1940 (7) TMI 17 - HC - Income Tax

Appeal dismissed due to jurisdiction issue, profits from securities sales taxable as business profits.

PUNJAB CO-OPERATIVE BANK LTD. Versus COMMISSIONER OF INCOME TAX, PUNJAB

The Board dismissed the appeal, holding that the preliminary objection regarding jurisdiction under Section 205 failed. The profits from the sale of ... - Issues Involved:1. Jurisdiction of His Majesty in Council under Section 205 of the Government of India Act, 1935.2. Taxability of profits from the sale of securities by the Bank under the Indian Income-tax Act, 1922.3. Whether the decision on a reference under Section 66(2) of the Indian Income-tax Act constitutes a 'judgment, decree, or final order' under Section 205 of the Government of India Act, 1935.Detailed Analysis:1. Jurisdiction of His Majesty in Council under Section 205 of the Government of India Act, 1935:The primary issue was whether a direct appeal to His Majesty in Council was permissible without a certificate from the High Court under Section 205 of the Government of India Act, 1935. The section mandates that an appeal to the Federal Court is necessary if the High Court certifies that a substantial question of law regarding the interpretation of the Act is involved. The section does not provide for cases where no certificate is given, nor does it take away the right of direct appeal to His Majesty in Council in the absence of such a certificate. The judgment clarified that if the High Court neglects its duty to give or withhold a certificate, the Board would not hear the appeal until the High Court addresses the certificate issue. The Board concluded that Section 205 is directory and not mandatory, implying that the duty to give or withhold a certificate arises only where there is a reasonable possibility that a substantial question of law may be involved. In this case, there was no reasonable ground to believe that any question regarding the interpretation of the Government of India Act, 1935, was involved, thus the preliminary objection to the appeal failed.2. Taxability of profits from the sale of securities by the Bank under the Indian Income-tax Act, 1922:The core issue was whether the profit of Rs. 1,42,588 realized by the Bank from the sale of securities in 1935 was taxable as part of the profits or gains of its business. The High Court affirmed that the amount was taxable, and the Bank had to establish that the Commissioner of Income-tax had misdirected himself on a point of law or that there was insufficient evidence to justify his findings. The Commissioner found that the Bank had been selling securities to take advantage of high prices and not due to any emergency. The principle applied was that enhanced values obtained from the realization or conversion of securities are assessable if the act is done in the course of carrying out the business. The Bank's activities of buying and selling securities were linked to its business operations, thus the profits were considered business profits. The High Court and the Board agreed that there was ample evidence to justify this view, and the appeal was dismissed.3. Whether the decision on a reference under Section 66(2) of the Indian Income-tax Act constitutes a 'judgment, decree, or final order' under Section 205 of the Government of India Act, 1935:The appeal raised the issue of whether a decision on a reference under Section 66(2) of the Indian Income-tax Act qualifies as a 'judgment, decree, or final order' under Section 205. However, the Board did not find it necessary to express an opinion on this matter, as the resolution of the primary issues rendered this consideration moot.Conclusion:The Board concluded that the appeal must be dismissed with costs, as the preliminary objection regarding the jurisdiction under Section 205 failed, and the profits from the sale of securities were rightfully taxable as part of the Bank's business profits.