Oriental Investment Company Private LTD. vs Commissioner Of Income-tax, Bombay

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1968 Supreme(SC) 262

SUPREME COURT OF INDIA
J.C. SHAH, V. RAMASWAMI AND A.N. GROVER, JJ.
Oriental Investment Co. (P) Ltd., (In all the Appeals), Appellant
Versus
Commissioner of Income-tax, Bombay (In all the Appeals), Respondent.
Civil Appeals Nos. 651to 655 of 1967,
D/- 10-9-1968.
Advocates appeared
Mr. S. T. Desai, Senior Advocate, (M/s. D. Dwarkadas and S. S. Javali, Advocates and M/s. J. B. Dadachanji and Co., Advocates, with him), for Appellant (In all the Appeals); Mr. C. K. Daphtary, AttorneyGeneral for India, (M/s. R. Gopalakrishnan, R. N. Sachthey and B. D, Sharma, Advocates, with him, for Respondent (In all the Appeals).

Advocates:
B.D.SHARMA, C.K.DAFTARY, CO., D.DVARKADAS, J.B.DADACHAN, R.GOPAL KRISHNAN, R.N.SACH, S.S.JAVALI, S.T.DESAI

Headnote:
Indian Income-tax Act, 1922 - Section 22 (1), 66 (1) and (2) - Excess Profits Tax Act, 1940 - Section 26 (1) - Company - Assessment Years - Shares and Investments - Whether on facts and in circumstances of case assessee company can rightly be treated as a dealer in investments and properties - Whether profits and losses arising from sale of shares, securities and immovable properties of assessee company can be taxed as business profits - Whether as a result thereof assessee could be termed a dealer or an investor - Whether there are any materials on record to support finding of Income-tax Officer that assessee company was a dealer in shares, securities and immovable property during assessment year in question - Whether profits and losses arising from sale of shares, securities and immovable properties of assessee company can be taxed as business profits - Whether assessee-company was a dealer dealing in investments and properties - Whether it was a mere investor will have to be judged on a proper scrutiny of transactions - Whether High Court has in its judgment reached correct conclusion – Held, Assessee-company applied for a reference under S. 66 (1) of Act were properly framed and were questions arising out of order of Appellate Tribunal - Mr. S. T. Desai urged at Court should modify questions in a manner suggested by assessee company in application under Section 66 (1) of Act and ask Appellate Tribunal to make a fresh statement of case - In Court opinion, argument put forward on behalf of appellant is well founded and as Court shall presently point out, it is necessary in interest of justice that Court should modify questions named by this Court on last occasion and call upon Appellate Tribunal to make a fresh statement of case - There is no doubt that jurisdiction conferred on High Court by Section 66 (1) of Act is limited to entertain references involving questions of law - If, for instance, point raised on reference relates to construction of a document of title or interpretation of relevant provisions of a statute it is a pure question of law - In dealing with it, High Court may have due regard for view taken by Tribunal, but its decision would not be fettered by that view - In some cases, the point sought to be raised in a reference may turn out to be a pure question of fact and if that be so, finding of fact recorded by Appellate Tribunal must be regarded as conclusive in a proceeding under Section 66 (1) - Final conclusion of Tribunal can, therefore, be challenged on ground that relevant legal principles have been misapplied by Tribunal in reaching its decision on point; and such a challenge is open under S. 66 (1) because it is a challenge on a ground of law – Court is accordingly of opinion that questions actually framed by this Court on last occasion are not appropriate and do not reflect real controversy between parties - It is therefore expedient in interest of justice that questions should be modified as suggested by assessee company in its petition under Section 66 (1) of Act to High Court and Appellate Tribunal should be asked to make a fresh statement of case – Court is setting aside judgment of High Court only on ground that enquiry made by High Court was, on view taken by Court, not competent on questions as framed at present – Court therefore express no opinion on merits of dispute – Court trust that Tribunal will make fresh reference with least practicable delay - Appeal allowed.

Judgement

RAMASWAMI, J.: These appeals are brought by certificate from the judgment of the Bombay High Court dated March 2, 1966 in Income-tax Reference No. 73 of 1962.

2. The appellant company, hereinafter called the assessee company was incorporated on July 29, 1924, as an investment company, the objects of which are set out in clause III of the memorandum of association and more particularly in sub-cls. (1), (2), (15) and (16) of that clause. The assessment years in question are 1943-44 to 1948-49, excepting the year 1947-48, According to its petition made in the High Court, the assessee company dealt with its assets as follows:

"The petitioner company purchased during the period lst July, 1925, to 30th June, 1928, shares of the value of Rs. 1,86,47,789 major portion of which was comprised of shares in the Sassoon Group of Mills. During the year ended 30th June, 1929, the petitioner company promoted two companies known as Loyal Mills Ltd., and Hamilton Studios Ltd., and took over all their shares of the value of Rs. 10 1/2 lacs. In the year 1930, the petitioner company purchased shares of Rs. 1,33,930. During the period of 9 years from 1st July, 1930, to 30th July, 1939, no purchases were made with the exception of a few shares of Loyal Millls Ltd., taken over from the staff of B. D. Sassoon & Co., Ltd., who retired from service. In the year ended 30th June, 1940, reconstruction scheme of the Appollo Mills Ltd., took place under which debentures held by the petitioner company in the Appollo Mills Ltd., were redeemed and the proceeds were reinvested in the new issue of shares made by the Appollo Mills Ltd. Out of the purchases of the value of Rs. 2,794 made by the petitioner company during the year ended 30th June, 1941, Rs. 2,000 was the value of shares of the Loyal Mills Ltd., taken over from the retiring staff. In the year ended 30th June, 1943, the petitioner company took over from the David Mills Co., Ltd., shares of the Associated Building Co., of the value of Rs. 56,700. After this there were no purchases at all to this date excepting purchases of the value of Rs. 34,954 during the year ended 30th June, 1946."

The sales are contained in paragraph 3 (b) which states:

"In relation to the purchases made by the petitioner company as stated above no appreciable sales of shares were made during the period 29th July, 1924, to 30th June, 1942, the sales made in the year ended 30th June, 1929, of the value of Rs. 1, 29,333 included shares of the value of Rs. 45,000 in the Loyal Mills Ltd., sold to the members of the staff and shares of the value of Rs. 83,833 representing sterling investments handed over to the creditors of the petitioner company in part repayment of the loan taken from them in the year ended 30th June, 1931, shares of the value of Rs. 7,48,356 were handed over to the creditors in payment of the loan granted by them. From the year ended 30th June,1943, E. D. Sassoon & Co., Ltd., started relinquishing the managing agencies of the various mills under their agency and the shares held by the petitioner company in the Sassoon Group of Mills were handed over to the respective purchasers of the mills agencies.

3. Prior to 1940 the assessee company made a claim every year for being treated as a dealer in investments and properties but this contention was repelled by the Income-tax Authorities and upto the assessment year 1939-40 the assessee company was assessed on the basis of being an investor but it appears that for the assessment years 1940-41, 1941-42 and 194243 the Income-tax Department accepted the plea of the assessee company and treated it as a dealer in shares, securities and immovable properties and assessed it on that basis. For these years and for the assessment year 1943-44 the assessee company made its return on that basis. But after the return had been filed for the year 1943-44, the assessee company withdrew its return and filed a revised return on March 7, 1944, contending that it was not a dealer but mere

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