TaxTMI 
TaxTMI 
1977 (8) TMI 166
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....s glean at the facts found by the Tribunal. 3. In S.Y. 2003 and S.Y. 2004 (corresponding assessment years A.Ys. 1948-49 and 1949-50) the assessee acquired 77 and 81 ordinary shares respectively of a Mill Co. In S.Y. 2006, corresponding assessment year being A.Y. 1951-52, it acquired 79 preference shares of the said Mill Company as bonus shares. So far a sales of share during the aforesaid period are concerned, the Tribunal has characterised them as "very nominal" since the assessee sold in S.Y. 2006 only 1 1/2 preference shares out of its holding. This was the extent of the activity of the assessee upto S.Y. 2006. 4. Then comes S.Y. 2007, corresponding assessment year being A.Y. 1952-53. One Mathurdas Mangaldas Parekh was a partner of the assessee at the material time. It appears that the had a running account with the assessee whereunder he was indebted to the assessee in the sum of Rs. 6,02,075/- at the commencement of the said year. The assessee purchased from the said Mathurdas at market price shares worth Rs. 5,86,500/- during the course of the said year and in that manner and to that extent the debt due by the said Mathurdas to the assessee firm was satisfied. The said ....
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....ference 1. 2008 2 - 2. 2011 130 - 3. 2312 59 - 5. 2014 74 - 6. ....
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.... As regards the sales of shares effected during the aforesaid period, the finding of the Tribunal is that no sales were effected in S.Ys. 2010, 2011, 2012, 2013, 2014, 2016, 2019, 2021, 2022, and 2023. In S.Ys. 2015, 2017, 2020 and 2024 there were sales only of 8, 3, 5 and 4 coupons respectively. There were no other sales. That leaves only S.Ys., 2008, 2009 and 2018, for consideration. The Tribunal has observed that out of these years, there were "substantial" sales or disposals during S.Y. 2008 and S.Y. 2018. The particulars with regard to the sales or disposals in the course of S.Ys. 2308 and 2009, as per the finding of the Tribunal, are as follows :- -------------------------------------------------------------------- S.Y. Ordinary Preference -------------------------------------------------------------------- 2008  ....
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....hardas Harivallabhdas Mills 128 - . The assessee realised in all a sum of Rs. 2,36,109/- as sale proceeds of the abovementioned shares. Be it noted that amongst the shares so sold were the shares of those Companies whose shares were acquired by the assessee from its ex-partner Mathurdas Mangaldas Parekh. The share-holding of the said Companies in the hands of the assessee was, of course, augmented meanwhile by acquisition of bonus or right shares or purchase of shares in the market, as the case may be. 8. The assessee filed its return of income for the assessment year in question on June 27, 1970. In the return it inter alia showed a net profit of Rs. 15,724/- as a result of the aforesaid transactions and this income was returned as business income. A revised return of income was thereafter filed on September 23, 1970. However, so far as the question under consideration is concerned, there was no change or variation in the revised return. Yet another revised return was filed on November 12, 1970 and in the said revised return the profi....
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....mstance that the assessee had shown the share-holding as its business assets in the past was not sufficient to draw an inference against the assessee that it was not held as an investment in as much as proceeding for assessment to income-tax estoppel were inapplicable. In view of the aforesaid finding, the Appellate Assistant Commissioner held that the share-holding was held by the assessee as an investment and not as stock-in-trade and a conformity with the said finding, the directed the Income-tax Officer to compute the profit realised on sale of shares, namely, Rs. 36,481/- as capital gains in place and stead of business profits of Rs. 84,052/- computed by the Income-tax Officer. 11. The Income-tax Officer preferred an appeal against the said decision to the Income-tax Appellate Tribunal. The Tribunal observed that the sale transaction of Jubilee Mills' ordinary shares was the main transaction in which the assessee earned the profit. The Tribunal then referred to the purchases and sales of shares during the entire period of 22 years commencing from S.Y. 2003 and ending with S.Y. 2025 and it found that there was "substantial" acquisition of shares in S.Y. 2007 from the ex-....
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....sfer of the Jubilee management of the Mills. The assessee, in support of the second submission, produced before the Tribunal an agreement relating to such arrangement. The Tribunal found that the first contention was not raised at any prior stage and no attempt was made before any of the lower authorities to distinguish between the shares of the Jubilee Mills and the shares of the other Companies and that there was no material on record to come to the conclusion that such different treatment was given to the shares of the Jubilee Mills. In the opinion of the Tribunal, susch new contention could not be allowed to be raised at such late stage. The Tribunal also refused to take into account the second contention on the same ground and it was not inclined to look into the agreement on the ground that it did not from part of the record and no attempt was made to produce it before the lower authorities and no reason was given for such failure. In the light of the findings aforesaid, the Tribunal held that the assessee was a dealer in shares and that the income realised by it on sale of shares in the year of account was business income. It accordingly set aside the decision of the Appella....
