The profit from the sale of shares is revenue income if the shares were purchased with the intention of selling them at a profit, and the shares were not held as an investment.

Judgement

BHARGAVA, J . These appeals came up before this Court on the 17th April, l967, when an order of remand was made by this Court, asking the Income-tax Appellate Tribunal to submit a further statement of the case. The question that has come up for consideration is :-

"Whether on the facts and circumstances of the case, the surplus derived by the assessee in the sale of its shares and securities in the relevant previous years was a revenue receipt and as such taxable under the Income-tax Act."

The facts and circumstances under which the question was referred by the Tribunal for the opinion of the High Court are mentioned in that order of remand and need not be repeated.

2. In the order of remand, it was pointed out that it was not possible to find out from the statement of the ease whether the Tribunal accepted the explanation of the assessee that, in the previous year relevant to the assessment year 1953-54, the control of McLeod and Co. Ltd., went out of the hands of the Directors of the assessee and it was for this reason that the assessee sold the shares of McLeod and Co. It was also pointed out further that the Tribunal had not stated what was the object of the assessee in buying 6,900 ordinary shares of McLeod and Co. It appeared from the order of the Income-tax Officer that these shares were purchased in a number of lots from the year 1948 to 1950, and it was also not stated as to what was the object in buying other securities, and why did the assessee confine its activities mostly to the shares of McLeod and Co. Ltd., and the companies managed by McLeod and Co. Ltd. It was in the light of these omissions that the Tribunal was asked to send a supplementary statement. That supplementary statement has now been received and the answer to the question has to be given on the basis of the facts contained in the original statement of the case as well as this supplementary statement.

3. The relevant facts which merge out of these statements of the case are that the principal activity of the assessee was investment of its capital in shares and stocks. It changed its investments by sale of its shares and stocks from time to time. The income of the Company was primarily derived from dividends on shares and interest received by it on the investments. These activities were covered by Clauses (1), (3) and (4) of the Memorandum of Association. The activity mentioned as the object in Clause (2) is :

"to acquire, hold, sell and transfer shares, stocks, Debentures, Debenture Stocks, Bonds, obligations and securities issued or guaranteed by any company constituted or carrying on business in British India and in the United Kingdom or in any colony, or dependency or possession thereof or in any foreign country and Debenture Stocks, Bonds, obligations and securities, issued or guaranteed by any Government, Sovereign Ruler, Commissioners, public body or authority supreme, Municipal Local or otherwise whether at home or abroad."

In the supplementary statement, the Tribunal has recorded the finding that in its opinion, the purchases and sales of the shares in question were in pursuit of this clause (2) in the Memorandum of Association. The Tribunal has further stated that the assessee had not placed any evidence as to the object behind the acquisition of the shares of McLeod and Co. Ltd., and the shares of companies managed by McLeod and Co. Ltd., nor had the Income-tax Officer ascertained the object behind such acquisitions. The Tribunal was also unable to find out why the assessee had more or less confined its activities mostly to the shares of McLeod and Co. Ltd., and the companies managed by McLeod and Co. Ltd. The facts proved showed that, in the account year relevant to the assessment year in question 21,046 shares were held by the Kanoria group, including 6,977 shares in McLeod and Co. Ltd., held by the assessee. Mr. C. L. Kanoria resigned his office as Director of McLeod and Co. Ltd., on 17th March, 1952, and the approval of the Governm