1961 (4) TMI 7 - SC - Income Tax

Whether the transaction is or is not an adventure in the nature of trade? Held that - The contention that dealing in buying and selling of shares was not one of its objects is without substance. The Investigation Commission found that dealing in shares was within the objects of the assessee company and this is one circumstance in the totality of the circumstances which must be considered, though by itself it is not determinative of the question. All the circumstances lead to the inference which was rightly drawn by the Investigation Commission and by the High Court. The answer to the first part of the question referred by the Investigation Commission must therefore be in the affirmative. The constitutional question under article 14 of the Constitution cannot be raised in these proceedings because this court is exercising its advisory jurisdiction and its power is confined to the questions which arise in an appeal. Appeal dismissed.

Issues Involved:

1. Nature of the transaction relating to the sale of 13,74,000 shares.
2. Whether the excess amount of Rs. 16,52,600 is taxable as profit or capital appreciation.
3. Validity of the High Court's reformulation of the question.
4. Dismissal of the notice of motion to raise additional questions.
5. Applicability of Article 14 of the Constitution.

Detailed Analysis:

1. Nature of the Transaction Relating to the Sale of 13,74,000 Shares:

The primary issue was whether the sale of 13,74,000 shares by the assessee company constituted an adventure in the nature of trade. The Investigation Commission found that the assessee company had a clear intention from the outset to sell these shares to finance the acquisition of managing agency rights and the remaining shares. The Commission distinguished between the 6 lakh shares retained by the company to make their managing agency effective and the 13 lakh shares intended for sale. The High Court upheld this finding, reformulating the question to focus on whether the transaction was an adventure in the nature of trade. The Supreme Court agreed with the High Court, noting that the totality of circumstances indicated a commercial transaction, thus affirming that the sale was indeed an adventure in the nature of trade.

2. Whether the Excess Amount of Rs. 16,52,600 is Taxable as Profit or Capital Appreciation:

The assessee company argued that the excess amount of Rs. 16,52,600 was a capital appreciation and not taxable. However, the Investigation Commission and the High Court found that this amount was a revenue receipt and therefore taxable. The Supreme Court supported this view, emphasizing that the intention behind the transaction was commercial, and the profit from the sale of shares was part of an adventure in the nature of trade. The court distinguished this case from others cited by the assessee, such as Ramnarain's case and Kishan Prasad Co. Ltd. v. Commissioner of Income-tax, by highlighting the different factual circumstances and intentions in those cases.

3. Validity of the High Court's Reformulation of the Question:

The High Court reformulated the original question referred by the Investigation Commission to focus on whether the transaction was an adventure in the nature of trade. The assessee company contended that this reformulation narrowed the scope of the original question. The Supreme Court found it unnecessary to adjudicate on this argument, stating that even if the original question was taken as proper, the answer would still be in the affirmative. The court emphasized that the legal effect of the facts found by the Investigation Commission was a question of law, and the inference drawn by the Commission was justified.

4. Dismissal of the Notice of Motion to Raise Additional Questions:

The assessee company's notice of motion to raise additional questions was dismissed by the High Court on the grounds that the questions either did not arise from the Commission's findings or were already covered by the question answered. Additionally, the notice of motion was barred by time, and there was no application for condonation of delay. The Supreme Court upheld this dismissal, agreeing that the additional questions were rightly excluded and that the procedural bar was valid.

5. Applicability of Article 14 of the Constitution:

The assessee company sought to raise a constitutional question regarding discrimination under Article 14 of the Constitution. However, the Supreme Court held that this question could not be raised in these proceedings, as the court was exercising its advisory jurisdiction, confined to the questions arising in the appeal. The court reiterated that any question not referred to the High Court could not be raised at this stage.

Conclusion:

The Supreme Court dismissed the appeal, affirming the High Court's judgment that the transaction was an adventure in the nature of trade and the excess amount of Rs. 16,52,600 was taxable as profit. The court also upheld the dismissal of the notice of motion to raise additional questions and ruled out the applicability of Article 14 in this context. The appeal was dismissed with costs.

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