1962 (9) TMI 88 - HC - Income Tax

Summary

Issues Involved:

1. Whether the surplus realization of Rs. 7,750 by the sale of 1,125 shares of Soora Jute Mills Co. Ltd. was revenue income of the assessee liable to tax under the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Nature of Surplus Realization:

The primary issue in the case was to determine whether the surplus realization of Rs. 7,750 from the sale of 1,125 shares of Soora Jute Mills Co. Ltd. was revenue income liable to tax. The assessee contended that the shares were purchased for acquiring the managing agency of Soora Jute Mills Co. Ltd., and since the managing agency could not be secured, the shares were sold, resulting in a capital accretion rather than a revenue receipt. The income-tax authorities and the Income-tax Appellate Tribunal, however, held that the surplus was income liable to tax, asserting that the shares represented the assessee's stock-in-trade.

2. Findings of Income-tax Authorities:

The income-tax authorities concluded that the shares held by the assessee were part of his stock-in-trade, and thus, the surplus realization from their sale was a revenue receipt liable to tax. They relied on the assessment proceedings of the preceding year, where the income from dealing in shares was included in the total computation of the assessee's income.

3. Tribunal's Decision:

The Tribunal upheld the income-tax authorities' decision, stating that the assessee was a dealer in shares and had entered into a profit-making scheme with the objective of acquiring the managing agency of the Jute Mills. The shares were purchased and sold at a profit because the market had gone up. The Tribunal's findings in the appellate order emphasized that the assessee's conduct in the preceding year and his actions in purchasing shares for acquiring a managing agency indicated a profit-making scheme, resulting in the surplus being a revenue receipt.

4. Argument by Assessee's Counsel:

The counsel for the assessee argued that based on the Supreme Court's decision in Ram Narain Sons (P.) Ltd. v. Commissioner of Income-tax, even though the shares were sold at a profit, the sale did not result in income liable to tax if the shares were purchased for acquiring the managing agency. He contended that the Tribunal's finding that the shares were purchased for acquiring the managing agency should lead to the conclusion that the surplus was not taxable.

5. Argument by Department's Counsel:

The counsel for the income-tax department argued that the Tribunal's finding regarding the purpose of purchasing the shares was without basis and disregarded the materials on record. He asserted that the High Court could go behind the Tribunal's finding and examine the facts itself, drawing its own conclusions. He cited several Supreme Court decisions supporting this approach.

6. Examination of Evidence:

Upon examining the evidence, the High Court found that the only statement regarding the purpose of purchasing the shares was from Satya Prakash, the son of the assessee. His statement mentioned the possibility of going to Calcutta to look after the company's affairs but did not explicitly state that the shares were purchased for acquiring the managing agency. The Income-tax Officer's assessment order highlighted the lack of evidence supporting the assessee's version and concluded that the shares were purchased for profit-making.

7. Conclusion and Judgment:

The High Court agreed with the income-tax authorities and the Tribunal's conclusion that the shares were purchased for profit-making and not for acquiring the managing agency. The court noted that the assessee's conduct, including dealing in shares in the preceding year and holding the shares for about a year, indicated a profit-making motive. The acquisition of additional shares further supported this conclusion. Consequently, the court answered the question in the affirmative, holding that the surplus realization was revenue income liable to tax.

Final Order:

The High Court directed that a copy of the judgment be sent to the Income-tax Appellate Tribunal under section 66(5) of the Act and awarded costs of Rs. 200 to the department.