Capital accretion on sale of shares secured for managing agency rights is not taxable business income.

Shares acquired solely as part of a single arrangement to secure managing agency rights, and not as stock-in-trade or for share dealing, were treated as a capital investment. When the managing agency objective failed and the shares were later sold, the surplus was held to be a realisation of capital rather than business profit. The receipts were characterised as casual and non-recurring, and therefore not chargeable as revenue income. The operative principle is that where shares are obtained to secure an enduring commercial advantage and not for trading, any later surplus on sale is capital accretion, not taxable business income.

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Issues: Whether the surplus realised on sale of the shares was a revenue receipt arising from business or an accretion to capital, and consequently not chargeable to tax.

Analysis: The shares were acquired as part of a single, indivisible arrangement to secure the managing agency of the sugar company and not as stock-in-trade or with an intention to deal in shares. There was no general share-dealing business, and the transaction was not split into a profit-making part and a managing-agency part. When the object of obtaining the managing agency failed, the shares were sold and the resulting surplus represented the realisation of a capital investment. The receipts were casual and non-recurring, and they did not arise from business within the meaning of the exemption claim.

Conclusion: The surplus was capital accretion and not taxable business income; the decision was in favour of the assessee.

Final Conclusion: The sale proceeds were held to be non-taxable capital receipts rather than revenue receipts, and the assessee's appeal succeeded.

Ratio Decidendi: Where shares are acquired solely as part of a capital arrangement to secure an enduring commercial advantage and not for trading, the surplus on their later sale is capital accretion and not income from business.

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