Trading stock shares and sale proceeds: surplus taxed as business income, with no separate non-share consideration recognised.

Shares held and dealt with as part of a trading activity were treated as trading stock, so the surplus on their sale was business income rather than capital accretion. The assessee showed no clear conversion of the Elphinstone Mills shares into investment, and the surrounding purchase, sale, and accumulation pattern supported their continued trading character. The receipt on sale was also held to be wholly the price of the shares, because the assessee had no independent right or power to procure resignations, appointments, or a change in management. No separate non-share consideration was identified in the transaction.

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Issues: (i) Whether the profit arising from sale of the assessee's shares in the Elphinstone Mills was business income or a capital accretion. (ii) Whether the amount received on sale represented only the price of the shares or also included consideration for procuring resignation of directors, appointment of nominated directors, and resignation of managing agents.

Issue (i): Whether the profit arising from sale of the assessee's shares in the Elphinstone Mills was business income or a capital accretion.

Analysis: The assessee was a dealer in shares and had treated dealings in the Elphinstone Mills shares as part of its share business over several years. There was no material to show any clear conversion of those shares into investment or any change in treatment in its books or resolutions. The pattern of purchase, sale, and accumulation, coupled with the surrounding circumstances, indicated that the holding continued to be part of the trading stock of the assessee.

Conclusion: The profit on sale of the shares was business income and not capital accretion, against the assessee.

Issue (ii): Whether the amount received on sale represented only the price of the shares or also included consideration for procuring resignation of directors, appointment of nominated directors, and resignation of managing agents.

Analysis: From the standpoint of the assessee, it parted only with its shares and had no controlling interest of its own in the company. It had no power to secure resignations, appointments, or relinquishment of the managing agency. Those elements arose from the influence and position of Mulraj Kersondas, not from any right or power vested in the assessee. The assessee's part in the transaction was passive and limited to making its shareholding available for sale.

Conclusion: The amount received by the assessee was wholly the price of its shares, and no part of it represented consideration for any additional rights, against the assessee.

Final Conclusion: The court upheld the taxability of the entire surplus arising from the assessee's sale of shares and found no separable non-share consideration in the receipt.

Ratio Decidendi: Where shares are held and dealt with as part of a trading activity, surplus on their sale is taxable as business income; and unless the assessee itself parts with a distinct enforceable right, the whole receipt is treated as price of the shares sold.

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