1967 (12) TMI 12 - HC - Income Tax

Excess amount realised on the sale of the deferred shares - assessee purchased no further shares at all until it sold its entire shareholding - assessee had failed to prove that it had purchased the deferred shares only with the intention of acquiring a controlling power - hence amount was taxable as income of assessee

Summary

Issues:
Whether the profit realized from the sale of deferred shares is assessable as income for tax purposes.

Analysis:
The case involved the assessment of a profit of Rs. 1,21,464 made by the assessee from the sale of deferred shares. The assessee contended that the acquisition of deferred shares was not for profit but to strengthen its voting power in the company. However, the revenue and the Tribunal found that the assessee had engaged in share sales in previous years and had not received any dividends on the deferred shares. The Tribunal concluded that the assessee's intention was to profit from the sale, treating it as an adventure in trade.

The High Court examined the contention that the Tribunal had erred in its findings and failed to distinguish between the nature of the purchase and sale transactions. While acknowledging some merit in the argument, the court upheld the Tribunal's conclusion that the assessee had failed to prove its sole intention of gaining controlling power in the company. The court cited a precedent where acquiring shares for controlling power was deemed a capital asset, but in this case, the facts did not support such an intention.

The court noted that the assessee had not purchased shares exceeding a certain percentage of the total shares issued by the company and did not buy more shares after the initial acquisition. These factors led the Tribunal to conclude that the assessee's primary motive was profit-making rather than gaining control. Consequently, the court ruled against the assessee, affirming that the profit from the deferred shares sale was taxable income.

In conclusion, the court found that the Tribunal's decision was justified based on the evidence presented and the lack of proof regarding the assessee's intention. The court upheld the taxability of the profit from the sale of deferred shares, ruling against the assessee and awarding costs to the opposing party.