Case: Rameshwar Prasad Bagla Vs. Commissioner Of Income-Tax, U.P., Lucknow

upon relevant evidence. If the High Court finds that there is no such evidence to support the finding of fact of the Tribunal, this circumstance would give rise to a question of law and can be agitated in a reference. It is also well established that when a Tribunal acts on material which is irrelevant to the enquiry or considers material which is partly relevant and partly irrelevant or bases its decision partly on conjectures, surmises and suspicions and partly on evidence, then in such a situation an issue of law arises and the finding of the Tribunal can be interfered with. The finding may also be interfered with if it be found to be so unreasonable that no person acting judicially and properly instructed as to the relevant law could have arrived at it. None of the circumstances justifying interference with the finding of fact of the Tribunal has been shown to exist in this case. In the absence of any such circumstance, the High Court in our view was not justified in interfering with the finding of fact of the Tribunal. The fact that the High Court on appreciation of evidence would have arrived at a conclusion of fact different from that of the Tribunal did not warrant interference with the finding of the Tribunal. 11. The Tribunal in arriving at the conclusion that the purchase of the shares in question by the assessee was with a view to obtain the managing agency and control of the India United Mills Ltd. and that those shares were not purchased as stck-in-trade referred to a number of circumstances. It was found by the Tribunal that the shares in question were out of the lot sold by Sassoons to Agarwal and Co. It was also found that the shares had been transferred to the assessee at the original price at which these shares had been sold by the Sassoons and not at the price which was prevailing at the time of transfer. The Tribunal further found that 62,500 shares represented the portion of the assessee in the total number of shares originally purchased by Agarwal and Co. In the light of those findings, the Tribunal recorded its conclusion in the paragraph which has been reproduced earlier. The above conclusion of the Tribunal, in our opinion, was based upon relevant material and could not be interfered with in a reference under S. 66 of the Act. 12. The High Court in arriving at the conclusion that the shares in question had been purchased not with a view to obtain the managing agency but as a stock-in-trade has referred to the fact that the assessee took loan for the purchase of those shares and subsequently transferred 43,700 shares out of 62,500 shares. This circumstance as observed by this Court in the case of Ramnarain Sons (Pr.) Ltd. v. Commr. of Income Tax, (1961) 41 ITR 534 = (AIR 1961 SC 1141 ) would not by itself go to show that the purchase of shares was not to facilitate the acquisition of the managing agency. In that case the appellant company was a dealer in shares and securities and carried on business as managing agents for some companies. In order to acquire the managing agency of a textile-mill, the appellant company purchased from Sassoon David and Co., who were the managing agents thereof, 1,507 shares of the mill at Rs. 2,321-8-0 per share at a time when the market price of the shares was Rs. 1,610. The remaining 1,000 shares of the mill held by Sassoon David and Co. were acquired by the directors of the appellant company. Two months later the appellant company sold 400 of those shares at a loss of Rs. 1,78,438. The said loss was claimed as a trading loss. Question arose in this context whether the purchase of shares could be regarded as acquisition of stock-in-trade. Dealing the above question, this Court observed:"By purchasing the shares which facilitated acquisition of the managing agency, a capital asset was acquired and merely because the managing agency could be utilised for earning profit, the acquisition of the shares which led to the acquisition of the managing agency could not, in the absence of an intention to trade in those shares, be regarded as acquisition of stock-in-trade of the share business. The appellants had undoubtedly purchased the shares of the Dawn Mills with money borrowed at interest, but that circumstance by itself does not evidence an intention to trade in the shares. Nor is the fact that the appellants are dealers in shares and their memorandum of association authorises them to carry on business in shares of any importance in the circumstances of the case." It was further observed :"Subsequent disposal of some out of the shares by appellant could also not convert what was a capital acquisition into an acquisition in the nature of trade." 13. We are, therefore, of the view that the answer given by the High Court to question No. (i) was not correct. In our opinion, there was material for the finding that the shares in question had been purchased by the assessee with a view to acquire the managing agency and control of the India United Mills Ltd. and that the shares did not constitute the stock-in-trade of the assessee. 14.So far as the second question is concerned, we find that it is the common case of the parties that if the shares in question are held to be not stock-in-trade of the assessee, in that case the profits made on the sale of those shares would constitute capital gain chargeable to income tax under Section 12-B of the Act. Indeed, this is what was prayed for by the assessee in his letter dated March 30, 1949. Looking to the facts also, we are of the opinion that the profit made on the sale of those shares constituted capital gain chargeable to income tax under Section 12-B of the Act. We would answer question No. (ii) accordingly.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]12. The High Court in arriving at the conclusion that the shares in question had been purchased not with a view to obtain the managing agency but as a stock-in-trade has referred to the fact that the assessee took loan for the purchase of those shares and subsequently transferred 43,700 shares out of 62,500 shares. This circumstance as observed by this Court in the case of Ramnarain Sons (Pr.) Ltd. v. Commr. of Income Tax, (1961) 41 ITR 534  = (AIR 1961 SC 1141 ) would not by itself go to show that the purchase of shares was not to facilitate the acquisition of the managing agency. In that case the appellant company was a dealer in shares and securities and carried on business as managing agents for some companies. In order to acquire the managing agency of a textile-mill, the appellant company purchased from Sassoon David and Co., who were the managing agents thereof, 1,507 shares of the mill at Rs. 2,321-8-0 per share at a time when the market price of the shares was Rs. 1,610. The remaining 1,000 shares of the mill held by Sassoon David and Co. were acquired by the directors of the appellant company. Two months later the appellant company sold 400 of those shares at a loss of Rs. 1,78,438. The said loss was claimed as a trading loss. Question arose in this context whether the purchase of shares could be regarded as acquisition of stock-in-trade. Dealing the above question, this Court observed:"By purchasing the shares which facilitated acquisition of the managing agency, a capital asset was acquired and merely because the managing agency could be utilised for earning profit, the acquisition of the shares which led to the acquisition of the managing agency could not, in the absence of an intention to trade in those shares, be regarded as acquisition of stock-in-trade of the share business. The appellants had undoubtedly purchased the shares of the Dawn Mills with money borrowed at interest, but that circumstance by itself does not evidence an intention to trade in the shares. Nor is the fact that the appellants are dealers in shares and their memorandum of association authorises them to carry on business in shares of any importance in the circumstances of the case."It was further observed :"Subsequent disposal of some out of the shares by appellant could also not convert what was a capital acquisition into an acquisition in the nature of trade."13. We are, therefore, of the view that the answer given by the High Court to question No. (i) was not correct. In our opinion, there was material for the finding that the shares in question had been purchased by the assessee with a view to acquire the managing agency and control of the India United Mills Ltd. and that the shares did not constitute the stock-in-trade of the assessee14.So far as the second question is concerned, we find that it is the common case of the parties that if the shares in question are held to be not stock-in-trade of the assessee, in that case the profits made on the sale of those shares would constitute capital gain chargeable to incometaxunder Section12-B of the Act. Indeed, this is what was prayed for by the assessee in his letter dated March 30, 1949. Looking to the facts also, we are of the opinion that the profit made on the sale of those shares constituted capital gain chargeable to incometaxunder Section12-B of the Act. We would answer question No. (ii) accordingly.