TaxTMI 
TaxTMI 
1967 (2) TMI 24
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.... year with which we are concerned in this reference is 1947-48. The accounting year is Dassera 2002-2003, corresponding to October 16, 1945, to October 5, 1946. The assessee, Sri Rameshwar Prasad Bagla (hereinafter referred to as the assessee), is a partner of a partnership firm known as Agarwal and Co. The India United Mills Ltd. is a large unit of textiles and was under the managing agency of M/s. E. D. Sassoon and Co. Ltd. of Bombay. The said E. D. Sassoon and Co. Ltd. held share blocks of ordinary and deferred shares in India United Mills Ltd. In 1943, negotiations were entered into between M/s. E. D. Sassoon and Co. Ltd., one party, and Agarwal and Co., the other party. The negotiations matured into a deal. The agreement relating to the deal was recorded in a document dated January 26, 1945. E. D. Sassoon and Co. agreed to assign the managing agency of the India United Mills Ltd. to Agarwal and Co. with effect from December 1, 1943, for a consideration of Rs. 57,80,000. In addition, Agarwal and Co. agreed to purchase 16,80,000 ordinary shares of the India United Mills Ltd. of the face value of Rs. 10 each and 20,00,000, deferred shares of rupee 1 each. The price payable ....
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....rn. The Income-tax Officer, however, made an enquiry from the assessee in this respect and the latter sent a letter dated March 30, 1949, to the Income-tax Officer in the course of which he stated I have already brought to your honour's notice in the course of assessment proceedings and would like to confirm that I had certain share transactions in which there has been appreciation to the tune of Rs. 1,51,927-1-11. Since it is common ground that the assessee is not dealing in shares as business, the said appreciation in capital should have been normally disclosed as capital gain in the return but I regret that the amount could not be shown, so the return already filed may be treated as amended accordingly." Admittedly, the sum of Rs. 1,51,927-1-11 includes surplus realised in the sale of the aforesaid 43,300 shares of the India United Mills Limited. The Income-tax Officer repelled the plea of the assessee that the profit made by the sale of 43,700 shares of the India United Mills Ltd. was not profit liable to be taxed as such but was only a capital gain and liable to be taxed accordingly. In the previous year, the year with which we are concerned in this reference, the ass....
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....the fact that the interval between the purchase of India United Mills shares and their sale was not big, it is clear that the idea was not to retain these shares by way of investment. The statement of case is clear that first Agarwal and Co. paid for the 5 lakhs shares and only thereafter transferred the same to Poddar and the Khetan groups (the assessee belonged to the Bagla group). The shares were sold in small lots thereby indicating that the idea was to earn profit and sales were cautiously made in order to catch the best market. Under the agreement it was Agarwal and Co. which had to purchase the shares and not the assessee. Consequently the assessee's theory that he had purchased the shares with a view to obtain the managing agency cannot be accepted. Again, the assessee made investment with borrowed capital. Normally, a person would not purchase shares or any other article by taking loan if the idea is to retain the shares or the article as an investment because while retaining so he would have to pay large interest. It is, again, noteworthy that the shares were not held by the assessee for any substantial time but were sold soon after the purchase thereby indicating that....
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....assessee-company did not deal in shares." Their Lordships were also of the opinion that the circumstances of the case indicated that the object of the company in buying shares was only to obtain a managing agency of the third mill which no doubt would have been an asset of an enduring nature and would have brought the assessee-company profits but there was from the inception no intention whatever on the part of the assessee-company to resell the shares either at a profit or otherwise deal in them. This case, therefore, is clearly distinguishable. In our case, as already pointed out earlier, there was not an isolated transaction of sale and purchase but a series of transactions. Secondly, there was not and there could not be at the time when the shares were purchased any question of acquiring the managing agency. Lastly, the cumulative effect of the circumstances as mentioned earlier in this judgment is suggestive of the inference that the assessee had purchased the shares in India United Mills for the purpose of selling them again in order to make a profit. The shares were not retained by it. They were sold and the proceeds were invested in another company. In Commissioner of Incom....