1973 (12) TMI 13 - HC - Income Tax

Profit on sale of shares - Held that the assessee in the instant case held a number of shares as he had shown Rs. 46,980 as income from dividend in the assessment year in question. A legitimate inference can be drawn from the facts that the assessee entered into contracts for forward sale in respect of 15,000 shares with the sole motive of profit and derived profit therefrom, He also showed the amount in question as business speculation profit in his return - held that the assessee derived the said amount as adventure in the nature of trade, and, as such, it was an income from business, within the meaning of section 2(13) of the Act, liable to be taxed

Summary

Issues Involved:
1. Whether the sum of Rs. 19,485 is legally taxable.
2. Whether the transaction was an adventure in the nature of trade or a non-recurring and casual receipt exempt from tax.

Detailed Analysis:

Issue 1: Whether the sum of Rs. 19,485 is legally taxable.

The primary question for determination is whether the sum of Rs. 19,485 received by the assessee is legally taxable. The facts reveal that the assessee entered into forward contracts for the sale of shares and settled the contracts by payment of the difference, resulting in a receipt of Rs. 19,485. The Income-tax Officer included this amount as speculation profit in the assessment. The assessee challenged this inclusion, arguing that the profit was not from an adventure in the nature of trade and thus not taxable under section 2(13) of the Income-tax Act, 1961. The Appellate Assistant Commissioner upheld the inclusion, but the Tribunal later held that the amount was not from a regular commercial source and was non-recurring and casual, exempting it from tax. Upon reference, the High Court had to decide whether the amount was taxable.

Issue 2: Whether the transaction was an adventure in the nature of trade or a non-recurring and casual receipt exempt from tax.

The High Court examined whether the transaction was an adventure in the nature of trade, which would make the profit taxable under the head "business." The court noted that no universal test exists to determine whether a transaction is non-recurring or casual or an adventure in the nature of trade; each case must be judged on its specific facts and circumstances. The court referenced several precedents, including Saroj Kumar Mazumdar v. Commissioner of Income-tax and G. Venkataswami Naidu & Co. v. Commissioner of Income-tax, which established that such determinations are mixed questions of law and fact.

The court scrutinized the facts: the assessee was a significant shareholder, having shown substantial dividend income, and engaged in forward sales of shares. The court found that forward sales could not be for investment purposes but were likely for profit. The assessee failed to provide evidence that he held the shares at the time of the forward sales or that the sales were for disposing of existing shares. The court concluded that the transactions were not foreign to the assessee's business activities and were indeed an adventure in the nature of trade.

The Tribunal's conclusion that the transaction was isolated and non-recurring was deemed conjectural. The court emphasized that even isolated transactions could be adventures in the nature of trade if they involved speculative elements. The court dismissed the assessee's reliance on other cases, such as Mothay Gangaraju v. Commissioner of Income-tax and Janab A. Syed Jalal Sahib v. Commissioner of Income-tax, as the facts were not analogous.

Ultimately, the court held that the assessee's forward sales were motivated by profit, making the profit from these transactions taxable as business income under section 2(13) of the Act. The court answered the reference by affirming that the sum of Rs. 19,485 was legally taxable.

Conclusion:
The High Court concluded that the sum of Rs. 19,485 was legally taxable as it was derived from an adventure in the nature of trade. The parties were left to bear their own costs.