1957 (5) TMI 10 - SC - Income Tax

Whether questions of law, if any, arise out of the order of the Appellate Tribunal? Held that - As to what are the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law. What is the legal effect of the facts found by the Tribunal and whether as a result the assessee can be termed a dealer or an investor is itself a question of law. The questions of law that arise out of the order of the Tribunal are (1) Whether there are any materials on the record to support the finding of the Income-tax Officer that the assessee company was a dealer in shares, securities and immovable property during the assessment year in question ? (2) Whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits ? We would, therefore, allow this appeal, set aside the order of the High Court and remit the case to the High Court for directing the Tribunal to state a case on the aforesaid two questions. Appeal allowed. Case remanded.

Issues Involved:
1. Whether the assessee company can rightly be treated as a dealer in investments and properties.
2. Whether the profits and losses arising from the sale of shares, securities, and immovable properties of the assessee company can be taxed as business profits.
3. Whether questions of law arise out of the order of the Appellate Tribunal.

Issue-wise Detailed Analysis:

1. Whether the assessee company can rightly be treated as a dealer in investments and properties:
The assessee company was incorporated as an investment company with specific objects outlined in its memorandum of association. The company's transactions from 1924 to 1948 were scrutinized, revealing purchases and sales of shares, securities, and properties. The company initially claimed to be a dealer in investments but later contended it was merely an investor. The Income-tax Officer, Appellate Assistant Commissioner, and the Appellate Tribunal all held that the company was a dealer in investments based on its memorandum of association and past assertions. The Tribunal emphasized that the company had consistently claimed to be a dealer when incurring losses and only changed its stance when it started making profits. The Tribunal's decision was based on the company's memorandum of association and its historical assertions as a dealer in investments.

2. Whether the profits and losses arising from the sale of shares, securities, and immovable properties of the assessee company can be taxed as business profits:
The Tribunal held that the income arising from the sale of shares, securities, and properties was business profits liable to tax under the ordinary provisions of the Income-tax Act. This conclusion was drawn from the company's historical dealings and its memorandum of association, which indicated that the company was engaged in the business of dealing in investments and properties. The Tribunal's decision was based on the consistent assertion by the company in the past that it was a dealer and the nature of its transactions, which were found to be in the course of business.

3. Whether questions of law arise out of the order of the Appellate Tribunal:
The assessee company contended that questions of law arose out of the Tribunal's order, arguing that the Tribunal ignored documentary evidence, based its decision on irrelevant matters, and misdirected itself by assuming the company was a dealer from the beginning. The Supreme Court discussed the distinction between questions of law and questions of fact, citing various authorities. It was noted that a finding of fact without evidence or based on irrelevant matters constitutes a question of law. The Court concluded that the Tribunal's findings were based on the company's memorandum of association and its historical assertions, which were relevant considerations. The legal effect of these facts and whether the assessee can be termed a dealer or an investor is a question of law. Thus, the Supreme Court identified two questions of law arising from the Tribunal's order:

Questions of Law Identified:
1. Whether there are any materials on the record to support the finding of the Income-tax Officer that the assessee company was a dealer in shares, securities, and immovable property during the assessment year in question.
2. Whether the profits and losses arising from the sale of shares, securities, and immovable properties of the assessee company can be taxed as business profits.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's order, and remitted the case to the High Court with directions to require the Appellate Tribunal to state a case on the identified questions of law. The appellant was awarded costs for the proceedings in the Supreme Court and the High Court, with further costs to be at the discretion of the High Court. The appeal was allowed, and the case was remanded.

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