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....ally well-established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business ... What is the line which separate the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being; Is the sum a gain that has been made a mere enhancement of value by realising a security or is it a gain made in an operation of business in carring out a scheme for profit making ?" The question which, in substance, therefore, arises for determination in this case is the one which is set out in the last part of the above citation. 15. It is trite saying that as to what are the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law and that what is the legal effect of the facts found by the Tribunal and whether as a result the assessee can be termed a dealer in shares or an investor is itself a question of law (See Oriental Investment Co. Ltd. vs. C.I.T.) In the ultimate....
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....for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinary be entered into with a profit-motive. By the use of the expression "profit-motive" it is not intended that profit must in fact earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series transactions. It predicated a motive which pervades the whole series of transactions effected by the person in the course of his activity. In actual practice, the profit-motive may be easily discernible in some transactions : in others it would have to be inferred from a review of the circumstances attendant upon the transaction ...... To infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist. But no test is decisive of the intention to carry on the business; in the light of all the circumstances an inferen....
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....39;s stock-in-trade, then such conduct might, in certain cases along with other circumstances, show that the whole transaction of purchase and sale was not in the course of a trading enterprise. A trader would ordinarily dispose of his stock-in-trade in the regular course of business, because he thought that it would produce a desirable profit or that it was a trading operation which was financially beneficial to him. The circumstances in which the sale transaction is entered upon, the reason motivating it, the presence or absence of commercial instinct in undertaking it are all factors which are relevant (See : The Dunn Trust Ltd. vs. Williams, and Raja Bahadur Kamakhya Narain Singh vs. C.I.T.) 20. The third text which is frequently applied is as to how the tax payer dealt with the subject matter of transaction during the time that it was with him. Has the tax-payer treated it as the stock-in-trade of his business ? or has he in his books of account and balance-sheet shown the item as an investment ? This inquiry, though relevant, is, however, not conclusive See : Ramnarain Sons (Pvt.) Ltd. vs. C.I.T., Investment Ltd. vs. C.I.T. Raja Bahadur Kamakhay Narain Singh vs. C.I.T. Suc....
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.... dealing in shares as a business. But this test again, like other tests, is not conclusive, for, it has been held that the transactions in securities and shares, if not frequent but of very large amounts, would point in the direction of the activity being in the nature of business, particularly if in the year of account the transactions of sale and purchase of securities were in number substantial and in value considerable. (See Investment Ltd. vs. C.I.T.) 24. These are some of the principles which govern the determination of the question which confronts us in this Reference. We wish to make it clear, however, that this is not intended to be an exhaustive list of all the relevant subsidiary tests and we are not to be understood as laying down that each one of them must be independently satisfied in every case and that an overall view of the matter and collective effect of all the circumstances is not to be taken. The question which we must, therefore, examine is whether in reaching the conclusion that the profit realised by the assessee in the instant case on the sale of shares was assessable to tax as business profits, the Tribunal approached the question from the right perspec....
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.... was treated as more or less decisive, that the Tribunal failed to find all essential facts and to apply many of the other relevant subsidiary tests in proper perspective and to arrive at a correct decision on a balanced consideration of all the facts and circumstances of the case including this very circumstance. The circumstance aforesaid on which the Tribunal very heavily relied was that the assessee itself had treated its entire share-holding as the stock-in-trade of its business and that it had returned the income from such source as business income and in the course of assessment to income-tax in the previous assessment years, the Department had on that basis taxed such income and allowed deductions and losses against such income. 28. Before the Tribunal the assessee sought to explain its conduct in the past years on the ground of all the while labouring under a misconception that it was a dealer in shares and that it did not fully appreciate the implications and it did not go deep into the matter as the amounts involved were very small. It was only in the year of account, and that too after the original return and the first revised return were filed, that the assessee, on....
