1953 (9) TMI 3 - SC - Income Tax

Whether the sales which produced the surplus were so connected with the carrying on of the assessee s business that it could fairly be said that the surplus is the profits and gains of such business? Held that - Agreeing with the High Court that there was ample material upon which the Appellate Tribunal could arrive at the conclusion to answer the question in affirmative which they did we dismiss the appeal with costs.

Summary

Issues:
1. Taxability of surplus realized by a company on sales of shares and securities as taxable income.

Analysis:
The Supreme Court heard an appeal from a judgment of the High Court of Judicature at Calcutta regarding the taxability of a company's surplus realized from sales of shares and securities. The appellant, a private limited company, was incorporated in 1935 under the Indian Companies Act with various objects, including dealing in shares and securities. The company showed a loss in the assessment year 1938-39 due to sales of shares, which was allowed as a business loss. However, in subsequent years, the company claimed the surplus from similar sales as capital gains, not taxable income. The Income-tax authorities rejected this claim, considering the surplus as profits from the business of dealing in shares. The Income-tax Appellate Tribunal confirmed the assessment orders, stating that the company was engaged in financing and promoting other businesses, making the profits from sales of shares part of its normal business activities.

The Tribunal concluded that the company's profits from sales of shares were linked to its business as financiers, making the surplus taxable as profits and gains from dealing in shares. The Tribunal did not find it necessary to decide whether the profits were taxable as such. Upon the company's application, the Tribunal referred the question of taxability of the surplus to the High Court, which answered in the affirmative but allowed the company to appeal to the Supreme Court. The Supreme Court applied the principle that the surplus should be connected with the carrying on of the assessee's business to determine taxability. The Court emphasized that it is not required for the surplus to result from a specific course of dealing in securities but should be part of the usual course of carrying on the business. The Court affirmed the High Court's decision, stating that there was sufficient material for the Tribunal to conclude that the surplus was taxable as profits and gains from dealing in shares.

In conclusion, the Supreme Court dismissed the appeal, upholding the taxability of the company's surplus realized from sales of shares and securities as profits and gains from dealing in shares. The Court agreed with the High Court's decision and affirmed that the surplus was connected to the company's business activities, making it taxable income.