered by KAPUR, J.---This is an appeal against the judgment and order of the High Court of Bombay in a reference under section 8(5) of the Taxation on Income (Investigation Commission) Act (XXX of 1947), hereinafter termed the " Act ". The assessee company was the applicant before the High Court and is the appellant before us and the Commissioner of Income-tax, Bombay City, was the respondent in the High Court and is the respondent here also. Being a reference under section 8(5) of the Act, it was heard and decided by three judges of the High Court. The assessee company is a private limited company which was incorporated on May 6, 1943, with a paid-up capital of Rs. 20 lakhs. It was promoted by two groups of persons who for the sake of convenience may be called the " Morarka Group " and the " Bubna Group ". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company was referred to the Investigation Commission by the Central Government and the Investigation Commission made its report on November 9, 1949, in Case No. 406A. By this report the Commission directed that appropriate assessment be made under the Indian Income-tax Act for the assessment year 1945-46 and the Excess Profits Tax Act for the corresponding chargeable accounting period. At the instance of the assessee company the Commissioner of Income-tax, Bombay City, by his order dated May 1, 1951, referred the following question to the High Court : " Whether on the facts found by the Commission the sum of Rs. 16,52,600 being the excess price realised by the sale of 13,74,000 shares of the mill company was 'profit' and as such taxable or whether it was either of the nature of a capital appreciation or a casual and non-recurring receipt and as such exempt from taxation under section 4(3)(vii) 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 que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of 13 lakhs odd shares soon after the arrangement between the Sassoons and the assessee company was completed. (3) From the very beginning the intention of the promoters of the assessee company was to sell all the 13 lakhs odd shares and in pursuance thereof they were sold. (4) The paid up capital of the assessee company was Rs. 20 lakhs only and according to the agreement they had to take the whole block of shares belonging to the Sassoons and pay for the shares as well as for the managing agency both of which were separately valued in the agreement. It was, therefore, necessary and it was intended to sell the 13 lakhs odd shares in order to pay off the Sassoons both for the managing agency and the shares. The inference drawn from this by the Commission was that a distinction had to be drawn between the 6 lakhs shares which the assessee company intended to retain and did in fact retain and the 13 lakhs 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company showed that it was a holding company and dealing in shares was not one of its objects. The agreement shows that the Sassoons had separately evaluated the managing agency and the shares held in the Apollo Mills Co. As the Investigation Commission has found, it was never the intention of the assessee company to retain the whole block of shares. Before the agreement was entered into they had made arrangements for the sale of the bulk of shares which were to be transferred by the Sassoons and therefore division of the shares into two sets was made by the promoters of the assessee company and the assessee company themselves and was not the result of anything done by the Investigation Commission. In support of his contention that the amount of Rs. 16,52,600 was in the nature of capital receipt, reliance was placed on the judgment of this court in Ramnarain's case but there are certain features and details which 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case was of a capital nature and profits arising therefrom were an accretion to the capital. In that case the court was trying to find out the intention of the assessee (the company) and taking all the circumstances into consideration it came to the conclusion that it was a case not of profits arising out of an adventure in the nature of trade but the intention of the assessee company was to invest its monies and therefore the excess arising out of sale of the shares was an accretion to the capital. That case must be taken to have been decided on its special facts as indeed was the decision in Ramnarain Son's case. Counsel for the assessee company referred to other cases : Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Motiram Nandram, Jones v. Leeming and Commissioners of Inland Revenue v. Reinhold. It is unnecessary to review these cases in any detail because 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the presence of all the relevant factors may help the court to draw the inference that the transaction is in the nature of trade but it is not a matter of counting the number of facts and circumstances for and against. What is important is to consider the distinctive character and it is the total effect of all the relevant factors that determines the character of the transaction. All these cases are illustrative. As was said by Gajendragadkar, J., in the abovementioned case the totality of circumstances of a case and the pros and cons have to be considered and inference drawn from those facts whether a particular transaction was in the nature of trade or was merely an investment and the resulting excess from the transaction was therefore profit which was taxable or was merely an accretion to the capital. In the instant case the profit from the transaction that consisted of buying the managing agency of the mill company and the block 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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