1967 (4) TMI 13 - SC - Income Tax

Investment of capital in shares and stocks - surplus derived by the assessee in the sale of its shares and securities - revenue receipt

Summary

Issues:
1. Taxability of surplus derived from the sale of shares and securities as revenue receipt under the Income-tax Act.

Analysis:
The case involved an appeal against the High Court's judgment in an Income-tax Reference, where the question was whether the surplus derived from the sale of shares and securities by the assessee was taxable as a revenue receipt. The assessee was an investment company primarily engaged in investing in shares and stocks, deriving income from dividends and interest. The department had treated the surplus from the sale of shares as capital gains or losses. The Tribunal found that the company changed its investments as part of its usual activities and held that such variations constituted business activities. However, the Supreme Court found the Tribunal's reasoning insufficient to determine taxability under the Income-tax Act.

The Tribunal accepted that the company's business was investment and that varying investments was part of its usual activities. It relied on the Scottish Investment Trust Company v. Forbes case to conclude that the surplus arising from such variations should be considered revenue income. However, the Supreme Court noted that merely varying investments does not automatically render profits taxable. It cited the Bengal and Assam Investors Ltd. v. Commissioner of Income-tax case, emphasizing that carrying on business in shares is a prerequisite for taxing profits as income. The Court highlighted the need for clear objectives behind the purchase and sale of shares, questioning the purpose behind the specific investments made by the assessee.

The Supreme Court pointed out deficiencies in the Tribunal's order, stating that it should have clearly outlined the facts accepted from the Income-tax Officer and the Appellate Assistant Commissioner. The Court directed the Tribunal to provide a more detailed statement of the case, incorporating the Court's judgment, within three months. The judgment highlighted the importance of establishing a clear business purpose behind investment activities to determine the taxability of profits derived from the sale of shares and securities under the Income-tax Act.

In conclusion, the Supreme Court found the Tribunal's reasoning insufficient to determine the taxability of the surplus derived from the sale of shares and securities as revenue receipts under the Income-tax Act. The Court emphasized the need for a clear business purpose behind investment activities and directed the Tribunal to provide a more detailed statement of the case in line with the Court's judgment.