1970 (7) TMI 9 - HC - Income Tax

Surplus from sale of shares - assessee has no intention at any time to use his shareholding at his stock-in-trade and make a profit by sale - purpose of sale was to change investments - therefore, surplus received is capital accretion not profit of business

Summary

Issues:
1. Whether the assessee's profits and losses from the sale of shares can be taxed as business profits?
2. Whether there were sufficient materials to support the finding that the assessee was not a dealer in shares and securities during the relevant assessment years?

Analysis:

Issue 1: Taxability of Profits from Sale of Shares
The case involved the taxation of profits and losses arising from the sale of shares by the assessee. The assessee contended that the surpluses earned were capital accretion resulting from the conversion of investments and not taxable as business profits. The Tribunal found that the assessee had no intention to use the shares as stock-in-trade for profit but to change investments, leading to the conclusion that the surplus was capital in nature. The court referred to established principles that surpluses realized on changing investments by an ordinary investor are capital and not taxable. The court held in favor of the assessee, concluding that the surplus amounts were capital accretion and not taxable as business profits.

Issue 2: Sufficiency of Materials Supporting Assessee's Status
The Tribunal considered the materials on record and found that the assessee had been carrying out a process of converting shares and securities for better investment since the assessment year 1954-55. The court analyzed the transactions made by the assessee over the relevant years, showing a consistent pattern of investment in Tata ordinary shares. The court noted that the assessee's intention was not to trade shares for profit but to change investments. Based on the totality of facts and circumstances, the court agreed with the Tribunal's finding that the assessee was not a dealer in shares and securities but an investor. Therefore, the court affirmed that there were sufficient materials supporting the Tribunal's finding regarding the assessee's status.

In conclusion, the court ruled in favor of the assessee, holding that the profits from the sale of shares were capital accretion and not taxable as business profits. The court also confirmed that there were adequate materials on record to support the finding that the assessee was not a dealer in shares and securities during the relevant assessment years. The assessee was awarded costs of the reference.