ivil Appeal No 1635 of 1968
Appeal from the judgment and order dated May 7 1965 of the Calcutta High Court in Income tax Reference No 205 of 1961
section Ray RK Choudhury and BP Maheshwari for the appellant
Jagdish Swarup Solicitor General SC Manchanda RN Sachthey and BD Sharma for the respondent
The Judgment of the Court was delivered by Grover J
This is an appeal by certificate from a judgment of  the Calcutta High Court answering the following question referred to it in the negative and against the assessee Whether on the facts and in the circumstances of the case the loss of Rs 111816 suffered by the assessee on the sale of shares of Fort William Jute Company Limited was a loss that arose in its share dealing business
 The assessee is a public limited company
It Carries on inter alia business of dealing in shares and securities
The profits 774 and losses arising from transactions in shares in the ordinary course of the assessee s business have always been treated as profits or losses of the share dealing business
During the assessment year 1954 55 relevant accounting period being the financial year 1953 54 the assessee suffered a loss of Rs 111816 on the sale of 1575 preference shares of Fort William Jute Company Ltd These shares were purchased on May 22 1952 at the rate of Rs 186 per share from Mugneeram Bangur  Co and were sold on December 23 1953 at the rate of Rs 115 per share to the same company
The background in which these transactions took place may be noticed
Kettlewell Bullen  Co were the managing agents of Fort William Jute Co Ltd On May 21 1952 an agreement was entered into between Kettlewell Bullen  Co and Mugneeram Bungur  Co according to which the entire holdings of Kettlewell Bullen  Co in the managed company Fort William Jute Co Ltd consisting of 6920 tax free cumulative preference shares and 600 ordinary shares were to be sold to Mugneeram Bangur  Co or their nominees at the agreed price of Rs 185  per preference share and Rs 400 per ordinary share
Pursuant to this agreement Kettlewell Bullen  Co issued a circular letter to all shareholders of Fort William Jute Co Ltd informing them of the terms of the agreement and pointing out that Kettlewell Bullen  Co would tender resignation from the office of the managing agents with effect from July 1 1952
It was stated in this letter the purchase price of each ordinary share was Rs 400 and of each preference share Rs 185 
It was further condition of the agreement that Ms Mugneeram Bangur  Co would offer to all shareholders of the company ordinary and preference to purchase their shares at the same price on the terms hereinafter referred to
It was intended that Ms Bangur Brothers Ltd would be appointed managing agents
At the time of the agreement namely May 21 1952 the market price of the preference shares ranged between Rs 119 and Rs 122 per share but the shares were purchased by the assessee on May 22 1952 at the rate of Rs 186 per share
A large part of the preference shares of Fort William Jute Co Ltd were transferred to three Companies by Mugneeram Bangur  Co who had to take over 8617 preference shares in terms of the agreement
The Companies to which these shares were transferred were 1 Manwar Textile Agency Ltd 2 Union Co Ltd and 3 Star Co Ltd the assessee
Ms Bangut Bros were appointed as the managing agents of Fort William Jute Company for a period of ten years with effect from July 1 1952
The total number of preference shares of Fort William Jute Company Ltd which were acquired by the assessee from Mugnee 775 ram Bangur  Co was 1670
One lot of 1620 shares was purchased on May 22 1952 at Rs 186 per share and the second lot of 50 shares was purchased at Rs 184 on May 27 1952
For the acquisition of these shares the assessee had to overdraw on its Bank account
On December 23 1953 1575 shares were sold to Mugneeram Bangur  Co at Rs 115 per share resulting in a loss of Rs 111816 which was included in the loss of Rs 130152 debited to the profit and loss account under the head loss on sale of investment
The assessee claimed this as a loss arising in the ordinary course of its business
The Income tax Officer and the Appellate Assistant Commissioner rejected the assessee s claim on the ground that the shares were purchased as a contribution to the scheme of acquisition of the managing agency of the Fort William Jute Co Ltd by Mugneeram Bangur  Co or its nominee
The loss therefore did not arise in the course of the assessee s normal business of dealing in shares
The Appellate Tribunal found that there was no evidence that the assessee had been made a pawn in the scheme of acquisition of the managing agency of Fort William Jute Co Ltd by Mugneeram Bangur  Co or that the shares were acquired by the assessee to relieve the latter of the load of their shares in pursuance of that scheme
The Tribunal was further of the view that even if Mugneeram Bangur  Co had a controlling interest in the assessee firm by having a majority of the shares in it no such inference could necessarily by raised that the assessee did not purchase the shares of Fort William Jute Co Ltd as a measure of its own activity as a dealer in shares
The Tribunal however held that the shares were not acquired in the course of the assessee s share dealing business for the reason that in the profit and loss account for the year ending March 31 1954 the assessee had made a distinction between its transactions as a dealer and as an investor in shares
The Tribunal found that while the profit on sale of shares out of its stock in trade had been shown and described as such in the profit and loss account the loss on sale of investment had been shown in the profit and loss account as a loss in investment
From the treatment of the loss given by the assessee in its own profit and loss account the Tribunal came to the conclusion that the shares of Fort William Jute Co Ltd were acquired by the assessee as a measure of investment and not as stock in trade of the assessee s share dealing business
The High Court while dealing with the question which had been referred at the instance of the assessee was of the opinion that the Tribunal had not properly considered the primary facts which had been found by the Income tax Officer and the Appellate 776 Assistant Commissioner
