1981 (8) TMI 242 - HC - Companies Law

Summary

Issues Involved:
1. Whether there was a completed sale of shares on 5-2-1948.
2. Whether the sum of Rs. 3,59,559 was liable to be taxed as income of the assessed company.

Detailed Analysis:

Issue 1: Completed Sale of Shares on 5-2-1948

Facts and Circumstances:
The assessed company, a dealer in shares, entered into transactions on 5-2-1948 for the sale of shares to Mrs. Rama Jain and Mr. R. Dalmia. The shares were not taken delivery of nor was the price paid at that time. A settlement in February 1952 led to the assessed company repurchasing the shares at the then-prevailing market value, resulting in payments from Mrs. Jain and Mr. Dalmia. The assessed company did not account for Rs. 3,59,559 in its books, which the Income Tax Officer proposed to add as profit.

Tribunal's Conclusion:
The Tribunal accepted the assessed company's plea that the sale was completed on 5-2-1948, characterizing the transaction as a credit sale. It held that the agreement terms indicated a completed sale, despite irregularities in accounting and the shares being shown in the assessed company's closing stock.

High Court's Analysis:
The High Court noted several facts indicating no completed sale:
- Shares never left the bank's custody.
- No delivery of shares to Mrs. Jain or Mr. Dalmia.
- No payment made for the shares until 1952.
- Assessed company continued to show shares in its closing stock.

Legal Principles:
The court referred to the Sale of Goods Act, specifically:
- Section 19: Property in goods is transferred at the time intended by the parties.
- Section 21: Property does not pass unless goods are in a deliverable state and the buyer has notice.

The court found that the shares were unascertained goods, as they were not identified by serial numbers, and thus, the property did not pass to the buyers as per Section 21.

Precedents:
The court cited previous cases, including:
- Seth R. Dalmia v. The Commissioner of Income Tax: Similar facts where no money was paid, and shares were not transferred, leading to the conclusion that equitable ownership did not pass without transfer forms or share scrips.

Conclusion:
The High Court held that there was no completed sale on 5-2-1948. The shares remained the property of the assessed company, and no equitable title passed to Mrs. Jain or Mr. Dalmia.

Issue 2: Taxability of Rs. 3,59,559 as Income

Income Tax Officer's Position:
The Income Tax Officer proposed to add Rs. 3,59,559 as profit, arguing that the assessed company failed to account for this amount in its books.

Appellate Assistant Commissioner's Position:
The Appellate Assistant Commissioner upheld the Income Tax Officer's decision.

Tribunal's Position:
The Tribunal held that no profit arose in the previous year for the assessment year 1953-54, thus excluding the amount from taxable income.

High Court's Analysis:
The High Court disagreed with the Tribunal, emphasizing that:
- The shares continued to be shown as stock-in-trade of the assessed company.
- The price of the shares was never credited to the assessed's account in 1948.
- Entries were only made post the 1952 settlement.

Conclusion:
The High Court concluded that the sum of Rs. 3,59,559 was liable to be included in the income of the assessed and taxed as such. The Tribunal committed an illegality in holding otherwise.

Final Judgment:
The High Court answered the reference in the negative and in favor of the Revenue, holding that the Tribunal was wrong in law in concluding that there was a completed sale of shares on 5-2-1948 and that the sum of Rs. 3,59,559 was not liable to be taxed. The reference was answered accordingly.