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1971 Supreme(SC) 469
SUPREME COURT OF INDIA
K.S. HEGDE AND A.N. GROVER, JJ.
The Commissioner of Income-tax (Central) Calcutta, Appellant
Versus
M/s. Associated Industrial Development Co. (P) Ltd., Calcutta, Respondent.
Civil Appeal No. 1929 of 1968, D/- 1-9-1971.
Headnote:
Income-tax Act 1922 - Section 5A (7) - Company - Assessment Year - Sale of Shares - Profit was Taxable - Whether assessee was or was not a dealer in shares during relevant accounting period - Whether a particular holding of shares is by way of investment or forms part of stock-in-trade - Whether it had maintained any distinction between those shares which are its stock-in-trade - Whether shares in question had been held by way of investment – Held, It was never case of assessee at any stage that although it was a dealer in shares those shares which were subject matter of sale were held by way of investment - It had maintained throughout that all shares were held by it as an investor and that it could not be regarded as a dealer because shares did not form its stock-in-trade - That case of assessee was negatived because of extensive dealings and other facts and circumstances which were taken into consideration - Figure of purchases and sales as also of profits relating to years which were set out in order of President of Tribunal justified view that although up to a certain point of time it had been assessed as an investor but multiplicity of transactions occurring successively over years supported departmental stand that assessee had ceased to be an investor and had become a dealer - But then matter does not rest purely on technical question of onus which undoubtedly is initially on revenue to prove that a particular item of receipt is taxable - Assessee, in present case, made no attempt, whatsoever to make out a case that shares which had been sold were a part of its capital investment - Nor did it place any material from which it could be established that those shares had been treated in its books differently from other shares held by it - Mere fact that sale proceeds were paid into overdraft account in which admittedly proceeds of sale of all shares held by assessee were being credited as and when sales were made and that these shares had not been sold with any amount of frequency could not be regarded as sufficient to establish that these shares had been held by way of investment - Instead of answer returned by High Court question is answered in favour of Revenue and against assessee - Appeal allowed
Judgment
GROVER, J.:- This is an appeal by special leave from a judgment of the Calcutta High Court in an Income tax Reference.
2. The assessee is a private limited company. It acts as managing agents of various companies including National Pipes and Tubes Company Ltd., Indian Conduit Pipes Ltd. and National Rolling and Steel Ropes Ltd., During the assessment year 1957-58 the accounting year being the financial year ending March 31, 1957 the assessee sold 20,000 shares of the first company, 14,150 of the second company and 10 Preference shares of the third company. The sale of the shares of the first company resulted in a profit of Rs. 1,29,401/- whereas the sale of the shares of the other two companies led to a loss of Rs. 3374/- Thus there was a net profit of Rupees 1,26,027/- from the sale of shares of all the three companies. The total number of shares in the first company acquired by the assessee during the years 1943 to 1953 aggregated to 60,700 shares. Out of this holding 10,700 shares were sold in 1955 and 20,000 shares were sold during the year ending March 31, 1957. The profit that arose to the assessee on the sale of 10,700 shares in 1955 was not subjected to tax as the income tax authorities held that the assessee was not a dealer in shares. As a matter of fact the assessee had never been treated as a dealer in shares in any of the past assessments and its holding in the various companies were treated as investment and not as stock in trade of the assessee s shares dealing business. The assessee claimed that the net profit of Rs. 1,26,027/- on the sale of the aforesaid shares was capital gain. The immediate necessity for the sale of the shares was stated to be the reduction of the bank overdraft with the Central Bank of India and the entire sale proceeds were deposited with that Bank. The Income-tax Officer, however, held that the profit was taxable as the assessee was entitled under its Memorandum of Association to deal in shares. The Appellate Assistant Commissioner was of the view that the profit resulting from the sale proceeds was revenue receipt as the purchases were made in several lots and the past records showed that the assessee had been regularly purchasing and selling shares mostly of those companies of which it or its associated concerns were the managing agents. When the appeal was taken to the Tribunal it was pointed out by the departmental representative that the profit from the sale of shares in question had been credited to the profit and loss account. There was a difference of opinion between the Judicial Member and the Accountant Member of the Tribunal. The Judicial Member held that the assessee was trading in shares whereas the Accountant Member took the contrary view and held that the department had failed to bring on record any evidence to show that the purchase of shares in managed companies had been made with an intention of selling them at a profit. Ultimately the case was referred to the President of the Tribunal under S. 5A (7) of the Income-tax Act 1922. The question which was referred to him was whether the assessee was or was not a dealer in shares during the relevant accounting period. The President of the Tribunal agreed with the Judicial Member that the assessee was a dealer in shares which were confined to the shares of the managed companies. Ultimately on the Tribunal being moved the following question of law was referred to the High Court:
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the profit of Rs. 1,26,027/- arose to the assessee in the course of its business as a dealer in shares and as such was liable to be assessed as a revenue profit?"
The High Court upheld the majority view of the Tribunal that the assessee was a dealer in shares. It, however, proceeded to consider the question from an entirely new angle. Its approach was like this. The facts that part of the shares were subscribed for the purpose of acquiring the ma
