Stock-in-trade status and liquidation surplus: admitted trading treatment was upheld, and surplus assets on liquidation were capital receipt.

An admitted position that shares continued to be treated as stock-in-trade could not be ignored merely because the company became private or the shares were not quoted on the stock exchange; the shares therefore retained their trading character. On liquidation, the shareholder's receipt of surplus assets is capital in nature and does not become revenue income merely because it arises from corporate distribution. The liquidation surplus is not treated as sale proceeds or money received in a trading sense, so it is not chargeable as revenue receipt in the shareholder's hands.

---

---

Issues: (i) Whether the shares held by the assessee in Chrestian Mica Co. Ltd. were its stock-in-trade for dealing in shares. (ii) Whether the surplus received by the assessee from the liquidator on liquidation of the company was assessable as revenue income.

Issue (i): Whether the shares held by the assessee in Chrestian Mica Co. Ltd. were its stock-in-trade for dealing in shares.

Analysis: The assessee had long treated the shares as stock-in-trade, and the fact that they continued to be so treated was expressly admitted before the Tribunal. An admission is substantive evidence of the admitted fact, and the Tribunal was bound to proceed on that basis. The shares did not cease to be stock-in-trade merely because the company became private, the shares were not quoted on the stock exchange, or marketability was said to be restricted. On the record, there was no basis for ignoring the admitted position.

Conclusion: The finding that the shares were not stock-in-trade was not justified; this issue was answered in favour of the assessee.

Issue (ii): Whether the surplus received by the assessee from the liquidator on liquidation of the company was assessable as revenue income.

Analysis: On liquidation, the shareholder receives the surplus assets of the company as capital and not as income. The liquidator distributes the company's assets in accordance with the corporate law scheme, and the shareholder does not receive sale proceeds of shares or money in lieu of shares in a trading sense. The receipt retains its capital character in the shareholder's hands and is not taxable as a revenue receipt. The contrary view treating the distribution as a compulsory sale was rejected.

Conclusion: The surplus received on liquidation was not assessable as revenue income; this issue was answered in favour of the assessee.

Final Conclusion: The reference was disposed of by holding that the shares remained stock-in-trade, while the liquidation surplus was a capital receipt not chargeable to tax in the assessee's hands.

Ratio Decidendi: An admitted and substantive fact binding on the parties cannot be ignored in determining whether an asset retains its character as stock-in-trade, and surplus assets distributed to a shareholder on liquidation are capital in nature in the shareholder's hands.

---