1975 (7) TMI 2 - SC - Income Tax

Supreme Court deems share sale profit as business income, upholding trade nature.

The Supreme Court reversed the High Court's decision, determining that the profit from the sale of shares was assessable as business profit. The Court ... Whether the inference of the Tribunal that the profit arising from the sale of shares is assessable as business profit is correct - finding that loss or profit is a trading loss or profit is primarily a finding of fact, though in reaching that finding the Tribunal has to apply the correct test laid down by law. When we see that the Tribunal has considered the evidence on record and applied the correct test, there is no scope for interference with the finding of the Tribunal Issues Involved:1. Whether the profit of Rs. 2,13,150 arising from the sale of 1,58,200 shares of Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. is assessable as business profit.2. Whether the transaction constituted an adventure in the nature of trade or was a mere realization of a capital asset.Issue-wise Detailed Analysis:1. Assessability of Profit as Business Profit:The primary question referred to the High Court was whether the profit of Rs. 2,13,150 from the sale of shares was assessable as business profit. The Tribunal initially concluded that the profit was a business profit, considering various factors, including the assessee's authorization to buy and sell shares, the inclusion of the profit in the profit and loss account, the use of borrowed funds for purchasing shares, and the assessee's past dealings in shares. The High Court, however, disagreed, emphasizing that the clauses in the memorandum of association did not authorize the business of purchasing and selling shares, and that the treatment of the profit in the profit and loss account was not conclusive of its nature. The High Court also noted that there was no evidence that the shares were purchased out of borrowed funds, given the assessee's substantial fixed deposits. Ultimately, the Supreme Court reversed the High Court's decision, agreeing with the Tribunal's assessment that the profit was indeed business profit.2. Nature of the Transaction:The Tribunal had to determine whether the transaction was an adventure in the nature of trade or a mere realization of a capital asset. The Tribunal considered several factors: the assessee's authorization to deal in shares, the specific resolutions authorizing the purchase and sale of shares, the inclusion of the profit in the profit and loss account, the use of borrowed funds, and the assessee's past dealings in shares. The High Court, however, found that these factors were not conclusive. It emphasized that the dominant intention of the assessee in acquiring the shares was to assist a sister company, the Rayon Company, and not to embark on a trading venture. The Supreme Court, however, found that the High Court's conclusion was based on unwarranted assumptions and that the Tribunal's finding that the transaction was an adventure in the nature of trade was justified. The Supreme Court noted that the Tribunal had considered all relevant circumstances and applied the correct legal tests, and therefore, there was no scope for interference with the Tribunal's finding.Conclusion:The Supreme Court reversed the judgment of the High Court and allowed the appeal, concluding that the profit from the sale of shares was assessable as business profit and that the transaction constituted an adventure in the nature of trade. The Supreme Court emphasized that the Tribunal had considered all relevant evidence and applied the correct legal tests, and therefore, its findings should not have been interfered with by the High Court. The appeal was allowed with costs.