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....nd that when the assessee has earned good profit out of sale of shares in the account year, it could not be allowed to change the stand and say that it was not a dealer in shares and all past assessments were wrong. It is in the light of these findings that the Tribunal decided against the assessee, so far as this aspect of the case is concerned, and it is that decision, as earlier stated by us, which appears to have really influenced the mind of the Tribunal in reaching its ultimate conclusion. 30. Now, it appears to us that so far as this aspect of the case is concerned, the Tribunal has misdirected itself in law in four respects and such misdirection has not only affected its finding its on this issue but also its ultimate decision. 31. The Tribunal, in the first place, erred in law invoking the principle of approbate and reprobate and in placing a bar of estoppel against the assessee. In C.I.T. vs. V.M.P. Firm 23, it was contended that the assessee in that case having opted to accept a scheme whereunder its losses suffered during subsequent assessment years were allowed to be set off against profits for the preceding years on the condition that any subsequent that may sub....
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....nal in respect of sub-sequent assessment to hold that the profits and the transactions of sale and purchase of shares and securities to profit of business and, therefore, liable to be taxed. The Supreme Court, while repelling the said contention, held that it was "wholly unsubstantial" and proceeded to observer, - "There is no such thing as res judicata in income-tax matters. The Appellate Tribunal has placed in a tabulated form the activities of the appellant showing the buying and selling and the magnitude of holdings and it cannot be said, therefore, that it was not open to the Appellate Tribunal to give the finding that it did." In Dalhousie Investment Trust Co. Ltd. vs. C.I.T. it was observed as under : "In the years prior to the assessment year, the case put forward by the assessee that the various acquisitions and sale of shares were in the nature of investments was accepted by the department, but such a decision given in the earlier years is not binding in the proceedings for assessment during subsequent years." It would thus appear, on the well-settled legal position, that merely because the assessee contended and the Department accepted in the course of the as....
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....the shares of a particular mill in its statement of shares in which trading transactions were carried on could not alter the real character of the acquisition. Even though the assessee in that case was a dealer in shares, it was found, on a totality of circumstances, that the transaction in relation to the shares of the said mill, which found place in a statement maintained by the assessee in respect of its trading transactions, was not a business transaction. In Raja Bahadur Kamakhya Narain Singh vs. C.I.T., it was observed that the name the assessee gave to his account, namely, "Account of Rs. 48 lakhs floating in the share market" could not render the dealings in that account into trading transactions, if otherwise they were not. In Investment Ltd. vs. C.I.T., it was held that the description of stock in the balance-sheet as "investment" was not decisive. In Karam Chand Thaper & Bros. vs. C.I.T., it was held that the circumstance that the assessee showed the shares in question as investment in its books as well as in its balance-sheet was not conclusive and that it was only a relevant circumstance which could have been relied on drawing an inference, provided the explanation fur....
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....the explanation on merits, or (ii) whether even assuming that the explanation was considered and rejected on merits, how far its mind was influenced in the process by the irrelevant consideration of estoppel, or (iii) whether it has altogether refused to consider the explanation on the ground that the assessee cannot be allowed to retrace its steps. The Tribunal, in our opinion, ought to have been more specific having regard to the well-settleed legal position under which if the assessee offered a satisfactory explanation with regard to its conduct such conduct could not have been placed in its way. 35. It would thus appear that the finding of the Tribunal on this relevant aspect is vitiated in as much as the Tribunal misdirected itself in law and fell in error of law while considering and weighing the legal and factual effect of the said aspect. The one ground which weighed very heavily with the Tribunal in deciding against the assessee, therefore, loses all its significance. Be it stated, even at the risk of repetition, that it is aspect which has played a vital part in the approach of the Tribunal even while dealing with the case as a whole. Even when it touched upon certain ....
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....ch left the assessee with no alternative but to settle its account with its partner in the manner that it did. Mere ownership of property, even if it was purchased from a source which was originally employed in business, would not automatically and necessarily make such property a trading asset. There is no warrant for such a presumption, See A. H. Wadia vs. C.I.T. Once such property was purchased, it became invested with the stamp of the absolute ownership of the assessee and without anything more, it may ordinarily be treated as the assessee's capital investment. Be it noted that some of those very shares or the accretions made thereto came to be sold in the year of account nearly 18 years later and that therefore, an inquiry in this direction was extremely pertinent. We derive no assistance, however, from the order of the Tribunal, so far as this aspect is concerned. Be it noted also that no other or further acquisition was made in the said year and that, therefore, there is no other inherent evidence on the strength of which any inference can be raised. 38. Then comes the period from S. Yrs. 2008 to 2025. The Tribunal found that during this period the assessee acquired f....
