1975 (5) TMI 6 - HC - Income Tax

Summary

Issues Involved:

1. Whether the Tribunal was justified in investigating the nature of the shares held by the assessee in Chrestian Mica Co. Ltd.
2. Whether the shares held by the assessee in Chrestian Mica Co. Ltd. were its stock-in-trade for dealing in shares.
3. Whether the sum of Rs. 32,25,550 received by the assessee was assessable.

Issue-wise Detailed Analysis:

1. Investigation of the Nature of Shares:

The Tribunal's investigation into the nature of the shares held by the assessee in Chrestian Mica Co. Ltd. was questioned. The assessee and income-tax authorities had consistently treated these shares as stock-in-trade since the assessment year 1949-50. The Tribunal's decision to re-examine this classification was challenged, but the court deemed it unnecessary to address this issue separately due to the resolution of the subsequent issues.

2. Classification of Shares as Stock-in-Trade:

The central issue was whether the shares in Chrestian Mica Co. Ltd. were stock-in-trade. The assessee, a regular dealer in shares, had purchased all equity shares of the company in 1945 and managed it thereafter. The shares were claimed as stock-in-trade, with losses recognized in previous assessments. Despite the assessee's admission before the Tribunal that the shares were stock-in-trade, the Tribunal's Accountant Member disagreed, leading to a reference under section 5A(7) of the Indian Income-tax Act, 1922. The court emphasized that an admission is substantive evidence. The Tribunal misdirected itself by disregarding the admitted fact that the shares were stock-in-trade. The court ruled that the Tribunal was not justified in holding that the shares were not stock-in-trade.

3. Assessability of the Received Sum:

The issue was whether the sum of Rs. 32,25,550 received from the liquidator of Chrestian Mica Co. Ltd. was assessable. The court held that the sum was a capital receipt, not a revenue receipt. The liquidation of the company meant the assessee received surplus assets, not sale proceeds of shares. Citing precedents, including George Burrell's case and Brogan v. Stafford Coal & Iron Co. Ltd., the court affirmed that surplus assets distributed by a liquidator are capital in nature. The court disagreed with the Patna High Court's decision in Dalmia Cement & Paper Marketing Co. Ltd. v. Commissioner of Income-tax, which treated similar receipts as revenue. The court concluded that the Tribunal correctly held the sum as non-assessable.

Conclusion:

The court answered question No. 2 in the negative, favoring the revenue, and question No. 3 in the affirmative, favoring the assessee. The court made no order as to costs. The judgment emphasized that surplus assets from liquidation are capital receipts, not revenue, and reaffirmed the importance of admissions as substantive evidence.