1972 (9) TMI 14 - SC - Income Tax

Sale of shares characterized as capital asset versus stock-in-trade; tribunal fact finding upheld, profit taxed as capital gain.

Whether shares were stock-in-trade or capital asset turned on factual findings of the tribunal; the High Court in a reference under section 66 cannot ... Stock-in-trade - profit made on the sale of shares - capital gain - chargeable to income-tax under section 12B - Whether there was material for the finding that the shares in question were purchased by the assessee with a view to acquire the managing agency and the control of the company or the shares constituted his stock-in-trade - HELD THAT:- It is for the Tribunal to decide questions of fact, and the High Court in a reference under section 66 of the Act cannot go behind the Tribunal's findings of fact. The High Court can only lay down the law applicable to the facts found by the Tribunal. The High Court, and the Supreme Court, in an appeal against the judgment of the High Court given in a reference under section 66 of the Act, are not constituted courts of appeal against the order of the Tribunal. These courts only exercise advisory jurisdiction in such references. It is also well-established that when a Tribunal acts on material which is irrelevant to the enquiry or considers material which is partly relevant and partly irrelevant or bases its decision partly on conjectures, surmises and suspicions and partly on evidence, then in such a situation an issue of law arises and the finding of the Tribunal can be interfered with. The finding may also be interfered with if it be found to be so unreasonable that no person acting judicially and properly instructed as to the relevant law could have arrived at it. None of the circumstances justifying interference with the finding of fact of the Tribunal has been shown to exist in this case. In the absence of any such circumstance, the High Court in our view was not justified in interfering with the finding of fact of the Tribunal. The fact that the High Court on appreciation of evidence would have arrived at a conclusion of fact different from that of the Tribunal did not warrant interference with the finding of the Tribunal. The High Court in arriving at the conclusion that the shares in question had been purchased not with a view to obtain the managing agency but as a stock-in-trade has referred to the fact that the assessee took loan for the purchase of those shares and subsequently transferred 43,700 shares out of 62,500 shares. We are, therefore, of the view that the answer given by the High Court to question was not correct. In our opinion, there was material for the finding that the shares in question had been purchased by the assessee with a view to acquire the managing agency and control of the India United Mills Ltd. and that the shares did not constitute the stock-in-trade of the assessee. We find that it is the common case of the parties that if the shares in question are held to be not stock-in-trade of the assessee, in that case the profits made on the sale of those shares would constitute capital gain chargeable to income-tax under section 12B of the Act. Indeed, this is what was prayed for by the assessee in his letter dated March 30, 1949. Looking to the facts also, we are of the opinion that the profit made on the sale of those shares constituted capital gain chargeable to income-tax under section 12B of the Act. We would answer question accordingly. Issues: (i) Whether there was material for the finding that the shares were purchased with a view to acquire the managing agency and control of the company, or whether the shares constituted the assessee's stock-in-trade; (ii) If the shares did not constitute stock-in-trade, whether the profit on sale of the shares constituted capital gain chargeable under section 12B of the Indian Income-tax Act, 1922.Issue (i): Whether there was material supporting the Tribunal's finding that the shares were acquired with a view to obtain the managing agency and control and therefore were not stock-in-trade.Analysis: The Tribunal relied on findings that the shares formed part of a larger block sold to the purchaser to facilitate acquisition of the managing agency, were transferred at the original Sassoon sale price rather than market price, and represented the purchaser's proportionate share in the lot bought for that purpose. These factual findings were supported by relevant material before the Tribunal. Interference with a Tribunal's factual finding is permissible only where no relevant evidence exists, the finding is based on irrelevant material, rests on conjecture, or is so unreasonable that no properly instructed judicial mind could have reached it.Conclusion: The material before the Tribunal supported the conclusion that the shares were purchased with a view to acquire the managing agency and control and thus did not constitute the assessee's stock-in-trade.Issue (ii): Whether, if not stock-in-trade, the profit on sale of the shares constituted capital gain under section 12B.Analysis: The parties agreed that if the shares were not stock-in-trade then profits on sale fell within capital gain chargeable under section 12B. Given the Tribunal's fact-findings that the acquisition was for obtaining managing agency and control, the character of the shares is that of capital assets and the resultant profit is to be treated accordingly.Conclusion: The profit realized on the sale of the shares constituted capital gain chargeable to income-tax under section 12B of the Indian Income-tax Act, 1922 (in favour of the assessee on the correct classification).Final Conclusion: The Tribunal's factual determinations that the shares were acquired to obtain the managing agency and were not stock-in-trade are sustained, and the profit on their sale is to be treated as capital gain under section 12B.Ratio Decidendi: A Tribunal's finding of fact based on relevant evidence that shares were acquired to secure control or managing agency and not for trading characterizes those shares as capital assets; such factual findings should not be disturbed on reference under section 66(2) absent lack of relevant evidence or perverse/unreasonable conclusions.