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High Court of Calcutta
Chakrabarti, Das, Gupta, JJ.
Radha Debi Jalan – Appellant
Versus
Commissioner of Income Tax – Respondent
IT Cases Nos. 10 to 18 of 1950
Decided On : May 28, 1951
INCOME TAX - Business income - Casual receipt - Whether profit from sale of shares by non-share dealer ladies was business income or casual receipt - Held, casual receipt not from business.
Fact of the Case:
Eight ladies, including Smt. Radha Debi Jalan, purchased shares of the Naskarpara Jute Mills Co. Ltd. from the Howrah Trading Company, which was managed by their family members. The shares were purchased at a price below the market value as part of a scheme to reduce the excess profits tax liability of the Howrah Trading Company. The ladies held the shares for five years and then sold them at a profit. The Income Tax Department assessed the profits as business income, but the Tribunal held that they were capital receipts and not taxable. The Department referred the question of whether the profits were business income to the High Court.
Finding of the Court:
The High Court held that the profits were not business income. The Court found that the ladies were not share dealers and had not engaged in any other share transactions. The Court also found that the fact that the shares were purchased and sold together by the ladies, who were all related, did not indicate that they were engaged in trade. The Court further found that the fact that the shares were held for five years before being sold did not indicate that they were acquired for the purpose of trading.
Issues: Whether the profit from the sale of shares by the ladies was business income or a casual receipt.
Ratio Decidendi: The Court held that the profits were not business income because there was no evidence that the ladies were engaged in trade or that the shares were acquired for the purpose of trading. The Court found that the ladies were not share dealers and had not engaged in any other share transactions. The Court also found that the fact that the shares were purchased and sold together by the ladies, who were all related, did not indicate that they were engaged in trade. The Court further found that the fact that the shares were held for five years before being sold did not indicate that they were acquired for the purpose of trading.
Final Decision: The Court answered the question referred to it in the negative, holding that the profits from the sale of shares were not business income.
CHAKRAVARTTI, J.
1. THESE are nine references concerning as many assessments of 8 ladies for, in the case of all of them, the asst. yr. 1945-46, and in the case of one, for the asst. yr. 1946-47 as well. The point involved in all these cases is the same. The question asked is whether a particular sum of money, which was the profit made by the lady concerned from the sale of a block of shares held by her, was a part of her business income, taxable as such or a casual receipt from a source other than business and so exempt from taxation.
2. THE proceedings have had a course which, for income-tax cases, is rather unusual. In the Tribunal there was a difference of opinion between the two members, the Lawyer Member holding that the amounts concerned were not taxable and the Accountant Member holding that they were. Thereupon the cases were referred to a third member who happened to be an accountant and he agreed with the Accountant Member for the reasons given by him. THE judgment of the Tribunal must therefore, be taken to be the judgment of the Accountant Member.
It is impossible not to remark on the form in which the references have been made. In reality, the Tribunal has submitted only one statement of case which concerns Smt. Radha Debi Jalan. In the remaining cases also, they have purported to submit a statement, but that statement contains no other statement than that the facts are similar, with the only difference that the amount concerned is different. Even the assessment orders have not been included in the paper book. We are told nothing as to whether in the other cases the shares were of the same kind and were purchased on the same date or whether they were sold to the same party or on the same date as the shares belonging to Smt. Radha Debi Jalan. As will appear later, in certain respects at least, the facts are not the same, although the difference might not be such as would affect the decision in those cases. In any event, this Court has a right to expect from the Tribunal that in cases submitted to it for opinion, all the facts bearing upon the case referred should be fully and clearly stated. In the course of the present sittings we have had occasion to come across statements of cases drawn up by this particular Bench of the Tribunal in other cases as well, where we found ourselves greatly embarrassed by the unsatisfactory manner in which the facts were set out and the incorrect or inaccurate form in which the questions referred were framed.
3. TURNING now to the facts of the present references, I shall state them first so far as they concern Smt. Radha Debi Jalan. She is the wife of one Kishori Lal Jalan who is a partner of the firm Surajmull Nagarmull and is a member of an HUF bearing the same name. The lady owns a substantial number of shares in the Howrah Trading Company and the remaining shares of that company, although it is a public limited company, are all held by members of the Jalan family, including the ladies to whom the other references relate. The Howrah Trading Company is the managing agent of the Naskarpara Jute Mills Company Ltd., and among its directors are M/s K.D. Jalan and D.N. Jalan, both relations of Smt. Radha Debi. It appears that the Howrah Trading Company held 62,000 shares of the Naskarpara Jute Mills Co. Ltd., and on the 27th May, 1940, it sold out 48,000 of those shares to the eight ladies before us for a total consideration of Rs. 5,28,000. The shares purchased by Smt. Radha Debi were 4,300 in number and the consideration paid by her was Rs. 47,300. The shares were sold at the rate of Rs. 11 per share, although the market price at the time was Rs. 15-10-0. It has now been finally decided that this sale by the Howrah Trading Company of the 48,000 shares was not a bona fide transaction, but a device designed to reduce the excess profits tax liability of the company. The sale of the shares to the eight ladies was on blank transfer forms and the transfers were not registered till 19
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