TaxTMI 
TaxTMI 
TaxTMI 
1962 (9) TMI 79
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....pat Ji Dharam Khata account was utilised for the purpose of its business and was treated as a loan and as such the interest paid by the assessee firm to Kamlapat Ji Dharam Khata was business expenditure admissible under section 10(2)(xv) of the Income-tax Act. The facts as given in the statement of case submitted by the Tribunal in short are as follows: L. Kamlapat died on 31st of May, 1937. On the 29th of May, 1937, at about 5 p.m. he is said to have informed Sri Gopi Krishna, the munim of the assessee firm, which is a banking concern, as admitted by the learned counsel for the parties, that he (Kamlapat Ji) had donated the following amounts for the purpose stated thereunder: (1) ₹ 5 lakhs to be set apart for the purpose of charity, the object of which was to construct 100 school buildings in the district of Kanpur, a hall and a ghat on the banks of the river Ganga in Kanpur meant for the use of the general public. (2) To give the amounts to the tune of ₹ 2,46,500 to some of his relations. (We need not give the details of these amounts because we are not directly concerned with them in the disposal of this reference.) The same day, the munim of the assessee fir....
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....ir individual capacities and as such interest paid on these deposits by the firm was not admissible? (4) Whether the surplus realised by the sale of the shares of the Aluminium Corporation of India Ltd., J.K. Investment Trust and Raymond Woollen Mills amounting in aggregate to ₹ 3,99,587 or any part thereof was the revenue income of the assessee liable to tax under the Income-tax Act, 1922?" At the very outset of the hearing of the case, the learned counsel for the department conceded questions Nos. 2 and 3 in favour of the assessees. Consequently, we answer those questions in favour of the assessee and against the department. Coming to question No. 1, it may be stated that the only ground on which the Tribunal decided against the assessees was that inasmuch as the balance standing to the credit of L. Kamlapat on 29th May, 1937, was only ₹ 3,73,550-8-7, he could not obviously create a trust in respect of a much larger amount, i.e., ₹ 5 lakhs. If the Tribunal had treated this as a pure question of fact, then perhaps the finding of the Tribunal would not have been open to any serious challenge but actually what the Tribunal did was that it held that "i....
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....hough it considered the transaction bona fide, the Tribunal held that the gift was not effectuated on the grounds (i) that there was no transfer of possession, (ii) that the assessee did not have sufficient amount in credit with the firm on 8th November, 1953, and (iii) that the firm itself did not have sufficient cash on that date to carry out the directions of the assessee. When the matter came up before the Bombay High Court, Chagla C.J., while disposing of the second objection of the Tribunal, observed as follows: "The second equally extraordinary reason given by the Tribunal is that the assessee did not have sufficient amount to the credit of his account with his bankers on the 8th of November, 1953. Now that is a matter between the assessee and his bankers. If the bankers choose to give overdraft facilities to their constituent and accept his order and give credit to a third party for an amount which exceeds the amount to the credit of their constituent, as far as the third party and the bankers are concerned, the bankers become liable to the third party to pay that amount. Therefore, it is difficult to understand what possible relevance the fact of the assessee not ha....
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.... realised from the sale of shares of the Raymond Woollen Mills Ltd. The assessees purchased 50,000 ordinary shares of the Raymond Woollen Mills Ltd. at the rate of ₹ 139-8-0 per share for a sum of ₹ 69,75,255 in the year 1944. A sum of ₹ 7 lakhs was paid as earnest money on November 4, 1944, and the balance up to December 6, 1944. These shares were sold in the open market from time to time. During the period 23rd November, 1944, to 2nd April, 1946, the total sale proceeds of these shares were ₹ 72,42,200 which resulted in a profit of ₹ 2,66,945. The assessees purchased 67 debentures, 5,582 preference shares and 18,576 ordinary shares of the Aluminium Corporation of India Ltd. in the period commencing from 26th January, 1945, and ending with 5th April, 1946, for a sum of ₹ 8,57,480. During the period, February 1, 1945, to August 13, 1945, 2,118 preference shares were sold for ₹ 7,05,957. The cost of these shares left in the stock amounted to ₹ 2,11,800. The assessees received a sum of ₹ 60,278 as profit from the sale of these shares. With regard to the J.K. Investment Trust shares the position is that the assessees purchased 290....