It proceeded to refer to some of the proved and admitted facts which were 1 The profits and loss account relating to the sale of shares showed that the transactions in Fort William Jute Co shares stood apart from the other transactions
While the other transactions were of a few thousand rupees only rising to nearly 30000 in one case the transaction in Fort William Jute Co shares involved the payment of nearly Rs 300000
2 These shares were acquired in one lot from Mugneeram Bangur  Co and sold back to the same concern in one lot which was altogether unusual
3 The shares in question were purchased by the assessee one day after the agreement was entered into between Kettlewell Bullen  Co and Mugneeram Bangur  Co 4 The preference shares of the face value of Rs 100 were purchased at Rs 186 per share on May 22 1952 when on the previous day the quotation in the market was Rs 119 per share only
Taking the overall picture the High Court felt that there could be only one inference that the assessee an associate of Mugneeram Bangur  Co had enttred into the transaction relating to preference shares at the bidding of the Bangurs for the purpose of helping them
It was observed that the Tribunal was wrong in holding that there was no evidence that these associates had been made pawns in the transaction
The conclusion of the High Court was on the facts and circumstances of the case it is impossible to hold that the assessee bought shares in the ordinary course of business or would have bought them but to help Mugneeram Bangur  Co in their scheme of acquisition of the managing agency rights
It appears that the High Court was not impressed with the view of the Tribunal that on the basis of entries in the profit and loss account it could be held that the share transactions in question related to the capital account the shares having been acquired as a measure of investment
The first contention raised on behalf of the assessee which is the appellant before us is that the High Court was not entitled to reverse the findings of fact of the Appellate Tribunal since 777 the department had not challenged the same by means of appropriate proceedings for reference of a question challenging those findings
It is pointed that the Tribunal had come to the conclusion that there was no evidence to show that the assessee had been made a pawn in the scheme of acquisition of the managing agency of Fort William Jute Co by Mugneeram Bangur  Co or that the preference shares had been acquired by the assessee pursuant to that scheme
It is submitted that the Tribunal had thus reversed the view which had commended itself to the Income tax Officer and the Appellate Assistant Commissioner and to that extent the Tribunal s decision was in favour of the assessee and could not be reversed or set aside by the High Court in the absence of any reference at the instance of the department
It is noteworthy that the question which was referred is couched in general terms and was not limited to
or circumscribed by the reasons which had been given by the Tribunal against the assessee The question of law on which reference can be made must arise out of the order of the Tribunal
The order which was made in the present case was in favour of the department and against the assessee
It is true that certain reasons which had appealed to the Income tax Officer and the Appellate Assistant Commissioner were not accepted by the Appellate Tribunal but it had come to the following conclusion which was material for the disposal of the appeal  We accordingly uphold the view taken by the authorities below that the loss of Rs 111818 incurred on the sale of 1575 preference shares of Fort William Jute Co Ltd was not a loss that arose in course of the appellant s business in share dealing though for different reasons
The question which was referred was framed in the light of the final conclusion and in our judgment it was not necessary for the department to apply for and obtain a reference on a question arising from the reasons given by the Tribunal in support of its conclusion in favour of the department
It has next been contended on behalf of the appellant that where a question is one of mixed facts and law the facts as found by the Tribunal must be accepted as correct
The Tribunal had negatived the finding of  the Income tax Officer and the Appellate Assistant Commissioner that the preference shares had been acquired by the assessee as a pawn in the scheme of transfer of the managing agency of Fort William Jute Co Ltd It was therefore not open to the High Court to come to the same conclusion by not treating the finding of the Appellate Tribunal 778 as final
Our attention has been invited to the observations in Commissioner of Income tax Bombay City Iv
Greaves Cotton  Co Ltd 1 that it is not open to the High Court in a reference under section 661 of the Income tax Act 1922 to embark upon a re appraisal of the evidence and to arrive at findings of fact contrary to those of the Tribunal
The finding of fact will be defective in law if there is no vidence to support it or if the finding is unreasonable or perverse but it is not open to a party to challenge such a finding unless reference has been made of a specific question concerning that finding
In Oriental Investment Ca P Ltd vs Commissioner of Income tax2 it has been reiterated that in dealing with findings on questions of mixed law and fact the High Court must accept the findings of the Tribunal on the primary question of fact as final although it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly
It is argued that the High Court has not characterised the aforesaid finding of the Appellate Tribunal as perverse or arbitrary and once that finding is accepted there would be no justification for holding that the assessee had been made a pawn in the matter of the scheme of transfer of the managing agency of Fort William Jute Co Ltd by Mugneetare Bangut  Co or Bangut Brothers Ltd In any case there were several facts which showed that the assessee was not privy or party to the aforesaid scheme
It did not acquire any interest in the managing agency nor was it a subsidiary or associate of Mugneeram Bangut group of concerns
The assessee was connected with the Bangurs only to the extent that out of its four Directors two of the Directors were Bangurs
In our opinion even if the conclusion of the High Court on the point mentioned above is not taken into consideration the question which was referred had to be answered against the assessee
