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TMI Blog1966 (1) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ons referred to the High Court in M. J. Cs. Nos. 665 and 666 of 1962 are the following : " (1) Whether, on the facts and circumstances, the Tribunal was justified in holding that the loss of Rs. 29,935 for the assessment year 1951-52 and the loss of Rs. 29,07,991 for the year 1952-53 incurred on the sale of shares in the New Central, Lothian and Albion jute Mills Ltd. were losses of a revenue nature ? (2) Whether, on the facts and circumstances, the Tribunal was justified in holding that litigation expenses of Rs. 1,29,994 incurred by the assessee for the assessment year 1951-52 constitute expenditure laid out wholly and exclusively for the purpose of the assessee's business ? " In M. J. Cs. Nos. 590 and 591 of 1962 the questions referred are as follows : "(1) Whether, on the facts and circumstances of the case, the loss of Rs. 10,42,243 for the assessment year 1952-53 and the loss of Rs. 19,40,409 for the assessment year 1953-54 arising on the sale of shares were admissible deductions as losses arising in the course of the assessee's business of dealing in shares ? " (2) Whether, on the facts and circumstances of the case, the claim of Rs. 21,93,000 as loss in speculation, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies belonged to, and were controlled by, what is commonly known as persons of the Dalmia Jain group headed by Shri Ram Krishna Dalmia of the Dalmia group and Shri Shanti Prasad Jain of the Jain group. Shri S. P. Jain and his family members had a controlling voice and interest in all the seven companies which are : (1) Dalmia Cement and Paper Marketing Ltd., hereinafter, for the sake of brevity, called D. C. P. M. Ltd., (2) Shri Krishna Gyanodaya Sugar Ltd., hereinafter referred to as S. K. G. Sugar Ltd., (3) Dalmia Investment Company Ltd., (4) Dalmia Jain Company Ltd., (5) Ashoka Marketing Ltd., (6) Ashoka Agencies Ltd. and. (7) Sahu Jain Ltd. Shri S. P. Jain was the chairman of the board of directors of Dalmia Jain Co. Ltd. and Ashoka Marketing Ltd. The latter, more or less, is his family concern. He and his family members have got 80 per cent. shares in Sahu Jain Co. Ltd. and Shri Ashoka Kumar Jain, the eldest son of Shri S. P. Jain, is its managing director. The Income-tax Officer was of the view that in the year 1945 the Dalmia Jain group wanted to acquire the control of the three jute mills aforesaid situate near Calcutta. With this object, shares of these companies wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prevailing market rate of the said jute shares does not accurately appear from the records of these cases, it is the admitted position, however, that the shares were cornered and purchased by D. C. P. M. Ltd. at the rates higher than the market rates as part of a scheme to acquire controlling interest in the jute mills. In 1947 there was a private division of the spheres of influence between Dalmia and Sri S. P. Jain. D. C. P. M. Ltd. went to Dalmia and the jute shares, which had been purchased by D. C. P. M. Ltd. with the capital of Rs. 31 1/2 lakhs advanced by Shri S. P. Jain, had to travel and go to the hands of Shri S. P. Jain and his nominees as they were purchased for gaining control in the jute mills for him. With this aim in view, D. C. P. M. Ltd. transferred the shares of the New Central jute Mills on or about the 31st of August, 1947, to S. K. G. Sugar Ltd. at the rate of Rs. 680 per share, at which it had purchased in the year 1945, although the market rate in August, 1947, was Rs. 523 per share. S. K. G. Sugar Ltd., about a year later, transferred these shares to Shri S. P. Jain at the rate of Rs. 520 per share through Dalmia Investment Co. Ltd. The market rate of Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the same, i.e., Rs. 537 per share. In April, 1951, the two companies aforesaid transferred these shares also to Ashoka Agencies Ltd. through brokers at the rate of Rs. 270 to Rs. 273 or, may be, at Rs. 277 to Rs. 295, as stated on behalf of the assessee during the course of the argument, as against the market rate of Rs. 305. Ashoka Agencies Ltd. ultimately, in the year 1953, transferred these shares also to Shri S. P. Jain and his nominees at the rate of Rs. 233 to Rs. 290 which was, perhaps, the then prevailing rate. 5,679 shares of Albion Jute Mills were transferred by D. C. P. M. Ltd. to Shri S. P. Jain in August, 1948, at the rate of Rs. 400 to Rs. 410 when the market rate was Rs. 383. Shri S. P. Jain transferred the said shares to Dalmia Jain Co. Ltd. at the rates at which he had purchased from D. C. P. M. Ltd. This transfer also took place on or about the same time, i.e., in August, 1948. Dalmia Jain Co. Ltd. transferred these shares in April, 1951, to Ashoka Agencies Ltd. at the rate of Rs. 277 as against the market rate of Rs. 302. D. C. P. M. Ltd. had purchased 2,035 shares of Albion Jute Mills from brokers in March or April, 1945, and had transferred those shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them in 1951 and to " determine whether the dealings of the assessee were in the course of its ordinary business or not, it is, in our opinion, unnecessary to consider the antecedents of purchase and sale of these shares before they were acquired by the assessee nor as to how those shares were dealt with by the purchasers in their own turn ", (iv) the assessee-companies purchased these shares at a time when they could not know as to whether there would, in future, be a rise or fall in the price of those shares in the market, and (v) the transaction of purchase and sale are perfectly genuine dealings and the loss is a genuine revenue loss. Learned standing counsel for the department submitted on the authority of the two Supreme Court decisions in Ramnarain Sons (P.) Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. National Finance Ltd., which were followed by me sitting with Chief Justice Ramaswami in the case of Commissioner of Income-tax v. Shri Krishna Gyanodaya Sugar Ltd. (M.J.C. No. 1149 of 1960) decided on the 17th of October, 1963, that the question as to whether a particular loss is genuine or unreal, capital or revenue, is a mixed question of fact and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved at by misdirection in law and in absence of any legal, valid and relevant material. " The ultimate decision in the case was that the loss, on the facts and in the circumstances of that case, was not incurred by the assessee-company or in any event, it was not incurred in the course of its trade or any adventure in the nature of a trade. But the cases in hand have two distinguishing features. Once the shares of the jute mills passed into the bands of Shri S. P. Jain in July or August, 1948, subsequent transfer by him to the two assessee-companies with which we are concerned now could not be a part of the manoeuvre to acquire control of the jute mills by Shri S. P. Jain. He had already acquired control by getting the shares transferred in his own name before he transferred them to the assessee-companies. The object of the assessee-companies, therefore, could not be to help Shri S. P. Jain in gaining control over, or the management of, the jute mills. The second point of distinction is that the impugned transactions in the instant cases did not take place at such great variance with the market rates as was the case of S. K. G. Sugar Ltd. Purchasing the shares at some higher rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject or motive of the assessee-companies in entering into the impugned transactions was not in the nature of trade but some ulterior one, e.g., the gaining of an enduring advantage either for themselves or for Shri S. P. Jain or the like. In the circumstances, I have got to hold that the finding of the Appellate Tribunal that the losses were suffered during the course of business dealings and they are genuine and in the nature of revenue loss, cannot be said to be erroneous. The facts relating to the second topic of the claim of Rs. 19,40,409 as loss sustained by Ashoka Marketing Ltd. in its business of dealings in shares of other companies are these : Out of the total loss of the said amount, the main item of loss is to the tune of Rs. 13,59, 894 in respect of 1,05,000 shares of the Punjab National Bank Ltd., of which bank Shri S. P. Jain, the person controlling the assessee-company happened to be the chairman at the time the Appellate Assistant Commissioner was making his order in appeal on January 29, 1959. He had become the chairman of the bank in the year 1954 as was stated at the Bar. A sum of Rs. 4,22,604 was claimed as loss on account of the shares of Rohtas Industries Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-company had no connection with the Express Newspapers Ltd. Further, the argument on behalf of the assessee-company before the Tribunal was that it had to pay a higher price to the Express Newspapers Ltd. as a negotiated price for the reason that the assessee paid only one-third of the total amount in cash and kept the shares with the vendors as security to cover the balance of the price on which no interest was paid. This argument was accepted by the Tribunal which observed : " Having regard to the bulk lot of shares purchased, the prevailing market price for small lots, and the terms and circumstances of the purchase, we must hold that the department has failed to establish, by material, that the purchase prices paid to Express Newspapers Ltd., were inflated. " On the findings recorded by the Tribunal, I am not prepared to hold that it misdirected itself in law and wrongly allowed the loss incurred by the assessee-company in its dealing in shares of the Punjab National Bank. The only ground mentioned by the Appellate Assistant Commissioner for disallowing the loss incurred by the assessee-company in its dealings of Rohtas Industries Ltd. and Bharat Collieries Ltd. is that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were held by the assessee for a period of about eight years, they did not form part of its stock-in-trade and a part of its business of share-dealing but were really investment in shares. The Appellate Assistant Commissioner took the view that the shares were acquired not to earn profits in sale but to enable the Dalmia Jain group and later on Sahu Jain group to retain control over the S.K.G. Sugar Ltd. and the Bharat Collieries Ltd. He also found that these shares were not sold to outsiders, but were merely transferred to another company of the same group though the transactions passed through the books of common broker and as such the sales were unreal and fictitious. The Appellate Tribunal, in its order dated the 11th of January, 1961, observed that although