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TMI Blog1962 (1) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax, New Delhi, who is the appellant before us, had moved the Tribunal for a reference to the High Court on certain questions of law said to arise out of the order of the Appellate Tribunal. That application was found to be barred by one day, and since, under the law, the Tribunal had no jurisdiction to extend the time, the application was dismissed. Against the decision of the Tribunal, an application was filed in the High Court under section 66(3) of the Income-tax Act; but the High Court dismissed the application, agreeing with the Tribunal that the application to the Tribunal for a reference was barred by time. The Commissioner of Income-tax then applied for special leave against the order passed by the Tribunal in the appeal before it, and the present appeal, with special leave, has been filed. Before we examine the merits of the case, we shall deal with a preliminary objection raised on behalf of the respondent that the appeal is incompetent, in view of the decision of this court in Chandi Prasad Chokhani v. State of Bihar, where it was held that this court would not entertain an appeal directly from an order of the Tribunal by passing the decision of the High Court, exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that this court would not allow the High Court to be bypassed, and that an appeal from the decision of the Tribunal in the circumstances was incompetent. A similar view was again expressed in two other cases, viz., Indian Aluminium Co. Ltd. v. Commissioner of Income-tax and Kanhaiyalal Lohia v. Commissioner of Income-tax. In all the three cases, reliance was placed by the appellants therein upon the decisions of this court in Dhakeswari Cotton Mills Ltd, v. Commissioner of Income-tax and Baldev Singh v. Commissioner of Income-tax. It was pointed out in the judgments of this court that the two cases relied upon were decided on the special circumstances existing there. In the first, there was a question of breach of the principles of natural justice, which could not be raised otherwise than by an appeal with the special leave of this court. In the second case, it was pointed out that limitation was lost by the party through no fault of his, inasmuch as a letter was unduly delayed in post. In our opinion, in the present case also, special circumstances which justified the grant of special leave in Baldev Singh's case exist. There was a combination of circumstances which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup of companies controlled by one Lala Yodh Raj Bhalla and certain persons associated with him. It is convenient to describe these persons as the Yodh Raj Bhalla group. These companies are (1) Jaswant Sugar Mills Ltd., (2) Jaswant Straw Boards Ltd., (3) National Finance Ltd., (4) National Construction and Development Corporation Ltd., (5) Ganesh Finance Corporation Ltd. and (6) Raghunath Investment Trust Ltd. The interrelation of these companies is very intimate, and they are practically owned by the Yodh Raj Bhalla group . To understand this, the following analysis of the shareholdings of these companies must be sufficient : (1) Jaswant Sugar Mills Ltd. 2,00,000 shares Rs. (i) Jaswant Straw Board Ltd. 44.845 (ii) National Finance Ltd. 67,390 (iii) National Construction and Development Corporation Ltd. 47,800 1,60,035 (i.e. over 80 per cent.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Investment Trust Ltd. practically owns the Ganesh Finance Corporation Ltd., and Yodh Raj Bhalla group practically owns Raghunath Investment Trust Ltd. Jaswant Sugar Mills Ltd. is practically owned by Jaswant Straw Board Ltd., National Finance Ltd., and National Construction and Development Corporation Ltd., and Jaswant Straw Board Ltd. is practically owned by National Finance Ltd., and National Construction and Development Corporation Ltd. Thus, the entire group is owned by a consortium, and there is no doubt about it. The shares of Madhusudan Mills Ltd. were acquired in the following circumstances : In July, 1948, Mr. Yodh Raj Bhalla, who was in a position by reason of his holdings in these six companies to influence decisions of the Board of Directors, arranged to purchase 26,547 shares of the Mills from Messrs. Bhadani Brothers Ltd., who were the managing agents of the Mills. This block of shares represented about 80 per cent. of the total issued capital of the Mills. The purchase was made at ₹ 400 per share, when the price in the market was about ₹ 250 per share. Out of the remaining shares which were on the market, 200 shares were purchased at ₹ 252 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter with which we are immediately concerned. On April 7, 1949, 4,500 shares were sold by the assessee company to the National Investment Trust Ltd. at ₹ 181 per share resulting in a loss of ₹ 8,80,000 and on June 1, 1949, another block of 3,000 shares was sold to the National Investment Trust Ltd. at ₹ 180 per share, resulting in a loss of ₹ 5,86,312. We are not concerned with the loss arising from the first sale which was considered in the assessment year, 1950-51, and in respect of which a reference is pending in the High Court of Punjab. We are concerned with the loss in the second year relating to the assessment year, 1951-52. In that year, the loss on the sale of the shares was sought to be set off against the