On admitted and proved facts there can be no manner of doubt that the assessee did not acquire the preference shares in the ordinary course of business
These facts may be restated as follows  1 The market rate of the preference shares remained constant at the figure of Rs 119 between April 16 1952 and May 21 1952
2 On May 21 1952 the agreement between Mugneeram Bangur  Co and Kettlewell Bullen  Co was entered into for purchasing the entire holding of the managing agency company in the managed company
1 2 779 3 On May 22 1952 1620 shares were acquired by the assessee from Mugneeram Bangur  Co at the rate of Rs 186 per share
50 more shares were acquired on May 27 1952 at Rs 184 per share
The shares were obviously acquired at a price which was very much higher than the market price which prevailed only a day before they were purchased by the assessee
4 Out of 1670 shares taken over by the assessee from Mugneeram Bangur  Co 1575 were sold back to the same company at the rate of Rs 115 per share
5 The profit and loss account for the assessment year 1954 55 showed that the dealings in other shares of comparatively much lesser value than the shares in question
The profits and losses which had been made and incurred on account of the other shares were also comparatively of minimal nature
6 The shares of Fort William Jute Co Ltd were purchased by the assessee by obtaining an overdraft from a Bank
All the above facts and circumstances which have some extraordinary features lead to the irresistible conclusion that whatever the motives which entered into the acquisition of the shares they were certainly not bought and sold in the ordinary course of business of the assessee as a dealer in shares
The answer to the question must therefore be in the negative and against the assessee and it was rightly so returned by the High Court
The appeal fails and it is dismissed with costs
RKPS Appeal dismissed


Summary:
The K company who
were the managing agents of the F Company entered into an agreement on May 21 1952 with the M Company whereby the entire share holding of the K Company consisting of certain preference and ordinary shares were to be sold to the M Company or their nominees
The appellant was a public limited company carrying on the business of dealing in shares and securities
Some of the preference shares were purchased amongst others by the appellant at Rs 185 per share and for this purpose the appellant had to overdraw on its bank account
The market price of the preference shares at the time was about Rs 119
After the agreement was implemented the M Company became the managing agents of the F Company
On December 23 1953 the appellant sold the preference shares to the M Company thereby incurring a loss of Rs 111816
In its assessment to income tax the appellant claimed this loss as arising in the ordinary course of its business
The Income tax Officer and Appellate Assistant Commissioner rejected the appellant s claim on the ground that the shares were purchased as a contribution to the scheme of acquisition of the managing agency of the F Company by the M Company
The Appellate Tribunal found however that there was no evidence that the appellant had been made a pawn in the scheme of acquisition of the managing agency but in view of the treatment of the loss by the appellant as a loss in investment and not a loss on its stock in trade in its own profit and loss account the tribunal held that the shares were not acquired in the course of the appellant s share dealing business and therefore rejected its claim
The High Court upon a reference also held against the appellant but expressed the opinion that the tribunal had not properly considered the primary facts found by the Income tax Officer and the Appellate Assistant Commissioner which clearly showed that the appellant an associate of the M Company had entered into the transaction relating to preference shares at the bidding of the M Company and for the purpose of helping them
In appeal to this Court it was contended i that the High Court was not entitled to reverse the findings of fact of the tribunal which were in favour of the appellant since the department had not challenged these by means of appropriate proceedings and ii that where a question is one of mixed facts and law the facts as found by the tribunal ranst be accepted as correct the tribunal had negatived the finding that the preference shares were acquired by the appellant as a pawn in the scheme of transfer of the managing agency of the F Company and it was not open to the High Court to come to the same conclusion by not treating the findings of the Tribunal as final
773 HELD Dismissing the appeal i The question which was referred to
the High Court was couched in general terms and was not limited to or circumscribed by the reasons which had been given by the Tribunal against the appellant
The question of law on which reference can be made must arise out of the order of the Tribunal
Although certain reasons which had appealed to the Incometax Officer and the Appellate Assistant Commissioner were not accepted by the Tribunal it had come to the conclusion which was material for the disposal of the appeal
namely
that the loss in question was not a loss that arose in the course of the appellant s business in share dealing
The question which was referred to the High Court was framed in the light of this final conclusion and it was not necessary for the department to apply for and obtain a reference on a question arising from the reasons given by the Tribunal in support of its conclusion in favour of the department
777 D G ii Even if the conclusion of the High Court on the facts relating to the appellant s role in the scheme for transfer of the managing agency to the M Company was not taken into consideration the question which was referred to it had to be answered against the appellant
This was clear on admitted and proved facts which had some extraordinary features and led to the irresistible conclusion that whatever the motives which entered into the appellant s acquisition of the shares they were not bought and sold in the ordinary course of the business of the appellant as a dealer in shares
778 F Commissioner of Income tax Bombay City Iv
Greaves Cotton  Co Ltd and Oriental Investment Co P Ltd vs Commissioner of Income tax  referred to