JUDGMENT [ENTITY], J.
1. This is a reference under [SECTION] of the [ACT], pertaining to the case of Bharat Development Pvt. Ltd. The relevant assessment years are 1962-63 and 1963-64 for which the corresponding previous years ended on the 31st October preceding.
2. In the proceedings for assessment for these two years, the assessed claimed that the surplus realised by it on purchases and sales of shares effected during the accounting years should be treated as its income from business. The ITO repelled this contention and held that the surplus was chargeable under the head "Income from other sources". In his opinion, the transactions could not be held to amount to a business for the following reasons:
(1) The shares are of private limited companies in which no person can have any dealings.
(2) Even [ENTITY] Dadri Cement Ltd., which is a public limited company is controlled by [ENTITY] and the question of anyone dealing in these shares does not arise.
(3) None of the shares are quoted at stock exchange. All the shares are treated as investments in the balance-sheet.
(4) Purchases and sales of shares during the years under appeal were only, to those companies which were controlled by [ENTITY] and most of the purchases and sales were either to or from [ENTITY] or to or from his nominees or to and from the employees of the companies controlled by him. Even shares sold by the assessed to R. K. Rallan & Co., and to M/s. Rajpal Chadha & Co., had been passed to [ENTITY] on the same date, and the account books of the assessed-company and those of the two share brokers were utilised only for the purpose of arranging sale of those shares to [ENTITY].
3. The assessed appealed to the AAC. The AAC held that the assessed could not be held to be a dealer in shares inasmuch as the transactions in shares were only acts of financial jugglery by [ENTITY] who was said to be at the back of all the companies. He, therefore, confirmed the assessment, by the ITO, of the surplus under the head "Income from other sources".
4. The assessed went on further appeal to the Tribunal. The Tribunal found that the memorandum of association of the company allowed the assessed-company to deal in shares. It also found that in the instant cases there were series of transactions and nothing could be found to indicate that the transactions were not done for the purpose of earning profit. Nothing had been suggested that the purchases and sales of these shares had not been done at the prevailing market rate. Nothing could be found that the series of transactions were not real. If the case was adjudged from the point of view of volume, frequency, continuity and regularity of the transactions, they raise an inference that the intention of the assessed-company was to carry on business in shares. The share transactions were not isolated or solitary as could be stamped with the character of investment, notwithstanding the fact that in the balance-sheet the shares had not been mentioned as stock-in-trade. The Tribunal pointed out that the concept of business was universal and that, therefore, it could be presumed that even if an assessed purchased and sold only shares of, from and to inter-connected companies, yet the transactions could be held as in the nature of a business and the profit there from as the business profit, since the law does not prohibit an assessed from dealing with the shares of private companies.
5. Having held thus, the Tribunal proceeded to observe as under : "But the expression like 'sale of shares' and 'sale, of goods' are women juris. The essential ingredients of a sale are an agreement to sell shares for a price and the property in shares passing thereon in pursuance of that agreement. This agreement may be verbal or written or may be judged from the conduct of the parties. A sale comprises of four essential elements; (1) There must be parties competent to contract. (2) There must be mutual contract. (3) There must be a thing which is transferred from the seller to the buyer. (4) There must be price in money paid or promised. A contract of sale thus postulates exercise of volition on the part of the contracting parties. As held by the Supreme Court in [PRECEDENT], unless there is an exercise of volition on the part of the contracting parties, the mere use of the word 'sale' will not make it a sale. Judged by this test and the principle laid down by the Supreme Court mentioned above, there could be no sale of shares by the assessed-company to the other connected companies as [ENTITY] had control over the dealings in these shares and actually controlled the shares for which we refer to the observations and reasonings of the Income-tax Officer which have been summarised by us at paragraph 10 of our order and nothing has been controverter that this was not the correct state of affairs. Compulsory sales have been held by the Supreme Court as no sales for want of volition between the contracting parties. Hence to a limited extent the assessed cannot be said to be a dealer in shares during the years under appeal though all other elements of sale are conspicuously present which indicate that there were elements of dealings in share transactions. The heads of income must be decided from the nature of income by applying practical notions and as the income cannot be brought to tax under [SECTION] of the Act, it could be brought to tax under the residuary head in the circumstances of the case and thus income from sale of shares is to be treated as income from other sources." For the reasons stated in the above paragraph, the Tribunal confirmed the treatment of the income as income from other sources.
