TaxTMI 
TaxTMI 
1949 (1) TMI 3
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.... Suppliers, Limited, another company of the Dalmia Group (herein called "the company") of the face value of Rs. 4,00,000. It is conceded that these shares formed part of the stockin-trade of the assessee's share dealing business. The company went into voluntary liquidation as a result of which the liquidator sold up its assets and refunded to its shareholders their subscribed shares of Rs. 15,00,000 and a further sum of Rs. 3,11,328. The aggregate amount was, of course, distributed pro rata among the shareholders. The assessee received as its share a sum of Rs. 4,75,000 in the year of account relevant to 1942-43 assessment and a further sum of Rs. 8,021 in the following year (assessment year 1943-44). The result of the various dealings in shares, securities and debentures appearing from the ledger accounts stands as follows:- Rs. A. P. Rs. A. P. (a) G.P. Notes. Opening stock 5,500 0 0 Sales 17,37,172 0 0 Purchase 17,74,910 14 7 Closing stock 30,000 0 0 17,80,410 14 7 17,67,172 4 8 ....
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....is reason was twofold, first, a distribution made to shareholders on liquidation of the company (if such distribution is made out of accumulated profits) is dividend income as envisaged in Section 2(6A)(c) of the Act and, secondly, that inasmuch as the assessee deals in shares its shareholdings are its stock-in-trade and any return for its stock-in-trade whether by sale, appreciation, depreciation or any cause whatsoever which is incidental to the dealings in such stock must be treated as a credit to revenue account and not to capital account. On appeal, the Appellate Assistant Commissioner did not express any opinion as regards the applicability of Section 2 (6A)(c) but he upheld the action of the Income-tax Officer by reference to the second ground. In the result, he dismissed the appeal and repelled the contention of the assessee that the receipt in question was a capital receipt which need not be reflected in the trading account. In connection with the assessment for the following year 1943-44, a sum of Rs. 8,021 was added back to the booked profits for precisely the same reasons and the add-back was upheld by the Appellate Assistant Commissioner on appeal on the ground t....
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....ich the assessee has to bring into account for the purpose of income-tax, the amount of excess of the sum recovered over the book value of the shares in the assessee's books has to be brought into account just as fully and completely as if there had been a sale in the ordinary course of business at that price." The assessee has now made an application under Section 66(1) in each case and requires us to refer the following question of law to the Honourable High Court:- "In the facts and circumstances of the case, is the sum of Rs. 75,000 and Rs. 8,021 taxable in law?" The respondent, Commissioner of Income-tax, Bihar and Orissa, concedes that the question sought to be referred arises out of the appellate order of the Tribunal and is a question of law. The facts set out above are not in dispute and we consider that our order under Section 33 in each case based on those facts does raise a question of law which we formulate as follows:- "Whether, in the circumstances of the case, the sums of Rs. 75,000 and Rs. 8,021 constitute revenue receipts assessable to income- tax?" Both parties agree that the question as formulated by us should be referred for the opinion of....
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....the assessable income of the relevant years. The assessee's contention, on the other hand, was that these two sums are capital receipts and cannot be treated as revenue receipts. The argument developed was that the assessee had not sold the shares in the market or privately or to any person, and therefore, the amounts received in lieu of the shares held by it were no more than a distribution of the assets of the Stone Company. It was further argued before us that no accumulated profit of the Stone Company fell to be distributed and, therefore, under Section 2(6A) the amount sought to be taxed by the Income-tax department cannot be held to be a dividend within the meaning of the definition clause added in 1939. The Income-tax department has held that the sums in question were trading receipts because the assessee was a dealer in shares. The Appellate Tribunal agreed with the view, but as the instance of the assessee has referred the question, stated above, for the decision of this Court. It is now well settled that enhanced values obtained from realisation or conversion of securities are assessable where what is done is not merely a realisation or change of investment, but....
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....purchase of tobacco leaf in the United States, resulting in their having on hand a holding of dollars which had been accumulated between January and August, 1939. On the 30th September, 1939, the company were compelled under the Defense (Finance) Regulations, 1939, to sell the surplus dollars to the Treasury, and, owning to the rise which had occurred in the dollar exchange, the sale resulted in the profits for the company. It was held that even though the sale was compulsory, the profit made by the company must be treated as a revenue receipt. The Master of the Rolls referred to a number of authorities which will be found discussed at page 301. It is true, as has been pointed out in several cases, that it is a difficult question to decide whether a particular receipt should be treated as a capital or a revenue receipt, but the facts in the present case are so clear that I have no difficulty in upholding the view of the Income-tax department. In two cases decided by this Court similar view was taken. In Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga*, the assessee had purchased shares in a company of the value of about Rs. 18 ....