Judgement

MAHAJAN C.J.I. : This appeal is preferred against the judgment of the High Court of Punjab at Simla, dated 18-6-1951, delivered on a reference under S. 66, Indian Income -tax Act, whereby the High Court answered the following two referred questions in the affirmative :

" 1. Whether on a proper construction of the relevant clauses of the Appellant Company s Memorandum of Association and Articles of Association and on a consideration of the circumstances in which the shares of the Sarswati Sugar Syndicate were purchased and sold, it could be held that the purchase and sale of such shares was a part of Appellant Company s business deal?

2. Whether in the circumstances of the case, the excess of Rs. 20,000 realised in the assessment year 1942-43 and Rs. 2,26,700 in the year 1944-45 was a revenue receipt chargeable to tax under S. 3, Income-tax Act, and was not a mere appreciation of capital?"

2. The questions arose in the following circumstances: The assessee, a Public Limited Company, which is the appellant before us, was formed in 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 or 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 institution.

(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 nature or description, the company may decide to do."

3. In 1933, another Public Limited Company was incorporated by the name of Sarswati Sugar Syndicate Ltd., hereinafter called the Sugar Company. Lala Kishan Prasad, managing Director of the assessee Company, entered into an agreement with the Sugar Company in March 1933 whereby the assessee company was to invest Rs. 5,00,000 in the Sugar Company in lieu of which it was to be given the managing agency of the third mill of the Sugar Company--not in existence at the time but expected to be erected in 1933-when such mill was erected, on the same terms as given by the Sugar Company to other managing agents of their two other existing mills.

The investment of Rs. 5,00,000 by the assessee company was made conditional on the Sugar Company receiving other applications for shares to the tune of at least Rs. 7, 00,000. It was further agreed that if the third mill was not erected then the Sugar Company was to pay to the assessee company Rs. 15,000 as commission upon the moneys invested by them in shares. There was subsequently a modification to the effect that the assessee company would themselves subscribe to shares worth Rs. 3,00,000 and the remaining shares of Rs. 2,00,000 will be subscribed to by their friends. 3,000 shares of the value of Rs. 3,00,000 were purchased and share certificates duly issued by the Sugar Company to the assessce company. Lala Kishan Prasad was made a director of the Sugar Company. The third mill was, however, not erected and the agreement about acquiring the managing agency fell through Lala Kishan Prasad died in December 1940 and the assessee Company decided to sell all the shares in 1941.

It is admitted that 2,000 shares were first sold and brought an excess amount of Rs. 20,000 over the original cost price. The remaining 1,000 shares were sold in 1943 and they brought in an excess realisation of Rs. 2,26,700. Both these amount