AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1975 (7) TMI 2
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....question of law and fact, it had not stated all the facts and circumstances on which it based its conclusion that the profit of Rs. 2,13,150 was a business profit and so the court called for a supplementary statement of the case and a supplementary statement of the case was submitted to the court by the Tribunal. The material facts in the statement of the case were as follows. The assessee is a public limited company and it is controlled by the Birlas. The assessee applied for certain shares of the Gwalior Rayon Silk Manufacturing (Weaving) Company Ltd. (hereinafter referred to as the " rayon company "), also a company controlled by the Birlas. This company was floated on August 25, 1947, with a paid up capital of Rs. 5 lakhs made up of 50,000 ordinary shares of Rs. 10 each. In the year ending December 31, 1951, the rayon company issued certain new, shares for paid up capital of Rs. 1,17,25,000 made up as follows : Rs. 7,60,000 Ordinary shares of Rs. 10 each fully paid up. 76,00,000 1,50,000 Ordinary shares of Rs. 10 each with paid up at Rs. 2-8-0 each. 3,75,000 1,50,000 6% preference shares of Rs. 100 each paid up at Rs. 25 each (redeemable at par at....
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....med Rs. 6,30,000 as loss on account of devaluation of the shares of M/s. Pilani Investment Corporation though that was not allowed ; there had recently grown a business practice of investing large sums of money in shares in new ventures with an eye on their appreciation for obtaining by sale substantial profits in future. The High Court, in its judgment, said that there was no provision in clauses 10, 12, 13, 28 and 29 of paragraph 3 of the memorandum of association of the assessee which authorised the carrying on of the business of purchasing and selling shares, although some of these clauses did authorise the assessee to acquire and sell shares in other similar companies ; that the inclusion of the profit of Rs. 2,13,150 in the profit and loss account without taking it into any reserve specifically was not conclusive of the question whether it was a capital asset or a revenue receipt ; that the true nature and character of the moneys received was to be determined not by the manner in which the assessee treated it but by its inherent character, and that it was wholly immaterial as to how the assessee treated the amount in question ; and that there was no evidence that the share....
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....ction constitutes an adventure in the nature of trade. The line between capital sales and sales producing income has been drawn by Lord Justice Clerk in Californian Copper Syndicate v. Harris in a passage which has become classical : " It is quite a well-settled principle in dealing with questions of assessment of income-tax that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit ...... assessable to income-tax. But, it is equally 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 separates 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 of 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 carrying out a scheme for profit-making ? " ....
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....tal and would not stamp the transaction with a business character (see Commissioner of Income-tax v. P. K. N. Co. Ltd.). Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale (see Jenkinson v. Freedland ; Radha Debi Jalan v. Commissioner of Income-tax, India Nut Co. Ltd. v. Commissioner of Income-tax, Mrs. Sooniram Poddar v. Commissioner of Income-tax, Ajax Products Ltd. v. Commissioner of Income-tax, Gustad Irani v. Commissioner of Income-tax and Mrs. Alexander v. Commissioner of Income-tax). A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment (see Leeming v. Jones) and also the decisions of this court in Saroj Kumar Mazumdar v. Commissioner of Income-tax and Janki Ram Bhadur Ram v. Commissioner of Income-tax). In Commissioner's of Inland Revenue v. Frase....
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....ssessee had been buying and selling shares even though as an isolated adventure in the nature of business. The High Court has not upset this finding, but has only said that this is an isolated transaction. That apart, in the same year, a sum of Rs. 6,30,000 was debited to the profit and loss account on devaluation of the shares of M/s. Pilani Investment Corporation. Such a debit was permissible only on the footing that the shares constituted the stock-in-trade of the assessee. It is no doubt true that the department did not allow this claim. But that was on the basis that the claim that the shares have fallen in value was not proved to the satisfaction of the Income-tax Officer, and not on the basis that the shares were not held as stock-in-trade as the High Court wrongly thought. The Tribunal also referred to the resolutions passed by the assessee authorising one of its directors to purchase and sell the shares in the rayon company. The finding of the High Court that the clauses of the memorandum of association, viz., clauses 10, 12, 13, 28 and 29 do not authorize the company to acquire and sell shares as business has no relevance in view of the aforesaid resolution of the assesse....