1972 (9) TMI 14 - SC - Income Tax

Whether there was material for the finding that the shares in question were purchased by the assessee with a view to acquire the managing agency and the control of the company or the shares constituted his stock-in-trade - Even if the shares in question did not constitute the stock-in-trade of the assessee whether the profit made on the sale of shares did not constitute capital gain chargeable to income-tax under section 12B

Summary

Issues Involved:
1. Whether there was material for the finding that the shares in question were purchased by the assessee with a view to acquire the managing agency and control of the company or the shares constituted his stock-in-trade.
2. Whether the profit made on the sale of shares constituted capital gain chargeable to income-tax under section 12B of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

Issue 1: Material for Finding and Nature of Shares
The High Court initially found that there was no material for the finding that the shares were purchased by the assessee to acquire the managing agency and control of the company. Instead, it held that the shares constituted the stock-in-trade of the assessee. However, the Supreme Court disagreed with this conclusion. The Supreme Court emphasized that it is the Tribunal's role to decide questions of fact, and the High Court cannot override these findings unless there is no relevant evidence supporting them. The Tribunal had based its conclusion on several relevant circumstances, including the fact that the shares were part of a lot sold by Sassoons to Agarwal & Co., and that they were transferred at the original price rather than the market price at the time of transfer. The Tribunal also noted that the shares were part of the assessee's entitlement from Agarwal & Co. The Supreme Court found that these were relevant materials and thus the High Court's interference was unwarranted.

Issue 2: Capital Gain Chargeable to Income-tax
The High Court had concluded that since the shares were stock-in-trade, the profits from their sale could not constitute capital gain chargeable to income-tax under section 12B of the Act. However, the Supreme Court held that if the shares were not stock-in-trade, the profits from their sale would indeed constitute capital gain. The Supreme Court noted that the assessee himself had acknowledged in a letter dated March 30, 1949, that the appreciation in the value of shares should be treated as capital gain. The Supreme Court thus concluded that the profits made on the sale of shares constituted capital gain chargeable to income-tax under section 12B of the Act.

Conclusion:
The Supreme Court set aside the judgment of the High Court, stating that there was material for the finding that the shares were purchased to acquire the managing agency and control of the company, and not as stock-in-trade. Consequently, the profits made on the sale of these shares constituted capital gain chargeable to income-tax under section 12B of the Act. The appeal was allowed, and the appellant was entitled to the costs of the court as well as those in the High Court.