Case: Commissioner Of Income Tax, Nagpur Vs. Sutlej Cotton Mills Supply Agency Ltd

this would show that the assessee had been buying and selling shares even though as an isolated adventure in the nature of business. The High Court has not upset this finding, but has only said that this is an isolated transaction. That apart, in the same year, a sum of Rs. 6, 30, 000 was debited to the profit and loss account on devaluation of the shares of M/s. Pilani Investment Corporation. Such a debit was permissible only on the footing that the shares constituted the stock-in-trade of the assessee. It is no doubt true that the department did not allow this claim. But that was on the basis that the claim that the shares have fallen in value was not proved to the satisfaction of the Income-tax Officer, and not on the basis that the shares were not held as stock-in-trade as the High Court wrongly thought. The Tribunal also referred to the resolutions passed by the assessee authorising one of its directors to purchase and sell the shares in the rayon company. The finding of the High Court that the clauses of the memorandum of association, viz., clauses 10, 12, 13, 28 and 29 do not authorize the company to acquire and sell shares as business has no relevance in view of the aforesaid resolution of the assessee and of the fact that it had been dealing in shares in a commercial spirit as is evident from its claim for loss in dealings in the shares of M/s. Titaghur Paper Mills Ltd. and devaluation of shares of M/s. Pilani Investment Corporation on the basis that they had fallen in valueSecondly, the Tribunal said that from 1947 to 1956, no dividend had been declared by the rayon company and that the money which went into the purchase of these shares was borrowed by the assessee. In other words, the view of the Tribunal was, it was with borrowed funds that the assessee purchased the shares. It is no doubt true that there was no evidence to show that the money was specifically borrowed for the purpose of buying shares. But there was evidence before the Tribunal for its finding that the liabilities of the assessee exceeded its assets. The finding, therefore, that the shares were purchased with borrowed funds on which the assessee was paying interest, was a finding supported by evidence. The reasoning of the Tribunal that it is most improbable that the assessee would be investing borrowed money on which interest would have to be paid in shares which yielded no dividend was correct. We cannot say that this was not a relevant circumstance for the Tribunal to take into consideration for coming to the conclusion that the transaction was an adventure in the nature of business. Looking into all the circumstances, the Tribunal negatived the case of the assessee that it had invested its funds with a view to earn dividend.The case of the assessee throughout was that the purchase of the shares was by way of investment and the sale was forced by necessity because the creditors were pressing for repayment of the loan. The Tribunal found that the shares were not sold to liquidate the debts of the assessee as the balance-sheet as on March 31, 1956, showed that the proceeds were kept as liquid cash in the United Commercial Bank Ltd.As already stated, the main reason why the High Court came to a different conclusion, is stated as follows in the judgment." Undoubtedly, there are some elements which are contra-indicative of investment but there are other considerations which detract from their value as elements indicating an adventure in the nature of trade, the main being, that the assessee-company, which is controlled by the Birlas, purchased the shares with a view to assisting a sister company controlled by the same persons, and not to embark upon a venture in the nature of trade."At no time had the assessee a case that the shares were purchased with a view to help a sister company controlled by the Birlas. No such case was set up by the assessee either before the Income-tax Officer or the Appellate Assistant Commissioner, nor was it urged before the Appellate Tribunal. Nowhere in the statement of case or the supplementary statement of case prepared by the Tribunal and filed in the High Court was there any finding on the question. The whole conclusion of the High Court is based on unwarranted assumption of facts which must have been taken from the argument of the assessee before the High Court. The danger of failing to recognize that the jurisdiction of the High Court in these matters is only advisory and that conclusions of facts are conclusions on which the High Court is to exercise the advisory jurisdiction is illustrated by this case.Mr. Chagla for the respondent contended that the only question to be asked and answered is : What was the dominant intention of the assessee when it purchased the shares ? If the dominant intention was to carry on an adventure in the nature of business, the profit can be taxed ; otherwise not. In other words, the question is whether the assessee purchased the shares in a commercial spirit with a view to make profit by trading in them. The Tribunal found, after taking into account all the relevant circumstances, that the dominant intention of the assessee was to make profit by resale of the shares and not to make an investment.The finding that loss or profit is a trading loss or profit is primarily a finding of fact, though in reaching that finding the Tribunal has to apply the correct test laid down by law. When we see that the Tribunal has considered the evidence on record and applied the correct test, there is no scope for interference with the finding of the Tribunal (see Commissioner of Income-tax v. Ashoka Marketing Co.)We do not think that the High Court was right in interfering with the judgment of the Tribunal.

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

Explanation:
1[ds]The Tribunal relied on the following circumstances for coming to the conclusion. The assessee had been dealing in shares from 1951 to 1953. For the assessment yearthe assessee claimed a sum of Rs. 1, 29, 214 which was shown in the profit and loss account and theof the company for the year ending March 31, 1951, as a loss in the dealing of shares of M/s. Titaghur Paper Mills Ltd. This claim was allowed by theOfficer. According to the Tribunal, this would show that the assessee had been buying and selling shares even though as an isolated adventure in the nature of business. The High Court has not upset this finding, but has only said that this is an isolated transaction. That apart, in the same year, a sum of Rs. 6, 30, 000 was debited to the profit and loss account on devaluation of the shares of M/s. Pilani Investment Corporation. Such a debit was permissible only on the footing that the shares constituted theof the assessee. It is no doubt true that the department did not allow this claim. But that was on the basis that the claim that the shares have fallen in value was not proved to the satisfaction of theOfficer, and not on the basis that the shares were not held asas the High Court wrongly thought. The Tribunal also referred to the resolutions passed by the assessee authorising one of its directors to purchase and sell the shares in the rayon company. The finding of the High Court that the clauses of the memorandum of association, viz., clauses 10, 12, 13, 28 and 29 do not authorize the company to acquire and sell shares as business has no relevance in view of the aforesaid resolution of the assessee and of the fact that it had been dealing in shares in a commercial spirit as is evident from its claim for loss in dealings in the shares of M/s. Titaghur Paper Mills Ltd. and devaluation of shares of M/s. Pilani Investment Corporation on the basis that they had fallen in valueSecondly, the Tribunal said that from 1947 to 1956, no dividend had been declared by the rayon company and that the money which went into the purchase of these shares was borrowed by the assessee. In other words, the view of the Tribunal was, it was with borrowed funds that the assessee purchased the shares. It is no doubt true that there was no evidence to show that the money was specifically borrowed for the purpose of buying shares. But there was evidence before the Tribunal for its finding that the liabilities of the assessee exceeded its assets. The finding, therefore, that the shares were purchased with borrowed funds on which the assessee was paying interest, was a finding supported by evidence. The reasoning of the Tribunal that it is most improbable that the assessee would be investing borrowed money on which interest would have to be paid in shares which yielded no dividend was correct. We cannot say that this was not a relevant circumstance for the Tribunal to take into consideration for coming to the conclusion that the transaction was an adventure in the nature of business. Looking into all the circumstances, the Tribunal negatived the case of the assessee that it had invested its funds with a view to earn dividend.TheTribunal found, after taking into account all the relevant circumstances, that the dominant intention of the assessee was to make profit by resale of the shares and not to make an investment.The finding that loss or profit is a trading loss or profit is primarily a finding of fact, though in reaching that finding the Tribunal has to apply the correct test laid down by law. When we see that the Tribunal has considered the evidence on record and applied the correct test, there is no scope for interference with the finding of the Tribunal (see Commissioner ofv. Ashoka Marketing Co.)We do not think that the High Court was right in interfering with the judgment of the Tribunal.