6. It is in the above circumstances that, at the request of the assessed, the following two questions have been referred to us for decision :
"1. Whether, on the facts and in the circumstances of the case, the income arising out of the share transactions of the assessed was not as a result of sale transactions of the assessed ?
2. Whether, on the facts and in the circumstances of the case, income arising out of the share transactions of the assessed should be brought to tax under the head 'Income from other sources' ?"
7. We are of the opinion that the contention of Shri [ENTITY] that in the present case the surplus was liable to be taxed as business income is well founded. In fact, as already mentioned, all the findings of the Tribunal are in favor of the assessed. As has been pointed out in several decisions of the Supreme Court, the definition of "business" connotes the fundamental idea of the continuous exercise of an activity. There should be some real, substantive, systematic or organized course of activity or conduct capable' of producing profit. It is sufficient for this purpose to refer to the observations of the Supreme Court in the case of [PRECEDENT] at p. 243 :
"The expression 'business', as observed by [ENTITY] J., speaking for the court in the case of [PRECEDENT], though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. By the use of the expression 'profit motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In the case of [PRECEDENT] , [ENTITY] J., speaking for the majority, observed that business as contemplated by [SECTION] of the [ACT], is an activity capable of producing a profit which can be taxed. In the case of the appellant-trust the activity of the trust, as observed earlier, has in fact been yielding profits and that apparently accounts for the increase in the value of its assets."
8. The Tribunal in our opinion has rightly come to the conclusion that all the elements of a business are present in this case. There have been a series of transactions in shares and there is nothing to show that these transactions were artificial and unreal. The mere fact that these were transactions between inter-connected companies does not take away the character of business from these transactions. The Tribunal, however, seems to have come to the conclusion that in the present case the transactions should not be treated as business transactions, because the transactions were not voluntary and so did not amount to "sales". We are unable to find any material or justification for this conclusion of the Tribunal. We have been unable to see any reason or basis for saying that the transactions in shares were entered into by the various- companies without the exercise of their volition. All that the Tribunal has said is that since [ENTITY] had control over the several companies and inasmuch as some of these shares also passed into his hands, it should be held that these transactions were transactions imposed on the various companies by the will of [ENTITY]. In the first place there is no material for coming to this conclusion. There is nothing to show that it was [ENTITY] who imposed these transactions on the assessed or the other companies belonging to the group. But even assuming this to be a fact and even taking it that the transactions were entered into by the various companies under the instructions or at the behest of [ENTITY] that will not take away the character of "sale" so far as these transactions are concerned. The facts of this case are not analogous to those of [PRECEDENT] referred to by the Tribunal. That was a case where a manufacturer of sugar was directed by the orders of the Sugar Controller to dispatch sugar to various States. There was no consensus or contract between the manufacturer and the State to which the goods were consigned. That decision has also been distinguished by the Supreme Court in [PRECEDENT] . As pointed out in para. 9 of this decision, there could be free consent of parties and a sale, in spite of certain statutory compulsions. In the present case we have transactions of sales and purchases between various companies. These contracts were agreed upon by the various companies. It may be that the agreement was arrived at because [ENTITY] had a say in the matter. But this does not mean that the transaction was a compulsory one or that the element of an agreement between the parties was absent in regard to these transactions.
9. For the above reasons, we are of the opinion that the Tribunal was not correct in holding that the income from the sale of shares was liable to be treated as income from other sources. We answer the questions referred to us by saying that the income arising out of the share transactions were the result of sales and that the income was liable to be taxed as business income and not as income from other sources. The reference is answered accordingly. The assessed will be entitled to his costs in the reference.