1969 (8) TMI 1 - SC - Income Tax

Whether the loss of Rs. 1,11,816 suffered by the assessee on the sale of shares of Fort William Jute Company Ltd. was a loss that arose in its share dealing business - Held, yes - Assessee s appeal dismissed

Summary

Issues Involved:
1. Whether the loss of Rs. 1,11,816 on the sale of shares was a loss that arose in the assessee's share dealing business.
2. Whether the High Court was entitled to reverse the findings of fact of the Appellate Tribunal.
3. Whether the shares were acquired in the ordinary course of the assessee's business.

Issue-wise Detailed Analysis:

1. Loss on Sale of Shares:
The primary issue was whether the loss of Rs. 1,11,816 suffered by the assessee on the sale of shares of Fort William Jute Company Ltd. was a loss that arose in its share dealing business. The assessee, a public limited company dealing in shares and securities, claimed this loss as part of its ordinary business operations. However, the Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, arguing that the shares were purchased to aid in the acquisition of the managing agency of Fort William Jute Co. Ltd. by Mugneeram Bangur and Co., and thus, the loss did not arise from the assessee's regular business activities. The Appellate Tribunal supported this view, noting that the shares were treated as an investment rather than stock-in-trade in the assessee's profit and loss account.

2. High Court's Authority to Reverse Tribunal's Findings:
The assessee contended that the High Court was not entitled to reverse the findings of the Appellate Tribunal, as the department had not challenged these findings through appropriate proceedings. The Tribunal had concluded that there was no evidence to show that the assessee was a pawn in the acquisition scheme of the managing agency. Despite this, the High Court referred to several primary facts and concluded that the assessee had entered into the transaction to assist Mugneeram Bangur and Co. The High Court found it impossible to hold that the assessee bought the shares in the ordinary course of business. The Supreme Court upheld the High Court's decision, stating that the question referred was general and not limited to the Tribunal's reasons against the assessee.

3. Acquisition in Ordinary Course of Business:
The High Court, supported by the Supreme Court, found that the shares were not acquired in the ordinary course of the assessee's business. Several facts supported this conclusion:
- The shares were purchased at a significantly higher price than the market rate the day before the transaction.
- The transactions involved unusually large sums compared to the assessee's other dealings.
- The shares were acquired immediately after an agreement between Mugneeram Bangur and Kettlewell Bullen & Co.
- The shares were sold back to the same company at a loss.
- The acquisition was financed through an overdraft, indicating an extraordinary transaction.

These facts led to the conclusion that the shares were not bought and sold in the ordinary course of the assessee's business as a dealer in shares. The Supreme Court agreed with the High Court's inference that the assessee's transactions were influenced by the acquisition scheme of Mugneeram Bangur and Co.

Conclusion:
The Supreme Court upheld the High Court's judgment, answering the referred question in the negative and against the assessee. The appeal was dismissed with costs, confirming that the loss did not arise in the ordinary course of the assessee's share dealing business.