1981 (8) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Whether there was a completed sale on February 5, 1948.
2. Whether the sum of Rs. 3,59,559 was liable to be taxed as the income of the assessee-company for the assessment year 1953-54.

Summary:

Issue 1: Completed Sale on February 5, 1948
The primary issue was whether there was a completed sale of shares on February 5, 1948. The assessee-company, a dealer in shares, entered into transactions with Mrs. Rama Jain and Mr. R. Dalmia for the sale of shares. However, the shares were not taken delivery of nor was the price paid at that time. A settlement was reached in February 1952, where the shares were purportedly repurchased at the then-prevailing market value, and the differences in price were paid to the assessee. The Tribunal concluded that the sale was completed on February 5, 1948, amounting to a credit sale. However, the High Court found that there was no completed sale as the shares never left the bank's custody, were not specified by serial numbers, and no money was paid at the time of the alleged sale. The court held that the Tribunal committed a patent error of law by not considering the provisions of the Sale of Goods Act, specifically s. 21, which requires the goods to be ascertained and in a deliverable state for the property to pass to the buyer.

Issue 2: Taxability of Rs. 3,59,559
The second issue was whether the sum of Rs. 3,59,559 was liable to be taxed as the income of the assessee-company for the assessment year 1953-54. The ITO and AAC included this amount as profit in the assessee's income, but the Tribunal ordered its deletion. The High Court, however, found that the shares continued to be shown as stock-in-trade of the assessee, and the price was never credited to the assessee's account in 1948. The court concluded that no equitable title in the ownership of the shares passed to Mrs. Jain or Mr. Dalmia, and the sum of Rs. 3,59,559 was liable to be included in the income of the assessee and taxed as such.

Conclusion:
The High Court held that the Tribunal was wrong in law in concluding that there was a completed sale of shares on February 5, 1948, and that the sum of Rs. 3,59,559 was not liable to be taxed. The court answered the reference in the negative and in favor of the revenue, holding that the amount was liable to be included in the income of the assessee and taxed accordingly. The parties were ordered to bear their own costs.