Case: Juggilal Kamlapat, Kanpur Vs. Commissioner Of Income-Tax, Lucknow

of "financial embarrassment" was plainly untrue. The Tribunal, was in our judgment right, in inferring that the "purchase and sale of shares was a business activity which was continuous", and since the firm "had entered upon a well-planned scheme for earning profit and that in furtherance and execution of that profit making scheme they sold the shares at the opportune time" and that "the sale of the shares was not merely on account of pecuniary embarrassment" as claimed, the profit realised by the firm by the sales of shares could not be characterised as a casual receipt nor could it be treated as accretion to a capital asset.6. Strong reliance was, however, placed on a somewhat obscure statement in the order of the Appellate Assistant Commissioner:"In the case of Raymond Woollen Mills shares it is clear beyond doubt that the purchase of the shares was a first rate business deal and that it was motivated by the desire and intention to acquire the Managing Agency of the Mills. If this is not an operation in the scheme of profit-making it is not known what will constitute such a transaction."Apparently there is a typographical error in the second clause of the first sentence, and the word "not" has by inadvertence been omitted otherwise in the context in which it occurs the clause has no meaning whatever. In any event as rightly pointed out by the High Court the reasons given by the Tribunal and the conclusion recorded by it are inconsistent with the finding that the shares were purchased with the sole object of acquiring the Managing Agency of the Raymond Woollen Mills and not with a view to make profits.7. Counsel for the firm invited our attention to the decision of this Court in Ramnarain Sons (P) Ltd. v. Commissioner of Income-tax Bombay, 41 ITR 534 = (AIR 1961 SC 1141 ) in support of his contention that a transaction for purchasing shares with the object of acquiring the managing agency of a company will be regarded as capital investment and not a business in share. In Ramnarain Sons case, 41 ITR 534 = (AIR 1961 SC 1141 ) the appellant Company was a dealer in shares and securities and also carried on business as managing agents of other companies. With a view to acquire the managing agency of a company, the appellant Company purchased from a managing agent a large block of shares at a rate approximately 50 per cent above the ruling market rate. Two months later the appellant Company sold a small lot out of those shares at a loss and claimed the loss as a trading loss. It was found in that case by the Tribunal that the intention of purchasing the shares was not to acquire them as part of the stock-in-trade of tax-payers business in shares, but to facilitate acquisition of the managing agency of the Company which was in fact acquired, and on that account loss incurred by the sale of a small lot could be regarded only as a loss of capital nature. The Court observed in that case that the circumstance that the tax-payer had borrowed loans at interest to purchase the shares or that it was a dealer in shares and was authorised by its memorandum of association to deal in shares was of no effect. On a review of the evidence the Tribunal held that the shares were purchased with the object of acquiring the managing agency and with that view the High Court agreed.8. Whether a transaction is or is not an adventure in the nature of trade is question of mixed law and fact: in each case the legal effect of the facts found by the Tribunal on which the tax-payer could be treated as a dealer or an investor in shares, has to be determined. In the present case the transaction since the inception appears to be impressed with the character of a commercial transaction entered with a view to earn profit. Large block of shares was purchased at the ruling rates with borrowed money, and soon thereafter the shares were disposed of at a profit in small lots. Some of the shares were sold through brokers to strangers. The story of the firm that some or all the shares were merely "distributed" to its associates is not proved. The interest which the firm had to pay for the amount borrowed for purchasing the shares was debited in the revenue account and was claimed as a revenue allowance.9. It was not the case of the firm that Aluminium and J. K. Trust shares were purchased for acquiring the managing agency. It was claimed that the shares were taken over because the public did not accept those shares. It was one of the objects of the firm to finance its allied concerns and in taking over shares which the public did not subscribe the firm was acting in the course of its business. The firm commenced selling the shares soon after they were purchased. Aluminium shares were purchased between January 26, 1945 and April 5, 1946 (except a few which were retained) and sold at profit. Whereas the first lot was purchased on January 26, 1945, the first sale was made on February 1, 1945. It could not be said that this was an investment in shares independent of the trading activity of the firm. The story that the shares had to be sold on account of financial difficulties is plainly belied by the circumstances that the firm went on purchasing and selling the Aluminium shares. J. K. Trust shares were purchased on February 14, 1945 and were sold on August 22, 1945. Aluminium shares as well as J. K. Trust shares were sold at a profit and through brokers. These transactions were also stamped with the character of commercial transactions entered into with a profit motive and were not transactions in the nature of capital investments. The answer recorded by the High Court is therefore correct.

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

Explanation:
0[ds]there is a typographical error in the second clause of the first sentence, and the word "not" has by inadvertence been omitted otherwise in the context in which it occurs the clause has no meaning whatever. In any event as rightly pointed out by the High Court the reasons given by the Tribunal and the conclusion recorded by it are inconsistent with the finding that the shares were purchased with the sole object of acquiring the Managing Agency of the Raymond Woollen Mills and not with a view to makethe present case the transaction since the inception appears to be impressed with the character of a commercial transaction entered with a view to earn profit. Large block of shares was purchased at the ruling rates with borrowed money, and soon thereafter the shares were disposed of at a profit in small lots. Some of the shares were sold through brokers to strangers. The story of the firm that some or all the shares were merely "distributed" to its associates is not proved. The interest which the firm had to pay for the amount borrowed for purchasing the shares was debited in the revenue account and was claimed as a revenuewas one of the objects of the firm to finance its allied concerns and in taking over shares which the public did not subscribe the firm was acting in the course of its business. The firm commenced selling the shares soon after they were purchased. Aluminium shares were purchased between January 26, 1945 and April 5, 1946 (except a few which were retained) and sold at profit. Whereas the first lot was purchased on January 26, 1945, the first sale was made on February 1, 1945. It could not be said that this was an investment in shares independent of the trading activity of the firm. The story that the shares had to be sold on account of financial difficulties is plainly belied by the circumstances that the firm went on purchasing and selling the Aluminium shares. J. K. Trust shares were purchased on February 14, 1945 and were sold on August 22, 1945. Aluminium shares as well as J. K. Trust shares were sold at a profit and through brokers. These transactions were also stamped with the character of commercial transactions entered into with a profit motive and were not transactions in the nature of capital investments. The answer recorded by the High Court is therefore correct.Whether a transaction is or is not an adventure in the nature oftrade is question of mixed law and fact: in each case the legal effect of the facts found by the Tribunal on which thecould be treated as a dealer or an investor in shares, has to be determined. Inthe present case the transaction since the inception appears to be impressed with the character of a commercial transaction entered with a view to earn profit. Large block of shares was purchased at the ruling rates with borrowed money, and soon thereafter the shares were disposed of at a profit in small lots. Some of the shares were sold through brokers to strangers. The story of the firm that some or all the shares were merely "distributed" to its associates is not proved. The interest which the firm had to pay for the amount borrowed for purchasing the shares was debited in the revenue account and was claimed as a revenue