TaxTMI 
TaxTMI 
1970 (2) TMI 30
X X X X Extracts X X X X
X X X X Extracts X X X X
....hand Shrimal, between November 20, 1955, and November 27, 1955, for a sum of Rs. 3,87,111. In the transaction of purchase and sale of gold the assessee thus sustained a loss of Rs. 843. With the sale proceeds of the gold the assessee purchased on December 1, 1955, 4,000 shares of Sirpur Paper Mills Ltd. for a sum of Rs. 3,77,142-13-9. These shares were again sold by the assessee through the broker Kapurchand Shrimal, on January 31, 1956, and March 27,1956, for a total sum of Rs. 4,79,829. This resulted in a net profit of Rs. 1,02,686 to the assessee. With the sale proceeds the assessee proceeded to purchase shares of M. S. K. Mills, Hyderabad Construction Company, Praga Tools Ltd., Sir Silk Ltd. and Azam Jahi Mills Ltd. on November 22,1956, for a sum of Rs. 1,79,689. These shares were again sold in the subsequent year. On these facts the Income-tax Officer held that the purchase and sale of these shares of Sirpur Paper Mills Ltd. was an adventure in the nature of trade and, therefore, the profit of Rs. 1,01,842 was assessable to income-tax. The Income-tax Officer held that the intention of the assessee was to take advantage of the rising market in Sirpur shares and make a profit. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the House of Lords proceeded to consider the case on that finding. Lord Buckmaster observed : " This brings the argument back to the original position. Can the profits made in this case be described as income ? Were the respondent a company promoter or were his business associated with purchase and sale of estates, wholly different considerations would apply, but this is negatived : the transaction in this case stands isolated and alone. It is to my mind, in the circumstances, purely an affair of capital. I can see no difference between it and what might have happened had the respondent bought shares in two companies which were going to be amalgamated, and then sold equivalent shares in the amalgamated company at a profit ; an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value ; if it does so rise, its realization does not make it income. If the Crown's contention were sound the same result would have arisen had the respondent taken shares in the company instead of cash, even though unrealized. " He then quoted with approval the statement of Lawrence L.J. : " It seems to me ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applying the same principle to shares which are bought and sold in the market place like other commercial commodities. Sri T. Anantha Babu, learned counsel for the department, referred us to the following observations of Lord justice Clerk in Californian Copper Syndicate v. Harris : " 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 in the sense of Schedule D of the Income-Tax Act of 1842 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. The simplest case is that of a person or association of persons buying and selling lands or securities speculatively, in order to make gain, dealing in such investments as a business, and thereby seeking to make profits. There are many companies which in their very incep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Income-tax. That case also was concerned with the purchase and sale of shares by a zamindar. It was contended on behalf of the zamindar that the purchase and sale of shares was not his normal activity and that the profit made by him by purchase and sale of shares could not be subjected to income-tax as profit arising from an adventure in the nature of trade. Having regard to the substantial nature of the transactions, the manner in which the books were maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and the sale and the holdings, the Tribunal held that the profits were business profits. Their Lordships of the Supreme Court accepted that finding. Referring the case of G. Venkataswami Naidu & Co. v. Commissioner of Income-tax their Lordships summarised the effect of that decision in these words : " .... this court held that before the Tribunal could come to the conclusion that it was an adventure in the nature of trade, it had to take into consideration the legal requirements associated with the concept of the trade or business and that such a question was a mixed question of law and fact. It was also held that where a person in....