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1975 Supreme(Cal) 208
High Court Of Calcutta
Deb & D.K.Sen, JJ.
Commissioner Of Income-Tax
Vs.
Clive Row Investment Holding Co. Ltd.
Income-tax Reference 140 of 1970
Decided on : July 22, 1975
Advocate Appeared:
B.L.Pal, A.Sen Gupta, Kalyan Roy, R.N.Dutt
The surplus derived by an investment company from the sale of shares is not taxable as business profit unless it is shown that the sale was in the course of the company's business.
Headnote:
INCOME TAX - Whether surplus derived from sale of shares by an investment company is taxable as business profit - Whether assessee entitled to relief under Section 49B of the Indian Income-tax Act, 1922 on total dividend received or only on portion attributable to profits assessed to agricultural income-tax.
Fact of the Case:
The assessee, an investment company, purchased shares of various companies, including Andrew Yule and Co. and Calcutta Discount Company Ltd. In the assessment years 1955-56, 1956-57, 1960-61, and 1961-62, the assessee sold some of these shares and realized a surplus. The Income-tax Officer assessed the assessee on the surplus, holding that it was business profit. The assessee contended that it was an investment company and the surplus was a capital accretion, not taxable as business profit.
Finding of the Court:
The Tribunal held that the assessee was an investment company and the surplus derived from the sale of shares was not assessable as business profit. It also held that the assessee was entitled to relief under Section 49B of the Indian Income-tax Act, 1922 on the total amount of dividend received, not just on the portion attributable to profits assessed to agricultural income-tax.
Issues: 1. Whether the surplus derived by the assessee from the sale of its shares in the relevant previous years was assessable as business profit? 2. Whether the assessee was entitled to the relief under Section 49B of the Indian Income-tax Act, 1922, on the total amount of Rs. 5,07,503 as claimed by it and not on Rs. 4,54,356 as computed by the Income-tax Officer?
Ratio Decidendi: 1. The question of whether a particular receipt is revenue or capital is primarily a question of fact. The Tribunal found that the assessee was an investment company and the surplus derived from the sale of shares was not assessable as business profit. The revenue did not challenge this finding, and the court held that it was binding. 2. The court interpreted Section 49B of the Indian Income-tax Act, 1922 and held that the assessee was entitled to relief on the total amount of dividend received, not just on the portion attributable to profits assessed to agricultural income-tax.
Final Decision: The court answered both questions in the affirmative, in favor of the assessee.
Deb, J.
1. THIS reference, under Section 66(1) of the Indian Income-tax Act, 1922, relates to the assessment years 1955-56, 1956-57, 1960-61 and 1961-62. The assessee is an investment company. It was formed in 1946. Andrew Yule and Co. held the majority shares of the assessee and is acting as its secretaries. In 1946, the assessee purchased a large number of shares of Calcutta Discount Company Ltd., which held many shares of Andrew Yule and Co. On December 29, 1954, the assessee purchased shares of Andrew Yule and Co. of the value of Rs. 83,38,234 and in December, 1959, Andrew Yule and Co. also purchased all the shares of Calcutta Discount Company.
2. THE Income-tax Officer has assessed the assessee on the surplus arising out of the sale of many shares in these assessment years and the appeals filed by the assessee have been dismissed by the Appellate Assistant Commissioner. In the appeals filed by the assessee before the Appellate Tribunal it was submitted on its behalf that it was an investment company and was not a dealer in shares as wrongly found by the authorities below. It was urged that it was formed with the main object of acquiring the holding shares and securities of joint stock companies. In support of the above contentions reliance was placed on certain clauses of its memorandum of association, certain articles of its articles of association, and statements of purchases and sales of investments since its incorporation including certain resolutions filed before the Tribunal. It was also argued that the assessee held shares mostly of companies managed by M/s. Andrew Yule and Co. and in the accounting years it has sold those shares with the intention of changing its investment and, therefore, the surplus arising out of such sales was a capital accretion and not its commercial profit. In support of the above contentions reliance was placed on a number of well-known decisions and it was also argued that the revenue has failed to discharge the burden of proving that the said surplus was taxable in the hands of the assessee.
3. MANY documents were filed by the departmental representative before the Tribunal and it was argued that the assessee had changed those investments in the course of its business and, therefore, the said surplus was its business profit and in support of this contention a few cases were cited by accepting the position that the assessee was not a dealer but an investor in shares. After taking into consideration all relevant facts and materials on the record including the cases cited and the submission made before it, the Tribunal has allowed those appeals filed by the assessee.
4. THERE was another dispute relating to the quantum of relief which was to be granted to the assessee under Section 49B(b)(ii) of the Indian Income-tax Act, 1922, in the assessment year 1961-62. The assessee, as a shareholder, has received Rs. 5,07,503 as dividend (agricultural) in that year. The gross income of the assessee in that year was Rs. 19,30,326 and the total expenditure to earn it was Rs. 2,02,149 out of which the tax officer, by allocating Rs. 53,147 as the proportionate expenditure on the said dividend income has granted relief at 20% on Rs. 4,54,356 to the assessee.
The appeal filed by the assessee was dismissed by the Appellate Assistant Commissioner, but the Tribunal has allowed the appeal filed by the assessee by holding that the relief should be worked out not on Rs. 4,54,356 but Rs. 5,07,503 for the reasons recorded in its order.
5. ON the main question, namely, whether these receipts were revenue or capital receipts, the Tribunal has expressed its opinion in the following terms :
"It is to be seen that for the first 8 years there was no sale at all and also in subsequent years when the sales were made, they were for the special reasons as mentioned above, viz., in pursuance of the policy of the assessee-company to invest in the shares of those companies only in which Andrew Yule and Co. were managing
