9911796707
TMI Blog1951 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of trade. The purchase of the shares was made on 27th of May, 1940, from Howrah Trading Co. Ltd., in which company the applicant held a substantial portion of the total share capital, the rest of which were being held by her relations. The shares were purchased in blank and were not registered till 20th of November, 1943. Up to that time the Department did not recognise the transfer of these shares though we were told that the income from dividends on these shares was shown and returned by the lady in her individual assessment. The dividends were assessed in the hands of Howrah Trading Co. Ltd. during this period as the Department held that it was a transaction intended to avoid tax liability and was hit by Section 10A of the Excess Profits Tax Act. Against this decision of the Excess Profits Tax Officer the Howrah Trading Co. Ltd., went up on appeal to the Income-tax Appellate Tribunal and the Income-tax Appellate Tribunal also took the same view as that of the Department, i.e., the Income-tax Appellate Tribunal held that the dividends should be taxed in the hands of the Howrah Trading Co., Ltd. In 1943, however, when the shares were registered in the name of the lady, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred at the rate of ₹ 11 per share, whereas the market price at the time was ₹ 15-10-0 per share. The shares were sold to the ladies in blank which would suggest that the idea was to deal in shares and not to invest. All the above would show that the main idea of the applicant was not to invest her capital. 5. On these facts there was a difference of opinion between the members as to the tax liability of the applicant of this sum of ₹ 97,488. On a reference being made to a third member under Section 5A(7) the majority of the members held that the amount was taxable. The following question is therefore referred to the Honourable High Court:- Whether in the facts and circumstances of the case the Income- tax Appellate Tribunal was justified in holding that the sum of ₹ 97,488 received by the applicant from the sale of 4,300 shares of Naskarpara Jute Mills Co. Ltd., which is in excess of the purchase price was income from business as defined in Section 2(4) of the Indian Income-tax Act. S. Chowdhury and S. Mitter, for the assessee Meyer and B. L. Pal, for the Commissioner JUDGMENT CHAKRAVARTTI, J.- These are nine references co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r inaccurate form in which the questions referred were framed. Turning now to the facts of the present references, I shall state them first so far as they concern Smt. Radha Debi Jalan. She is the wife of one Kishori Lal Jalan who is a partner of the firm Surajmull Nagarmull and is a member of an undivided Hindu family bearing the same name. The lady owns a substantial number of shares in the Howrah Trading Company and the remaining shares of that company, although it is a public limited company, are all held by members of the Jalan family, including the ladies to whom the other references relate. The Howrah Trading Company is the managing agent of the Naskarpara Jute Mills Company Ltd., and among its directors are Messrs. K.D. Jalan and D.N. Jalan, both relations of Sm. Radha Debi. It appears that the Howrah Trading Company held 62,000 shares of the Naskarpara Jute Mills Co. Ltd., and on the 27th of May, 1940, it sold out 48,000 of those shares to the eight ladies before us for a total consideration of ₹ 5,28,000. The shares purchased by Sm. Radha Debi were 4,300 in number and the consideration paid by her was ₹ 47,300. The shares were sold at the rate of ₹ 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion is limited to the case of Radha Debi Jalan but it is proposed in the remaining statements of cases that we should take the same question as referred in the other cases as well, with the appropriate amounts of profit substituted. The question whether the profits derived from an isolated transaction do or do not constitute taxable income is, except in the plainest of cases, always attended with difficulty. It falls to be decided under three provisions of the Indian Income-tax Act to which reference may be made first. The primary section is Section 10 which provides, to quote only the material portion, that the tax shall be payable by an assessee under the head profits and gains of business...in respect of the profits or gains of any business...carried on by him. Shortly stated, this section provides for taxation of income derived from business. Section 2(4) of the Act purports to define what business is, but actually does no more than to say that it includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It will be seen that not only income derived from trade, but income derived from any adventure in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt can yet be from some continuous business activity. When that difficulty was put to the learned counsel for the assessees, Mr. Mitter who opened for them referred us to the well-known decision of the Privy Council in the case of Commissioner of Income-tax v. Shaw Wallace and Company*, and the exposition of the concept of income under the Indian Income-tax Act there given. He reminded us that Sir George Lowndes had dealt with all the words of Section 2(4) and with respect to the undertakings or operations indicated by all of them he had stated that the fundamental idea underlying them was one of a continuous exercise of activity. Whether a particular operation was a trade or merely an adventure in the nature of trade, it was necessary, in order that any profit made should be income, that it should be earned by a process of production. The exposition given by the Judicial Committee must of course be accepted and applied. The difficulty lies in applying it, as I have already indicated, to the case of a casual receipt from a stray operation. The only way in which the exposition given by the Judicial Committee can perhaps be adjusted to a casual receipt from a stray operation is by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have said so much simply in order to make it clear that to my mind it is not correct to state broadly that a purchase, not for the purpose of holding the commodity purchased permanently but with its disposal at a profit in contemplation, can, in every case, be regarded as an indication or as evidence of an intention to trade. When the person concerned in an isolated transaction from which he makes a profit is a man carrying on business in certain other lines, the task of deciding whether the transaction is or is not a trade is comparatively easy. It is not so easy in the case of a person in the position of any of the ladies in the present case who is not a businessman at all. What will be the test in the case of an isolated transaction by such a person? Unfortunately, of the several tests applied in the different cases to be found in the books, none will be applicable here. One test is to see whether the thing purchased is such as is likely to give the purchaser a pride of possession so that he might like to hold and cherish it as a thing which is worth possessing for its own sake or whether the thing purchased is such as must necessarily be sold off. The subject-matter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust have been parties to it. But even assuming that the ladies can be held to have been parties to the scheme which the Howrah Trading Company Ltd., devised to reduce its excess profits tax liability, it can hardly be said that because the shares were acquired by the ladies in furthereance of that design of the Howrah Trading Company Ltd., they were acquired for the purposes of trade. What we have to consider is the intention which the ladies had with regard to the shares themselves and the use to which they put or intended to put them. The relevant enquiry is whether in acquiring and dealing with the shares as they did, they were carrying on any trading activity. It may be that they acquired the shares in order to help the Howrah Trading Company and therefore to help themselves indirectly, but if the only facts are that the shares found their way into their hands in the course of the prosecution of that design, and were disposed of subsequently at a profit, all that can be said is that the profit is a by-product of the assistance which they rendered to the Howrah Trading Company Ltd., but it cannot also be said that what was done for the Howrah Trading Company was a step in aid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd their claim on trading by the ladies, they must, on the facts as they are, be held to have failed. In the case of some of the ladies it was found, by reference to the assessment orders, that they had disposed of their shares not in one lot and on the same day, but on different dates and in several lots. The Tribunal, however, even if it was aware that the sales had taken that form, does not appear to have attached any importance to the circumstance, and has not even mentioned the matter either in the statement of case or in the appellate order. It is quite clear that in the case of these ladies the Tribunal has not found or proceeded on the basis that there was a series of sub-sales and that such sales in separate lots on different occasions constituted or indicated trade. It is, therefore, unnecessary for me to refer to this feature present in the case of some of the ladies for the Tribunal has taken the sales as sales in single lots. Citations at the Bar were fairly copious and our attention was drawn to relevant decisions of English, Scottish and Indian Courts. In my opinion, it is not necessary to refer to them in detail because, since the decision of the House of Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
