The purchase and sale of shares and securities can be a business activity and the profits from such transactions can be assessable to income-tax.

Judgment

KAPUR, J. : The assessee who is the appellant has brought these five appeals against the judgment and order of the High Court of Patna by which it answered the two questions stated under S. 66(2) of the Indian Income-tax Act against the appellant and in favour of the Commissioner of Income-tax.

2. The appellant is the son of the late Maharajadhiraja of Darbhanga and the brother of the present Maharaja. The father died in 1929 and the appellant was given by way of maintenance the Estate of Rajnagar. He was also given a yearly allowance of Rs. 30,000/- which was later raised to Rs. 48,000/-. From 1929, the appellant invested his cash surplus in shares and securities, the account of which was entered in what is called Account Book No. 1. From the year 1930 onwards up to the year 1941-42 the appellant purchased a large number of shares and securities which by the accounting year 1941-42 were of the value of Rs. 14.91 lacs. During this period the appellant sold shares and securities in the accounting years 1936-37 and 1939-40 of the value of 1.48 lacs and 1.69 lacs respectively. He made certain amount of profits on these sales but under orders of the Commissioner of Income-tax in the former case and of the Income-tax Tribunal in the latter case, these sums were not assessed to income-tax. In the accounting years 1942-43 to 1946-47 the appellant purchased and sold some shares and securities. The entries in Account No. 1 stood as follows :-

Year Total value of shares & securities at cost at the beginning of the year. Total cost of shares and securities purchased during the year. Total cost of shares and securities sold during the year.

1350 Fs. Rs. 14.66 lacs Nil Rs. 4.68 lacs (13 items)

1942-43

1351 Fs. Rs. 9.98 lacs Rs. 2.37 lacs (4 items) Rs. 4.16 lacs (12 items)

1943-44

1352 Fs. Rs. 8.20 lacs Rs. 3.05 lacs (2 items) and other call money Rs. 0.69 lacs (3 items)

1944-45

1353 Fs. Rs. 10.52 lacs Nil Rs. 1.03 lacs (3 items)

1945-46

1354 Fs. Rs. 9.50 lacs Rs. 15.83 lacs (9 items) Rs. 3.39 lacs (2 items)

1946-47

and in all these years the appellant made profits which varied from Rs. 2,56,959 in the accounting year 1942-43 to Rs. 33,174 in the accounting year 1946-47.

3. On July 16, 1940, the appellant arranged an overdraft with the Mercantile Bank of India and actually withdrew Rs. 10,000, for the purchase of shares. But his brother the Maharaja advanced to him without interest Rs. 10 lacs and thus the overdraft was paid off. A new Account was opened in the books of the appellant named No. 2 Investment Account which contained all entries in regard to shares purchased and sold from out of the money borrowed from the Maharajadhiraj. In this account entries of the different years were as follows :-

Year Total value of shares & securities at cost at the beginning of the year. Total cost of shares & securities purchased during the year. Total cost of shares & securities sold during the year.

1347 Fs. Nil Rs. 6.05 lacs (8 items) Nil

1939-40

1348 Fs. Rs. 6.05 lacs Rs. 6.21 lacs (32 items) Rs. 1.78 lacs (1 item)

1940-41

1349 Fs. Rs. 10.47 lacs Nil Nil

1941-42

1350 Fs. Rs. 10.55 lacs Rs. 0.24 lacs (1 item) Rs. 3.60 lacs (2 items) }

1942-43 (Darbhanga Sugar)

1351 Fs. Rs. 7.80 lacs Rs. 2.29 lacs (1 item) Rs. 3.60 lacs (9 items) }

1943-44 (Darbhanga Sugar)

1352 Fs. Rs. 6.49 lacs Nil Rs. 1.25 lacs (3 items) } Under Appeal

1944-45

1353 Fs. Rs. 5.23 lacs Rs. 9.65 lacs (1 item) Rs. 0.30 lacs (1 item) }

1945-46 (Port Trust Deb.)

1354 Fs. Rs. 14.60 lacs Rs. 11.04 lacs (5 items) Rs. 9.65 lacs (1 item)

1946-47 (Port Trust Deb.) }

4. The High Court divided the transactions of the appellant into three periods, i.e., assessment years 1930-31 to 1940-41, 1941-42 to 1943-44 and 1944-45 to 1948-49. In the first period as the statement of account shows two sales were effected in which there was a profit which the appellant claimed as appreciation of Capital. Both those sums were held by the Income-tax authorities in the one case and the Income-tax Appellate