Shri S. P. Jain might be in a position to directly or indirectly control or influence the decisions of the assessee-company, it could not be said that the identity or the legal personality of the assessee-company was the same as that of Shri S.P. Jain. The antecedent history and the ultimate sojourn of the shares, the Tribunal further observed, were not relevant for the determination of the issue as to whether the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried out on August 31, 1952, on the basis of claim received from D. C. P. M. Ltd. sometime in May, 1952. But the most striking fact was that the assessment order of D. C. P. M. Ltd. for 1953-54 which was filed before the Tribunal showed that that company had been assessed on the speculation profits of Rs. 21,93,000 received from the assessee-company. The total income assessed in the hands of D. C. P. M. Ltd. in the said assessment year was about Rs. 35 lakhs. The net result shown by Ashoka Marketing Ltd, the assessee company, with which we are concerned in this case, was a profit of about Rs. 13 lakhs from speculation business. In the circumstances, it was held by the Tribunal and, in my opinion rightly, that the loss was allowable and there was no error, much less any error of law, in its conclusion in this regard. The only topic which remains to be considered now is in regard to the amount of Rs. 1,29,994 claimed by Dalmia Jain Company Ltd. as litigation expenses in the accounting year ending on January 31, 1951, corresponding to the assessment year 1951-52. The facts which are mentioned in the order dated March 1, 1958, of the Appellate Assistant Commissioner, which have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia, on the ground that there was no concluded contract between them and Kalyanpur Lime Co. The assessee-company was made a party-defendant in the suit of Kalyanpur Lime Co. It would also appear from the facts stated in the order of the Income-tax Officer that near about that time Subodh Gopal Bose also filed a suit against the State of Bihar impleading the assessee-company too as a defendant. The relief claimed by S. G. Bose was for injunction to restrain the Government of Bihar and Dalmia Jain Co. Ltd. from entering into possession. Finally, in the suit filed by Kalyanpur Lime Co. it was held by the Supreme Court in December, 1953, that there was a valid contract between the said company and the Government of Bihar, and Kalyanpur Lime Company was entitled to a decree for specific performance. As the period of 20 years from 1934 was to expire in 1954, the Supreme Court did not grant a decree for specific performance but only allowed damages. In respect of the claim of the assessee-company the Supreme Court held that this company was a lessee for one year from September 22, 1949, to September 22, 1950, with notice of Kalyanpur Lime Company's prior contract and it had no locus st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Ltd. it was said by Lawrence J., as he then was, at page 602 : " On the other question as to whether this is a payment properly attributable to capital or to revenue, in my opinion the principle which is to be deduced from the cases is that where a sum of money is laid out for the acquisition or the improvement of a fixed capital asset it is attributable to capital. But that if no alteration is made in the fixed capital asset by the payment, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital assets of the company." Finally his Lordship held at page 605 : " It appears to me that the legal expenses which were incurred by the respondent-company did not create any new asset at all but were expenses which were incurred in the ordinary course of maintaining the assets of the company, and the fact that it was maintaining the title and not the value of the company's business does not, in my opinion, make it any different." In Morgan (H.M. Inspector of Taxes) v. Tate & Lyle Ltd. Lord Morton of Henryton, in his speech which concurs in the majority decision of the House of Lords, has referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it did acquire in the year 1955. The expenses were not incurred in the ordinary course of maintaining the assets of the company as the property which was the subject-matter of litigation was not the property of the company and it had no title to it. The possession of the company was either that of a temporary lessee, during the pendency of the litigation, or of an agent of the Government of Bihar and such possession could not be characterised as an asset of the company, the maintenance of which would justify the huge expenditure of more than a lakh of rupees in one year over the litigation which the assessee-company, to all intents and purposes, was fighting not in its own right but on behalf of the Government of Bihar with the ultimate object of getting a lease from them. I, therefore, hold that the Tribunal erred in law in holding that the litigation was to save the existing possession of the assessee and the expenses incurred in defending the assessee's possession by supporting its principal, the Government of Bihar, were revenue expenses. To sum up the result of the discussions aforesaid, I would answer the first question referred for the opinion of the High Court in M.J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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