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1967 (2) TMI 24 - HC - Income TaxThere was no 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 - so the shares constituted the stock-in-trade of the assessee - held that the profit by the sale of the shares could not constitute capital gain chargeable to income-tax under section 12B of the Act because they are chargeable as profits under section 10
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 the control of the company or the shares constituted his stock-in-trade. 2. 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 of the Act. Issue-wise Detailed Analysis: Issue 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 the control of the company or the shares constituted his stock-in-trade. The court examined the circumstances surrounding the purchase and sale of shares by the assessee. The assessee, a partner in Agarwal and Co., was involved in a transaction where Agarwal and Co. acquired the managing agency of India United Mills Ltd. from M/s. E. D. Sassoon and Co. Ltd. and purchased a significant number of shares. The shares were initially held by the Poddar and Khetan groups and later transferred to Agarwal and Co., and subsequently to the assessee. The court noted several key points: - The shares were sold soon after purchase, indicating an intention to sell for profit rather than retain as an investment. - The shares were sold in small lots to maximize profit, suggesting a trading motive. - The purchase was financed with borrowed capital, which is inconsistent with a long-term investment strategy due to the interest burden. - The assessee's substantial investment in Swadeshi Cotton Mills after selling the shares further indicated a trading intention. The court concluded that the shares must be treated as constituting the assessee's stock-in-trade and that the assessee was a dealer in shares. The argument that the shares were purchased to acquire the managing agency was rejected as the managing agency was already secured by Agarwal and Co. before the shares were purchased by the assessee. Issue 2: 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 of the Act. The court held that since the shares were considered stock-in-trade, the profit realized from their sale was taxable as business income under section 10 of the Indian Income-tax Act, 1922, and not as capital gain under section 12B. The court emphasized that the totality of circumstances indicated that the shares were purchased with the intention to sell for profit, which is characteristic of trading activity. The court also reviewed relevant case law, including Kishan Prasad and Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Maheshwari Devi Jute Mills Ltd., and found them distinguishable from the present case. The court noted that in those cases, the transactions were isolated and the intention was to make long-term investments, unlike the present case where there was a series of transactions aimed at making a profit. Conclusion: The court answered both questions in favor of the income-tax department: 1. There was no material for the finding that the shares were purchased to acquire the managing agency and the control of the company; the shares constituted the stock-in-trade of the assessee. 2. The profit from the sale of shares did not constitute capital gain chargeable under section 12B but was taxable as business income under section 10 of the Act. The assessee was ordered to pay costs of Rs. 400 to the department.
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