1964 (4) TMI 135 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 2,34,231 was the income of the assessee.
2. Whether the amount of Rs. 10,42,990 received by the assessee represents exclusively the price of the shares or includes consideration for other valuable rights.
3. Determination of the sale price of each share if the amount includes consideration for other valuable rights.

Detailed Analysis:

Issue 1: Income Classification - Capital Account vs. Revenue Account
The primary question was whether the sale of 8,693 ordinary shares and 2,317 preference shares by the assessee in 1953 was on capital account or revenue account. The assessee, a dealer in shares, had dealt in shares of Elphinstone Mills from 1942 to 1948, treating profits and losses from these transactions as business profits and losses. Despite no sales from 1949 to 1953, the Tribunal held that the absence of sales during this period, due to a slump in share prices, did not indicate a change in the nature of the holdings from stock-in-trade to capital. The Tribunal concluded that the profit of Rs. 2,34,231 was a revenue receipt, not a capital gain, as the assessee continued to act as a dealer in shares, and the transaction was part of its business activities.

Issue 2: Composite Payment for Shares and Other Rights
The second issue was whether the Rs. 10,42,990 received by the assessee included consideration for other valuable rights apart from the price of the shares. The assessee argued that the transaction with K.D. Jalan involved not just the sale of shares but also the resignation of directors and managing agents, which should be considered as part of the controlling interest. The Tribunal, however, found that the assessee did not possess any controlling interest or managing agency rights in Elphinstone Mills. It was determined that the entire amount received by the assessee was solely for the price of the shares, as the assessee's role was limited to providing its shares for the transaction orchestrated by Mulraj Kersondas.

Issue 3: Determination of Sale Price Per Share
Given the Tribunal's finding that the entire amount received was for the price of the shares, the third issue regarding the determination of the sale price per share did not arise and therefore did not need to be addressed.

Conclusion:
The High Court agreed with the Tribunal's findings, concluding that the profit of Rs. 2,34,231 was indeed the income of the assessee from its business activities. Additionally, it was held that the entire amount of Rs. 10,42,990 received by the assessee was exclusively for the price of the shares, and no part of it was attributable to any other valuable rights. Consequently, the third question regarding the sale price of each share did not survive and was not answered. The assessee was ordered to pay the costs of the department.