Judgement

Appeal (No. 36 of 1929) from a decree of the High Court dated March 5, 1928, upon a reference to that Court by the Commissioner of Income-tax, Bombay, under s. 66 of the Indian Income-tax Act, 1922.

The reference was made under an order of the High Court in the circumstances stated in the judgment of the Judicial Committee.

The first of the three questions ultimately referred, which was alone the subject of the present appeal, was " Whether the Commissioner of Income-tax was not bound in law to take as the price paid for the Burma Corporation shares the nominal value of the shares allotted by the petitioner company in payment therefor." The Commissioner was of opinion that the question should be answered in the negative. He found that the value of the appellant companys shares when allotted was not more than Rs.98.

The High Court answered the above question in the negative. The learned judges (Marten C.J. and Kemp J.) were of opinion that In re Wragg ([ 1897] 1 Ch. 796.) was distinguishable, and that it was open to the Court to ascertain the true value, which was not more than Rs.98, and that there had been no loss to the appellant company from the transaction. In answer to a second question referred the High Court was of opinion that if there had been a loss it would be a loss of revenue not of capital.

1929. Oct. 28, 31 ; Nov. 1. Latter K.C. and C. W. Turner for the appellants. The appellant company could not lawfully issue its shares at a discount, consequently the price paid by the company for the Burma shares must be taken as being not less than the nominal value of the shares allotted In re Wragg ([ 1897] 1 Ch. 796.) That decision related to the liability of a shareholder to the company in liquidation, but the same principle applies in considering profits for purposes of income-tax or super-tax Inland Revenue Commissioners v. Blott ([ 1921] 2 A. C. 171.); Inland Revenue Commissioners v. Fishers Executors. ([ 1926] A. C. 395.) The question of the price is one of law not of fact Craig (Kilmarnock) v. Cowperthwaite. (( 1929) 13 Tax Cases, 628.) Even if the nominal value of the allotted shares is not conclusive in law, the Commissioner was wrong in taking the value of the allotted shares at Rs. 98, because the agreement of 1923 by halving the number of shares to be allotted doubled the value of those allotted. That was an error of law appearing upon the case stated, and the Court was bound to take notice of it Knight v. Halliwell. (( 1874) L. R. 9 Q. B. 412.) The Commissioner having wrongly directed himself in law his finding is open to review Ducker

v. Rees Roturbo Development Syndicate. ([ 1928] A. C. 132.) [Reference was made also to Ooregum Gold Mining Co. v. Roper. ([ 1892] A. C. 125.)]

Dunne K.C. and Reginald Hills for the respondent. Having regard to the position of the parties to the agreement and the terms of the agreements there was no real contract of purchase and sale; there was no evidence that the market value of the Burma shares was considered in fixing the

Law. Rep. 57 Ind. App. 152 ( 1929- 1930) Trustees Corporation v. Commissioner of Income-Tax

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consideration. The Commissioner rightly found that the transaction, regarded as a purchase, was colourable and illusory. Consequently In re Wragg ([ 1897] 1 Ch. 796.) does not apply, and the first question was rightly answered in the negative. No further question arises, as the only question relating to the purchase price referred under s. 66, was whether the nominal value of the allotted shares had to be taken. Apart from that contention of law, the value of the allotted shares regarded as the price was a question of fact, and the finding of the Commissioner is binding. Whether a profit or loss has been made is in all cases primarily one of fact depending upon ordinary business considerations Sun Insurance Office v. Clark. ([ 1912] A. 0. 443, 455.) Latter K.C. replied.

1930. Jan. 30. The judgment of their Lordships was delivered by

LORD BLANESBURGH. Thi