profits made, and the loss practically cancelled the profits. The shares which were sold by the assessee company on the two occasions were sold to one Amrit Bhushan (a relative of Mr. Yodh Raj Bballa) who sold them the same day to Messrs. National Investment Trust Ltd. at the slender profit of 8 annas per share, which was brokerage. Thus, at the beginning and at the end, though numerous transactions had taken place, the shares continued to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down this proposition, and those cases have also indicated how the matter is to be viewed in the context of facts. In Commissioner of Income-tax v. Ramnarain Sons Ltd. the company was a dealer in shanes and also carried on the business of acqiring managing agencies of other companies. The company acquired the managing agency of a textile mill from Messrs. Sassoon J. David and Co. Ltd. and also agreed as part of the same transaction to buy 2,507 shares of the mills 1,507 shares were purchased at ₹ 2,321-8-0 per share and the remaining 1,000 shares were purchased at ₹ 1,500 per share. These shares were quoted on the market at ₹ 1,610. Later, 4,000 shares were sold at a loss of ₹ 1,78,000. This was shown in the books of the company as a business loss, but was disallowed, as the shares were not held to be the stock-in-trade of the business of the company as share dealers. On a reference to the High Court of Bombay, a Divisional Bench upheld the view of the Tribunal. Chagla C.J. in delivering the judgment of the court, observed that a managing agency being an asset of an enduring nature, the way to look at the matter was to enquire what was the primary inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction, which could not otherwise be regarded as a prudent business transaction, was the acquisition of the managing agency. If the purpose of the acquisition of a large block of shares at a price which exceeded the current market price by a million rupees was the acquisition of the managing agency, the inference is inevitable that the intention in purchasing the shares was not to acquire them as part of the trade of the appellants in shares. The above two decisions are merely the application of a principle of longstanding, which has been stated over and over again in the past. In Oriental Investment Co. Ltd. v. Commissioner of Income-tax that principle was reiterated, and it was held that the object for which a company was formed did not invest the deal with the characteristics of a trade in shares, but that other circumstances along with that fact must be considered to find out the real object of a particular venture. Before we deal with the present case, one other case of this court may be noticed. In Rajputana Textiles (Agencies) Ltd. v. Commissioner of Income-tax the converse conclusion was reached. There, on the facts and circumstances of the case, it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the assessee company not only bought the 10,500 shares which stood in its name but 15,547 shares, which gave the assessee company a controlling voice in the affairs of the mills. The assessee company continued to retain the selling and purchasing agency, which was very profitable. Indeed, on its investment in the first year of ₹ 14 lakhs odd, it made a profit of about ₹ 7 lakhs. The question, therefore, would be whether the assessee company in purchasing the shares merely wished to deal in those shares as stock-in-trade, or was acquiring a capital asset of an enduring nature. This question is not one of fact, pure and simple, but one of an inference in law from the proved circumstances of the case. The Income-tax Officer, in deciding this question against the assessee company, pointed out numerous circumstances, which showed clearly that this was not a mere purchase of shares as shares by a speculator, who, buying a big block, sometimes pays slightly more than the market rate. Bhadani Brothers Ltd. owned not only the shares but also the managing agency, and it is obvious that they would not part with the shares without charging for the managing agency. The pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Marketing Co. Ltd. in which the latter paid the same price, namely, ₹ 400 per share. Perhaps, the Dalmia Company was after the controlling interest in its own way, and it is significant to note that within a short time, those shares again found their way in the hands of the same group. Similarly, the shares changed hands even within this group through the agency of Amrit Bhushan, no doubt a broker but also a relative of Mr. Yodh Raj Bhalla, who profited only to the extent of 8 annas per share, and bought and sold the shares from one company to another on the same day. All this shows that the affairs of these companies were centrally arranged, and the intention was to benefit the assessee company by the acquisition of a large block of shares at a very much larger price then obtaining in the market, to acquire certain agencies of a profitable character. In our opinion, this transaction must be regarded as one on the capital side. Shares were never treated as part of the stock-in-trade. They were not sold in the market, but were sold at a loss to another company belonging to the same group, with the obvious intention of setting off the losses against the profits, thus can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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