1949 (1) TMI 3 - HC - Income Tax

Shares liquidation proceeds taxable as income, not capital gains. Dealer's profits subject to income tax.

DALMIA CEMENT AND PAPER MARKETING COMPANY LTD. Versus COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA

The High Court held that the sums of Rs. 75,000 and Rs. 8,021 received by the assessee from the liquidation of shares constituted revenue receipts ... - Issues Involved:1. Whether the sum of Rs. 75,000 constitutes a revenue receipt assessable to income-tax.2. Whether the sum of Rs. 8,021 constitutes a revenue receipt assessable to income-tax.Detailed Analysis:Issue 1: Whether the sum of Rs. 75,000 constitutes a revenue receipt assessable to income-tax.The assessee, a public limited company engaged in share dealing, held 40,000 ordinary shares of Stone Suppliers Ltd., which formed part of its stock-in-trade. Stone Suppliers Ltd. went into voluntary liquidation, and the liquidator distributed the assets among the shareholders. The assessee received Rs. 4,75,000 in the assessment year 1942-43, which included Rs. 75,000 in excess of the subscribed amount. The Income-tax Officer added this Rs. 75,000 to the revenue account, considering it as a revenue receipt under Section 2(6A)(c) of the Act. The Appellate Assistant Commissioner upheld this view, emphasizing that any return from stock-in-trade must be treated as a revenue receipt.The assessee contended that the receipt was a capital sum since the shares ceased to be stock-in-trade upon liquidation and merged into the capital assets. However, the Tribunal relied on cases such as Greene v. Gliksten and Son, Ltd., Commissioner of Income-tax, Bihar and Orissa v. Maharaja of Darbhanga, and held that the sums were trading receipts obtained in the ordinary course of business. The Tribunal observed that the assessee must account for the money received in lieu of the shares as revenue receipts.Upon reference to the High Court, it was argued that the sums were capital receipts and not revenue receipts since the shares were not sold but distributed as part of the liquidation process. However, the Court noted that enhanced values from the realization of securities are assessable if done in the course of business, as established in Californian Copper Syndicate v. Harris and Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax. The Court held that the assessee, being a dealer in shares, realized its stock-in-trade, and the excess profits must be treated as income. The Court also referenced Green v. J. Gliksten & Son Ltd. and Imperial Tobacco Co., Ltd. v. Kelly, concluding that the compulsory distribution by the liquidator was akin to a sale, thus making the receipt a revenue receipt.Issue 2: Whether the sum of Rs. 8,021 constitutes a revenue receipt assessable to income-tax.For the assessment year 1943-44, the assessee received an additional Rs. 8,021 from the liquidation of Stone Suppliers Ltd. The Income-tax Officer and the Appellate Assistant Commissioner treated this sum as a revenue receipt for the same reasons applied in the previous year. The Tribunal dismissed the assessee's appeal, maintaining that the sum was a revenue receipt.The High Court addressed this issue similarly, noting that the assessee's business involved dealing in shares, and any return from its stock-in-trade, whether through sale or liquidation distribution, must be treated as revenue receipts. The Court reiterated the principle that the realization of stock-in-trade, even through liquidation, results in revenue receipts assessable to income-tax.Conclusion:The High Court answered both questions in the affirmative, holding that the sums of Rs. 75,000 and Rs. 8,021 constituted revenue receipts assessable to income-tax. The assessee was directed to pay costs to the Commissioner of Income-tax, Bihar and Orissa, with a hearing fee of Rs. 250.