TaxTMI 
TaxTMI 
1970 (7) TMI 9
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.... ", was a big zamindar. Consequent on the abolition of zamindari in the year 1951, the assessee received compensation in the shape of zamindari abolition compensation (Z. A. C.) bonds and thereafter he started investing his money in shares and securities. During the previous years relevant to the assessment years 1957-58, 1958-59 and 1960-61, to which the present reference relates, the assessee sold some of the shares and purchased certain other shares. In some of these transactions the assessee earned a surplus over the cost price, while in other transactions the shares were sold for less than the cost price. The resultant effect of these transactions was that there was a total surplus of Rs. 3,100, Rs. 15,098 and Rs. 1,666 for the three r....
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....and that the surpluses which he had received in the course of realisation of investments represented accretion to capital and was not taxable as profit in an adventure in the nature of trade. The Tribunal gave effect to the contention of the assessee and held that the amounts in question were received by the assessee in the process of his conversion of the investments and, as such, the same could not be taxed under section 10 of the Act as profits of a business. The Tribunal, therefore, directed that the amounts in question be deleted from the total income of the assessee for the three relevant assessment years. The questions referred by the Tribunal for the opinion of this court are : " 1. Whether there were any materials on record t....
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....ment given below : ----------------------------------------------------------------------------------------------------------------------------------------------- S.No. Name of the Co. No. of shares purchased sold Profit/loss on sale of shares. -------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 -------------------------------------------------------------------------------------------------------------------------------------------------- Assessment year 1957-58 Rs. 1. Tata Iron & Steel Co. Ltd. - 20 (----) 453 (preference shares) 2. Standard Vacuum & Refinery Co. Ltd. (debentures) - -- (-----) 406 3. De....
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....relevant to the assessment year 1958-59, the assessee again acquired 805 Tata ordinary shares. This year the assessee, no doubt, acquired 287 shares of Associated Cement Co. Ltd., in addition to 115 shares of the same company acquired in the preceding year, but he sold away a lot of 345 shares of Associated Cement Company this year at a loss of Rs. 8,706. The remaining 57 shares of Associated Cement Company Ltd. were sold away by the assessee next year and the sale resulted in a surplus of Rs. 1,666. Besides these transactions, the assessee sold away certain Government securities this year. The total investment in Tata ordinary shares, at the end of the year, amounted to Rs. 4,22,000 out of a total investment of Rs. 10,21,000. The assessee ....
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....t a single scrip of Tata ordinary shares was sold in any of those years. The assessee went on acquiring Tata ordinary shares every year with the result that, as already noted, by the end of the previous year relevant to the assessment year 1961-62, the shareholding of the assessee in Tata ordinary shares amounted to Rs. 9,49,000 out of a total investment of Rs. 10,41,000. The surpluses earned by the assessee in the first and the last years under reference were inconsiderable. These facts clearly point to the truth of the assessee's version that he was liquidating his investments, in Government securities, as well as in preference and equity shares and debentures issued by various companies, with a view to invest, principally, in Tata ordina....
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....ich are associated with the concept of trade or business'. " Where the intention of the assessee at the time of the acquisition of the shares is to resell them at a profit when the market appreciates, the shares become his stock-in-trade and the surplus resulting from the sale of shares becomes profits assessable to tax. Where, however, the assessee's intention is, not to resell the shares for profit but to earn dividends therefrom, the assessee is an investor taxable only upon the dividends earned by him. When an ordinary investor (not being an investment company) changes his investments it is well-establislied that the surpluses realised on such change of investments are capital in nature not liable to tax. The intention of the assesse....