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....and character of the activity of the assessee. It may be noted, in this connection, firstly, that the Tribunal has found that no sales were effected in S. Ys. 2010 to 2014 2016, 2019, and 2021 to 2023. In S. Ys. 2015 2017, 2020 and 2024 there were sales only of 8, 3, 5 and 4 respectively. In the remaining years, there were "substantial" sales or disposal only during S.Ys. 2008 and 2018, leaving aside the sales in the assessment year. In S.Y. 2008, 1097 preference shares only appear to have been sold at a loss to on one party, namely, Zenith Assurance Co. Ltd. In S.Y 2018, one third of the total share-holding was transferred to the heirs of one of the deceased partners. This transaction, as observed partners. This transaction, as observed earlier, can by no stretch of imagination be called a sale. However, when an argument to that effect was advanced before the Tribunal by the assessee, it observed : "...... if that was so, there was no reason why were treated as business transaction". We are unable to comprehend the import of this observation. If, however, what is meant is that such transaction assumed the colour of sales, then the Tribunal clearly in law. Regular sale of shares an....
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.... the said share-holding was substantially augmented by acquisition of bonus shares is one of the subsequent years. The mills during the year of account. 42. Now, with regard to the sale of these shares, it was inter alis submitted by the assessee before the Tribunal that such sale was not effected in the ordinary course of business but it was undertaken as a part and parcel of the transaction of transfer of the management of the Jubilee Mills. The submission, which was reinforced by the assessee by production of an agreement entered into between the assessee and the transferee; was rejected by the Tribunal on the grounds that (1) no distinction was even made between the holding of the Jubilee Mills' shares and the holding of other shares, and (2) the agreement could not be taken into account, because it did not form part of the record it before the lower authorities and no reason was shown as to why it was not so produced. 43. In its application for reference under S. 256(1) of the Act, the assessee specifically sought to bring the aforesaid controversy before this Court by raising two questions, namely, (1) whether the Tribunal erred in law in not taking cognizance of th....
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....er, if grant of relief to him would be available on the determination of such questions (See C.I.T. vs. Sayaji Mills Ltd. In the present case, the question whether the profits realised by the assessee on the sale of various shares including the Jubilee Mills' shares were taxable as business income undoubtedly formed the subject matter of the appeal before the Tribunal. The assessee had succeeded before the Appellate Assistant Commissioner and it was a respondent before the Tribunal. It was entitled to support the order passed by the Appellate Assistant Commissioner which was in its favour by pressing into service any of the grounds decided against it (vide Rule 27). In view of the principle underlying the decision in Sayaji Mills case, it could also have maintained the order on a new aspect or angle with the permission of the Tribunal. In order, however, that such angle or aspect could be presented for consideration, it was necessary for the assessee to rely upon a piece of documentary evidence which had not been brought on record. The assessee tendered such document before the Tribunal and apparently invoked the provisions of Rule 29 of the Income-tax (Appellate Tribunal) Rule....
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....ent or for any other substantial cause, but in either case it must be the Court that requires it. This is the plain grammatical reading of the sub-clause. The legitimate occasion for the exercise of this direction is not whenever before the appeal is heard a party applies to adduce fresh evidence, but when on examining the evidence as it stands some inherent lands or defect becomes apparent ....... ........ It may well be that the defect may be pointed out by a party or that a party may move the Court to supply the defect, but the requirement must be the requirement of the Court upon its appreciation of the evidence as it stands." In Arjan Singh vs. Kartar Singh, the aforesaid view of the Privy Council was reaffirmed and it was observed :- "The true test, therefore, is whether the appellate Court is able to pronounce judgment into consideration the additional evidence sought to be adduced." The Supreme Court also observed in that case as follows : "The discretion to receive and admit additional evidence is not an arbitrary one, but is a judicial one circumscribed by the limitations specified in O. 41, R. 27, Civil P.C. If the additional evidence was allowed to be add....
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....the interest of justice something which remains obscure should be filled up so that it can pronounce its order in a more satisfactory manner (4) Such requirement in either case must be of the Tribunal and it will not arise ordinarily unless some inherent lacuna or defect becomes apparent on an examination of the evidence and, therefore, the legitimate occasion for the exercise of discretion under Rule 29 is not before the appeal is heard but when on an examination of evidence as it stands, some inherent locuna or defect becomes apparent; (5) such defect may be pointed out by a party or a party may move the Tribunal to supply the defect or the Tribunal itself may act suo motu in the matter; (6) if the additional evidence is allowed to be adduced contrary to the principles governing the reception of evidence, it would be a case of improper exercise of discretion and the additional evidence so brought on record will have to be ignored; and (7) a fortiori, if the decision not to allow additional evidence is arrived at unreasonably or capriciously or by ignoring relevant facts and adopting an unjudicial approach, then the exercise of discretion would, in law, be wrongful and improper. ....
