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TMI Blog1976 (12) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ry shares of Rs. 10 each in the Indian company. The issued capital of the Indian company was divided into 20 lakhs ordinary shares of Rs. 10 each. The Indian company on May 13, 1960, applied for rights issues of capital at the rate of one share for each share held already by a shareholder. The assessee held certain shares in a company called Sankey Electrical Stamping Private Ltd. and wanted to transfer these shares to the Indian company. The Government of India gave approval to the transfer at a price of Rs. 165 per share. The Indian company was permitted to make the rights issue at Rs. 28.50 as against the face value of Rs. 10. In other words, the shares could be issued at a premium of Rs. 18.50. In view of the assessee's cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instructions to a firm of share brokers in Calcutta to sell one lakh rights out of the forthcoming entitlements at the best possible price. The share brokers agreed to sell the rights and sold a part of one lakh rights. The balance of the sale was stopped by the assessee. 4,25,000 shares had been kept as security with the National Grindlays Bank Ltd. in connection with the overdraft account. The amounts realised as a result of the sale of a part of the shares were to be credited to the overdraft account which was done. It order to subscribe for the rights shares after the sale of 66,900 rights, the assessee found the necessary finance as per accounting which was done as follows : Rs. (1) Cash remittance from U.K. (8,75,000) 1,16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares during the period ended August 31, 1962. The Income-tax Officer was of opinion that this was an adventure in the nature of trade. He taxed these amounts as business income. The Appellate Assistant Commissioner held that the assessee had never been a dealer in shares ; that the purpose of acquiring the rights shares was to retain control over the Indian company ; that the assessee had to borrow money for investment in these shares ; and that in order to get rid of this debt a block of shares was sold. On these facts the Appellate Assistant Commissioner could not conclude that the assessee was a dealer in shares. He held that the surplus which the assessee had earned should be assessed to capital gains. Before the Tribunal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt facts which are to be kept in view for applying the above principles in the present case are : (a) The assessee chose to subscribe for the entire block of shares which the assessee was entitled to though it did not have adequate funds for the purpose. (b) It was necessary for the assessee to keep in readiness nearly 4 crores of rupees. (c) But the Government of India permitted the assessee to send in cash only Rs. 1,16,46,447. (d) The assessee was permitted to transfer its shares in an Indian company at the fixed value of Rs. 165 per share. (e) The assessee had unutilised loan for purchase of machinery to the extent of Rs. 33,34,133. (f) The assessee borrowed Rs. 78,65,379. (g) The assessee sold shares to liquidate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax [1976] 105 ITR 633. We have also been taken through the judgment of the Court of Appeal in Eames v. Stepnell Properties [1966] 43 TC 678. It would be enough to refer to the Supreme court's observations in G. Venkataswami Naidu's case [1959] 35 ITR 594. At page 610, the Supreme Court says : " It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true ; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a transaction was an investment or an adventure in the nature of trade no universal rule or principle can be applied. Each case has to be judged on its own merits and the court has to come to a conclusion taking into account the totality of facts and circumstances. It is in this context that we have to review the facts of the instant case. We find that out of 20 lakhs shares of the Indian company the non-resident assessee was holding over 14 lakhs of shares. In other words, the assessee had a controlling interest in the Indian company. Secondly, purchase and sale of shares was never in the line of the assessee's business. The rights shares were offered to the assessee on the basis of its holding of original shares. The Government of In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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