1968 (9) TMI 7 - SC - Income Tax

Question involved in this case was not a question of pure fact but was a mixed question of fact and law. The questions actually framed by Supreme Court on the last occasion were not appropriate and do not reflect the real controversy between the parties - High Court decision is set aside on the ground that the enquiry made by the High Court was, not competent on the questions as framed at present - no opinion on the merits - Tribunal will make the fresh reference

Summary

Issues Involved:
1. Whether the assessee company can 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 can be taxed as business profits.

Detailed Analysis:

1. Whether the assessee company can be treated as a dealer in investments and properties:

The assessee company, incorporated in 1924, was initially assessed as an investor until the assessment year 1939-40. However, for the assessment years 1940-41 to 1942-43, the income-tax department accepted the assessee's plea and treated it as a dealer in shares, securities, and immovable properties. The assessee later revised its return for the year 1943-44, contending it was an investor, not a dealer. The Income-tax Officer rejected this plea, and the Appellate Tribunal upheld this decision, citing the memorandum of association and the company's past assertions as a dealer. The Tribunal's decision was based on two grounds: the assessee's fluctuating claims based on profit or loss and the objects in the memorandum of association. The High Court initially dismissed the assessee's application for a reference, but the Supreme Court remanded the case, highlighting that the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law. The Supreme Court directed the High Court to reconsider whether the assessee company was a dealer in investments and properties based on a fresh statement of the case by the Appellate Tribunal.

2. Whether the profits and losses arising from the sale of shares, securities, and immovable properties can be taxed as business profits:

The assessee company argued that it never engaged in business dealings of shares, securities, or properties and relied on an order from the Central Board of Revenue. The Tribunal, however, found that the assessee had consistently shown itself as a dealer in the past. The High Court, upon remand, answered both questions against the assessee, supporting the Tribunal's findings. The Supreme Court, however, noted that the real controversy was not reflected in the questions framed earlier. It emphasized that the determination of whether the assessee is a dealer or an investor involves applying legal principles to the facts found by the Tribunal. The Supreme Court directed the Appellate Tribunal to make a fresh statement of the case on whether the assessee company can be treated as a dealer and whether the profits and losses from the sale of shares, securities, and immovable properties can be taxed as business profits.

Conclusion:

The Supreme Court allowed the appeals, set aside the High Court's judgment, and directed the Appellate Tribunal to make a fresh statement of the case on the two pertinent questions of law. The High Court will then dispose of the reference in accordance with the law. The Supreme Court did not express any opinion on the merits of the dispute but emphasized the necessity for a proper legal enquiry into the nature of the assessee's transactions.