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....enditure by the assessees. Mr. Pathak has strenuously contended that on these findings the department was not justified in treating the surplus amount received by sale of these shares as revenue receipt and that those amounts were in the nature of capital asset. A large number of cases have been cited before us. It may be stated that the assessee firm is a banking concern and used to act as a financier of the various companies. Normally, the banking business consists of receiving deposits from depositors and paying them when demanded, but since it is not possible for any banking concern to keep its money idle, the same is invested so that the bank concerned may be able to pay interest to the depositors from the profits made from those investments. The amount which is kept by the bank as circulating capital or stock-intrade includes not only the amount which it keeps readily available, in order to pay the depositors but also such amounts which, though invested, are easily convertible into cash in order to meet an emergent demand from the depositors. Even the latter amounts would be included within the expression "circulating capital" or "stock-in-trade" of the ....
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....he money-lending business, does not automatically make such properties part of such business, in the absence of any finding that the income of these properties was being used in that business or that those properties were subsequently treated as stock-in-trade of that business except perhaps in the case of banking institutions." It is contended that the departmental authorities should have investigated the question as to whether or not at the time when the purchases were made, the idea was to sell them again. The submission of the learned counsel is that in a case like this the burden is not on the assessees but on the department to prove the fact that the idea was to make an investment. The question of burden of proof does not arise in this case because what we have to consider is as to whether on the facts found by the Tribunal it is possible to accept that the surplus amounts received by way of sale of shares were in the nature of capital asset or were profits which were liable to be taxed. On behalf of the department Mr. Gulati has strenuously contended that so long as there is some material on the basis of which, without being perverse, the Tribunal could hold that the s....
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....e easily converted. It cannot be submitted with any amount of reasonableness that the shares of the Raymond Woollen Mills or that of the Aluminium Corporation were not very good shares. Both the companies have great reputation and it was open to the Tribunal to take judicial notice of that fact. Good shares are as easily convertible into cash as any Government security. The main point in the case is whether on the date when the shares were acquired, there was an intention to sell them for profit. It is well established that intention can only be gathered from the overt acts committed by the parties. In the present case, the assessees did sell them for profit. It is conceded that if the assessees had the sole intention at the time of purchasing the shares to sell them at profit, the surplus would be a revenue receipt liable to be taxed. Mr. Pathak's grievance, however, is that the Tribunal has not categorically found that that was the sole consideration with which the shares were acquired. As we have said above the intention of a party can only be gathered by the overt acts that it commits. In the present case, there is a clear finding that the assessee, within a few days of the....
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....as for the assessees to have proved the positive case which they took before the departmental authorities and the Tribunal. Under these circumstances, we do not see how the cases cited by Mr. Pathak can be of any real help to him and having carefully considered them, we find them clearly distinguishable. We are not impressed by the submission that the absence of a clear and categorical finding by the Tribunal that the sole purpose for which the shares were purchased was to sell them at profit would adversely affect the case. The findings of the Tribunal, if not in express words, at least by implication, are clear, the same being that the sole purpose for which the shares were purchased was to sell them later on at profit. The cases on which Mr. Pathak relied are: Vellayappa Chettiar v. Commissioner of Income-tax [1952] 22 I.T.R. 292, Saroj Kumar Mazumdar v. Commissioner of Income-tax [1959] 37 I.T.R. 242 ; [1959] Supp. 2 S.C.R. 846, Ram Narain Sons (Pr.) Ltd. v. Commissioner of Income-tax [1961] 41 I.T.R. 534 ; [1961] 2 S.C.R. 904 and Sardar Indra Singh & Sons Ltd. v. Commissioner of Income-tax [1953] 24 I.T.R. 415 ; [1954] S. C. R. 171. It is not necessary to mention the facts ....
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....pared to other sources. In the present case, as we have mentioned above, the income from interest, i.e., money-lending, was so large and from other sources so meagre that it cannot be said that the essential business of the assessees was not money- lending and financing. So far as the second submission is concerned, it may be stated that even though the Appellate Assistant Commissioner found that the assessees had acquired the Raymond Woollen Mills shares in order to have a control over the mills, that finding was not binding upon the Tribunal and even though the Tribunal has not, in so many words, said so, it has by implication done so. The findings of the Appellate Assistant Commissioner were before the Tribunal and would also have been placed before it at the time of the hearing of the appeals. The mere fact that the Tribunal has not agreed with those findings and has recorded findings completely different from those recorded by the Appellate Assistant Commissioner clearly shows that the Tribunal was not prepared to accept those findings as correct and inasmuch as it was free to record its own findings, it was justified in disregarding the findings recorded by the Appellate Assi....