1993 (11) TMI 1 - SC - Income Tax

Whether Tribunal was justified in investigating the nature of the shares held by the assessee when both the assessee and the income-tax authorities had treated them as the stock-in-trade of the assessee as a dealer in shares for every assessment year since 1949-50 and proceeded on the same basis for the instant assessment year - Whether Tribunal was justified in law in holding that the shares held by the assessee were not its stock-in-trade for dealing in shares

Issues Involved:
1. Justification of the Tribunal's investigation into the nature of shares held by the assessee.
2. Legality of the Tribunal's holding that the shares were not stock-in-trade.
3. Assessability of the surplus amount received by the assessee.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal's Investigation into the Nature of Shares:
The first issue was whether the Tribunal was justified in investigating the nature of the shares held by the assessee in Chrestian Mica Co. Ltd., especially when both the assessee and the income-tax authorities had consistently treated these shares as stock-in-trade since the assessment year 1949-50. The Supreme Court observed that the assessee had held the shares as stock-in-trade for several years and had even claimed trading losses on this basis. The assessee's attempt to retract this admission at the Tribunal and High Court stages was unsuccessful. The Court held that the High Court was right in concluding that the assessee was bound by its admission and its consistent course of conduct over the years.

2. Legality of the Tribunal's Holding that the Shares were not Stock-in-Trade:
The second issue was whether the Tribunal was justified in law in holding that the shares held by the assessee were not its stock-in-trade. The Supreme Court noted that the High Court had rejected the assessee's argument that the shares ceased to be stock-in-trade upon the company's conversion from a public limited company to a private limited company. The Supreme Court further stated that the amount received by the assessee from the liquidator was in lieu of its shareholding and represented the recompense for its shares. The Court disagreed with the High Court's view that the surplus amount received by the shareholder on liquidation was not income but the property itself. The Supreme Court emphasized that the money received in lieu of shares should be treated as revenue receipt if the shares were held as stock-in-trade.

3. Assessability of the Surplus Amount Received by the Assessee:
The third issue was whether the sum of Rs. 32,25,550 received by the assessee from the liquidator was assessable in its hands. The Supreme Court held that the money received by the assessee in lieu of its shareholding should be treated as a revenue receipt if the shares were held as stock-in-trade. The Court found it difficult to agree with the High Court's opinion that the surplus assets distributed on liquidation were capital in nature. The Supreme Court referred to Section 511 of the Companies Act, which states that the assets of a company on its liquidation shall be distributed among the shareholders according to their shareholding. The Court concluded that the amount received by the assessee represented the value of its shareholding and should be treated as income.

Conclusion:
The Supreme Court allowed the appeal, set aside the judgment of the High Court, and answered all three questions in the negative, i.e., in favor of the Revenue and against the assessee. The Court emphasized that the money received by the assessee from the liquidator was a revenue receipt, given that the shares were held as stock-in-trade. The appeal was allowed with no costs.

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