The profit arising from the sale of shares held by an investment company for a long period of time and not as part of a trading activity is not taxable as a revenue receipt.

( 1 ) CALCUTTA Discount Co. Pvt. Ltd. , the assessee, was incorporated on November 26, 1917. At its incorporation, all the shares of the assessee were held by Sir David Yule, who died on July 3, 1928, and after his death the shares of the assessee came to be held by a trust estate. At the material time, the assessee had invested largely in Indian shares and had made loans and advances to a number of limited companies consisting of, and under the control of, the Yule group of companies.

( 2 ) THE administration of the estate of Sir David Yule was completed by 1934 and in a letter dated January 19, 1934, from Yule Catto and Co. Ltd. to M/s. Andrew Yule and Co. Ltd. , it was recorded that the assessee should carry on business as an investment company.

( 3 ) IN 1934, the successors of Sir David Yule floated another company by the name "meryl Investment Co. Ltd. ", a sterling company to which all the shares of the asseseee, which were being held by the trust estate were transferred. Meryl Investment Co. Ltd. was wound up in 1940 and another company known as "meryl Co. Ltd. " was incorporated. The new company took over all the shares of the assessee which became a 100% subsidiary of Meryl Co. Ltd.

( 4 ) IN 1946, the assessee floated a company of the name "clive Row Investment Holding Co. Ltd". Shares held by the assessee in the Yule group of companies were transferred by the assessee to the new company and, in consideration, the entire fully paid-up share capital of the new company was transferred to the assessee.

( 5 ) THE assessee continued to hold the shares of Clive Row Investment Holding Co. Ltd. till 1954 when the said Clive Row Investment Holding Co. Ltd. became a public limited company and its shares were listed in the stock exchange.

( 6 ) IN the assessment years 1956-57, 1957-58 and 1958-59, the respective accounting years ending on the 31st March of the calendar years 1956, 1957 and 1958, the assessee sold the shares of Clive Row Investment Holding Co. Ltd. The said sales resulted in profit.

( 7 ) IN the said three assessment years, the assessee was assessed to income-tax. In its return of income the assessee contended that the profit arising out of sale of the shares held by the assessee in Clive Row Investment Holding Co. Ltd. was capital in nature, having arisen out of disposal of investments and was not taxable as revenue receipt. The contentions of the assessee were rejected by the Income-tax Officer who held, by following an earlier order of the Appellate Tribunal in the case of the same assessee for the assessment years 1945-46 and 1946-47, that profits arising on the sale of shares of Clive Row Investment Holding Co. Ltd. were assessable to tax as a revenue receipt.

( 8 ) BEING aggrieved by the order of the Income-tax Officer, the assessee preferred appeals to the Appellate Assistant Commissioner. In the meantime, the decision of the Tribunal for the assessment years 1945-46 and 1946-47 in the case of the assessee had come up in a reference before this court and it was held by this court that the shares sold by the assessee in those years having been held for a period of ten years and sold thereafter as they had become hazardous securities, the profit arising from such sale could not be taxed as a revenue receipt. The Appellate Assistant Commissioner remanded the matter to the Income-tax Officer for ascertainment of further facts relating to the acquisition of the shares by the assessee during the years from 1946 to 1957 and sale or transfer of shares or securities during the said period. On the report of the Income-tax Officer, the Appellate Assistant Commissioner, taking into consideration the facts and circumstances relating to the incorporation of Clive Row Investment Holding Co. Ltd. , the conversion of the latter company into a public limited company, the quotation of the shares of the latter company in the stock exchange and the sale of the said shares by the assessee, held that