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.... sale proceeds of the Jubilee Mills' shares. The attempt in other words, was to invoke that part of Rule 29 which authorises the Tribunal to admit additional evidence "for any other substantial cause". The assessee urged that the Tribunal, instead of considering the matter in the right perspective, refused to receive additional evidence on the ground that no attempt was made to produce it before the lower authorities and no reasons were given for such omission. This ground, according to the assessee, though it may be relevant, was not decisive and in so far as the Tribunal failed to consider whether in the interest of justice the lacuna in the evidence was still required to be filled up in order to pronounce its order in a more satisfactory manner, the exercise of the discretion under Rule 29 was vitiated. 51. We find that there is force in the submission made on behalf of the assessee. There is no manner of doubt that the assessee had not produced the agreement in question before the lower authorities and there was, therefore, a lacuna in the record. It is only on account of such defect that the question of allowing additional evidence arose and the assessee moved the Tr....
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.... findings of the Tribunal on this aspect of the case are confined only to number and class of shares purchased and sold and the names of the respective companies. The Tribunal failed to record any finding on the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holdings It is significant to note that though the Tribunal set out in its order the rival contentions of parties on this point which contained certain factual data and that though it made a summary of the transactions of sale purchase of shares in the whole period of 22 years, it did not record a finding on the magnitude of the shares purchased and sold and the ratio between the purchases and the sales and the holdings and the net gain or loss made by the assessee on such transactions and the commercial nature or otherwise of such activities. The Tribunal, as earlier stated, also failed to consider whether the purchase of right shares was a part of the business activity, if any, of the assessee and, if not, what its effect on this aspect of the case was. Though the Tribunal observed that except for the acquisition of shares from its partner in S.Y. 2007, the rest of the purchas....
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....onclusion being drawn that the activity of the assessee satisfied the test of business. It hardly needs to be re-emphasized that the line which separates a case in which an investor gains a sum as and by way of enhancement of value of security by realising it and a case where a gain is made in an operation of business in carrying out a scheme for profit-making is very thin. It appears to us, therefore, that in failing to find essential facts bearing on this aspect of the case and in omitting to apply this very important test in the light of the relevant facts, the Tribunal failed to make an inquiry in a direction which was very material in the peculiar facts and circumstances of the case. 54. The Tribunal, in the last place, also failed to apply the subsidiary test which is sometimes invoked, namely, whether the partnership-deed, if any, authorised the assessee to purchase and/or sell shares. Having regard to the circumstances under which a substantial portion of the share was originally acquired and in view of the nature and character of the transactions of sale, an inquiry in this direction might have thrown some light on the question under consideration. There is no dispute t....
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....behalf of the Revenue, the contention on behalf of the assessee was that this was a wholly new case and that it was not open to the Revenue to make out such case for the first time in this Reference. In the alternative, it was contended that it was in any case a wholly new aspect of the case which depended for its determination upon investigation into questions of facts and that since such an aspect was not presented on behalf of the Revenue before the final fact-finding authority, the assessee had no opportunity to meet it or to rebut it and that, therefore, the Revenue should not be permitted to raise it. In this connection, it was particularly emphasised that the purchase of shares from the ex-partner in S.Y. 2007 could not be said to be in the course of money-lending business in as much as what was settled by the said transaction was not the debt of a person to whom monies were lent in regular course of business but the over-drawn account of a partner. It was urged that if the aspect which the Revenue now wanted to present was raised before the lower authorities, the assessee could have led proper evidence to rebut the same, particularly by bringing on record circumstances with....
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....sale of these properties was loss on capital invested in purchase of property and not invested in the money-lending business; (5) the question in each case is, therefore, primarily a question of fact and it is for the Revenue to establish that the properties after they were purchased, or their income, were still part of the assets used by the money-lender in his business or in operations connected with such business; (6) no presumption could be made that the properties were still part of the assets of the money-lending business and no onus rested on the assessee to prove that he had some unequivocal act by which he withdrew those properties from his money-lending business and constituted them as an independent investment; and (7) if the money-lender had no choice but to accept some other assets in full or part satisfaction of the dues of his business, the assets so received may constitute the stock-in-trade of the money-lending business. Propositions (1) and (2) are established by the decisions in Punjab Co-operative Bank Ltd. vs. C.I.T., and Sardar Indra Singh and Sons Ltd. vs. C.I.T., Propositions (4) to (6) emerge from the decision in A.H. Wadia vs. C.I.T., and proposition (7) i....