Case: Raja Bahadur Visheshwara Singh &amp; Others Vs. Commissioner of Income Tax, Biharand Orissa

The High Court held that that was the nature of the transaction. On appeal 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 invests money in land intending to hold it and then sells it at a profit it is a case of capital accretion and not profit derived from an adventure in the nature of trade but if a purchase is made solely and exclusively with the intention to resell it at profit and the purchaser never had any intention to hold the property for himself there would be a strong presumption that the transaction is in the nature of trade but that was also a rebuttable presumption. The purchase in the absence of any rebutting evidence was held to fall in the latter category, i.e., adventure in the nature of trade. In the Oriental Investment case, 1958 SCR 49 : (S) AIR 1957 SC 852 ) the assessee was an investment company. It had purchased certain shares and sold them and qua those shares it claimed to be treated as an investor and not a dealer on the ground that it did not carry on any business in the purchase and sale of shares. The assessees applications for reference to the High Court were rejected on the ground that no question of law arose out of the order of the Tribunal. It was held that the question whether the assessees business amounted to dealing in shares and in properties or was merely an investment was a mixed question of law and fact and the legal effect of the facts found was a question of law and this Court ordered the case to be stated on two questions that it framed. One of the questions was similar to the first question in the present case but the second question was a wider one, i.e., whether the profits and losses arising from the sale of shares etc. could be taxed as business profits.8. The question which the High Court had to answer in the present case was a narrow one and the answer to that on the material before the Court was rightly given in the affirmative. But even if the question is taken to be wider in amplitude, on the materials produced and on the facts proved the appellant must be held to have been rightly assessed. Counsel for the appellant argued that the amounts received by him in the accounting years were in the nature of Capital accretions and therefore not assessable. In support, Counsel for the appellant relied on the following cases :- Kamakshya Narain Singh v. Commr. of Income-tax, B. and O., 70 Ind App 180 at p. 194 : (AIR 1943 PC 153 at p. 158) where Lord Wright observed that profits realised by the sale of shares may be capital if the seller is an ordinary investor changing his securities but in some instances it may be income if the seller of the shares is an investment company or an insurance company. The other cases relied upon were Californian Copper Syndicate Ltd. v. Harris, (1904) 5 Tax Cas 159, Cooper v. Stubbs, (1925) 10 Tax Cas 29 at p. 57, Leeming v. Jones, (1930) 15 Tax Cas 333 and Edwards v. Bairstow and Harrison, (1956) 36 Tax Cas 207.It is not necessary to discuss these cases because the principle applicable to such transactions is that when an owner of an ordinary investment chooses to realise it and obtains a higher price for it than he originally acquired it at, the enhanced price is not a profit assessable to income-tax but where as in the present case what is done is not merely a realisation or a change of investment but an act done in what is truly the carrying on of a business the amount recovered as appreciation will be assessable.9. In July 1948 the appellant had borrowed, though without interest, a large sum of money to the extent of about Rs. 10,00,000/-, no doubt from his brother. He started a new account calling it No. 2 Investment Account. For the assessment years under appeal shares purchased and sold were of a large magnitude ranging from Rs. 4.68 lacs to Rs. 69 thousands in what is called the first account and from Rs. 9,64,000/- or even if Port Trust Debentures are excluded Rs. 3,60,000/- to Rs. 30,000/-. The magnitude and the frequency and the ratio of sales to purchases and total holdings was evidence from which the Income-tax Appellate Tribunal could come to the conclusion as to the true nature of the activities of the appellant. The principle which is applicable to the present case is what we have said above and on the evidence which was before the Tribunal, i.e., the substantial nature of the transactions, the manner in which the books had been maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holdings, if on this material the Tribunal came to the conclusion that there was material to support the finding that the appellant was dealing in shares as a business, it could not be interfered with by the High Court and in our opinion it rightly answered the question against the appellant in the affirmative.10. The second question is wholly unsubstantial. There is no such thing as res judicata in income-tax matters. The Appellate Tribunal has placed in a tabulated form the activities of the appellant showing the buying and selling and the magnitude of holdings and it cannot be said therefore that it was not open to the Appellate Tribunal to give the finding that it did.11. In our opinion the High Court rightly held against the appellant.

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

Explanation:
0[ds]In the former case the assessee purchased four plots of land adjacent to the mills of which he was the Managing Agent. On various dates and about five years later sold them to the mills in which he realized about Rs. 43,000/- in excess of his purchase price. This was treated by the Income-tax authorities as purchase with a view to sell at a profit. The question referred was whether there was material for the assessment of that amount as income arising from an adventure in the nature of trade. The High Court held that that was the nature of the transaction. On appeal 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 invests money in land intending to hold it and then sells it at a profit it is a case of capital accretion and not profit derived from an adventure in the nature of trade but if a purchase is made solely and exclusively with the intention to resell it at profit and the purchaser never had any intention to hold the property for himself there would be a strong presumption that the transaction is in the nature of trade but that was also a rebuttable presumption. The purchase in the absence of any rebutting evidence was held to fall in the latter category, i.e., adventure in the nature of trade. In the Oriental Investment case, 1958 SCR 49 : (S) AIR 1957 SC 852  ) the assessee was an investment company. It had purchased certain shares and sold them and qua those shares it claimed to be treated as an investor and not a dealer on the ground that it did not carry on any business in the purchase and sale of shares. The assessees applications for reference to the High Court were rejected on the ground that no question of law arose out of the order of the Tribunal. It was held that the question whether the assessees business amounted to dealing in shares and in properties or was merely an investment was a mixed question of law and fact and the legal effect of the facts found was a question of law and this Court ordered the case to be stated on two questions that it framed. One of the questions was similar to the first question in the present case but the second question was a wider one, i.e., whether the profits and losses arising from the sale of shares etc. could be taxed as business profits.In July 1948 the appellant had borrowed, though without interest, a large sum of money to the extent of about Rs. 10,00,000/-, no doubt from his brother. He started a new account calling it No. 2 Investment Account. For the assessment years under appeal shares purchased and sold were of a large magnitude ranging from Rs. 4.68 lacs to Rs. 69 thousands in what is called the first account and from Rs. 9,64,000/- or even if Port Trust Debentures are excluded Rs. 3,60,000/- to Rs. 30,000/-. The magnitude and the frequency and the ratio of sales to purchases and total holdings was evidence from which the Income-tax Appellate Tribunal could come to the conclusion as to the true nature of the activities of the appellant. The principle which is applicable to the present case is what we have said above and on the evidence which was before the Tribunal, i.e., the substantial nature of the transactions, the manner in which the books had been maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holdings, if on this material the Tribunal came to the conclusion that there was material to support the finding that the appellant was dealing in shares as a business, it could not be interfered with by the High Court and in our opinion it rightly answered the question against the appellant in the affirmative.10. The second question is wholly unsubstantial. There is no such thing as res judicata in income-tax matters. The Appellate Tribunal has placed in a tabulated form the activities of the appellant showing the buying and selling and the magnitude of holdings and it cannot be said therefore that it was not open to the Appellate Tribunal to give the finding that it did.11. In our opinion the High Court rightly held against the appellant.