Case: M/S. Rajputana Textiles (Agencies) Ltd Vs. The Commissioner Of Income-Tax, Bombay City

The assessee company is a private limited company which was incorporated on May 6, 1943, with a paid up capital of Rs. 20 lacs. It was promoted by two groups of persons who for the sake of convenience may be called the Morarka Group and the Bubna Group. The Apollo Mills Co., Ltd. of Bombay with a capital of Rs. 50 lacs divided into 25 lacs shares of Rs. 2 each, had as its Managing Agents M/s. E. D. Sassoon & Co. Ltd., who for the sake of brevity, will be referred to in this judgment as the Sassoons. They held 19, 76, 000 shares out of the 25 lacs. The promoters of the assessee company entered into an agreement with the Sassoons on April 27, 1943, by which the Sassoons agreed to transfer their Managing Agency in the Mill Co. for Rs. 12-1/2 lacs to the promoters of the assessee company and the whole of their holding of 19, 76, 000 shares at Rs. 4-4-0 per share, i.e., for Rs. 83, 98, 000. These shares were to be transferred to the promoters or to the company which they were proposing to float. By clause (3) of this agreement the sale of the Managing Agency and the transfer of the shares was to be simultaneously completed and neither party could require the completion of the one without the other. On November 1, 1943, a tripartite agreement was entered into between the Sassoons as Assignors, the promoters of the company as Confirming Parties and the assessee company as Assignees. By that agreement the Managing Agency rights were for-.ally transferred to the assessee company so also the Share Certificates for the whole of holding of the Sassoons in the Mill Co. and the necessary blank transfer deeds went) Before the agreement of April 27, 1943, and during the course of negotiations with the Sassoons the promoters of the assessee company entered into an arrangement with some share brokers for the sale of a large portion of the total holding of 19, 76, 000 shares of the Mill Co. The price of these shares varied from Rs. 5- 8-0 to Rs. 5-13-0. In all 10, 00, 000 shares out of the total holding of the Mill Co. were sold to these brokers and: they in turn sold these block of shares in smaller lots to a number of purchasers. Some shares were sold later; 1, 20, 000 shares were transferred to 13 nominees of the Morarka Group at cost price. As a result of sale of all these 13, 74, 000 shares the assessee company received a sum of Rs. 16, 52, 600 as excess over the purchase price. The remaining shares the assessee company retained. The assessee company submitted that the profits of the entire holding of the shares had not been worked out and had therefore not been transferred to the profit and loss account.The assessee company was taxed by the Income-tax Officer but the sum of Rs. 16, 52, 600 which was the excess of the sale price over the purchase price of 13, 74, 000 shares was held not to be profit and therefore not taxable. When the Act came into force the case of the assessee company was referred to the Investigation Commission by the Central Government and the Investigation Commission made its report on November 9, 1949, in Case No. 406A. By this report the Commission directed that appropriate assessment be made under the Indian Income tax Act for the assessment year 1945-46 and the Excess Profits Tax Act for the corresponding chargeable accountingthe instance of the assessee company the Commissioner of Income-tax, Bombay City, by his order dated May 1, 1951, referred the following question to the High Court: "Whether on the facts found by the Commission the sum of Rs. 16, 52, 600 being the excess price realised by the sale of 13, 74, 000 shares of the Mill Company, was profit and as such taxable or whether it was either of the nature of a capital appreciation or a casual and non- recurring receipt and as such exempt from taxation under Section 4(3)(vii) of the Income-taxHigh Court reformulated the question as follows:- "Whether there were materials to justify the finding of the Tribunal that the transaction of purchase and sale of 13, 74, 000 shares was an adventure in the nature ofanswered the question so formulated in the affirmative and therefore against the assessee company. In its application for reference under s. 8(5) of the Act the assessee company wanted some other questions also to be referred but the Investigation Commission only referred the question which has been set out above. The assessee company therefore took out a Notice of Motion on November 8, 1952, which was dismissed by the High Court on the ground that either the questions which were sought to be raised did not arise out of the finding of the Commission or they were included in the question which had been referred and answered by the High Court. Although the High Court did not so hold, the Notice of Motion was barred by time, being filed after more than six months allowed under s. 66(2) of the Indian Income-tax Act. Against this judgment and order of the High Court the assessee company has come in appeal to this Court by special leave.This appeal is brought against the judgment of the High Court answering the question referred and therefore in its advisory jurisdiction.

Reasoning: The jurisdiction which this Court exercises in appeal is of the same character and therefore any question which was not referred to the High Court cannot be allowed to be raised at this stage. Consequently the constitutional question in regard to discrimination under Art. 14 of the Constitution which is now sought to be raised cannot beis not necessary to adjudicate upon this argument because in our opinion taking the question as referred to be a proper question arising out of the report of the Investigation Commission the answer to the first part thereof would, still be in the affirmative. Inconsidering the question whether the transaction is or is not an adventure in the nature of trade we have to take into consideration the intention of the assessee keeping in view the "legal requirements which are associated with the concept of trade orthe present case the facts as shown were entirelyG. Venkataswami Naidu & Co. v. The Commissioner of Income-tax ([1959] SUPP. 1 S.C.R. 646.) in which it was held that the presence of all the relevant factors may help the Court to draw the inference that the transaction is in the nature of trade but it is not a matter of counting the number of facts and circumstances for and against. What is important is to consider the distinctive character and it is the total effect of all the relevant factors that determines the character of the transaction. All these cases are illustrative. As was said by Gajendragadkar, J., in the above mentioned case the totality of circumstances of a case and the pros and cons have to be considered and inference drawn from those facts whether a particular transaction was in the nature of trade or was merely an investment and the resulting excess from the transaction was therefore profit which was taxable or was merely an accretion to the capital. In the instant case the pi of its from the transaction that consisted of buying the Managing Agency of the Mill Company and the block of shares held by the Sassoons were in our view the profits of an adventure in the nature ofcompany never intended to hold the whole block of shares. It or its promoters before even entering into the agreement of purchase and during the course of negotiations for the purchase had entered into arrangements with different brokers for the sale of shares or at least of a bulk of those shares which were subsequently sold at a profit and but for that sale the transact-ion could not have been completed by the assessee company. The purchase of shares was not with the intention of holding them, the intention of the assessee was just the contrary and by the sale at a profit of the shares actually sold the assessee company expected to and did finance the completion of the transaction and thus was enabled to secure the Managing Agency and keep 6 lacs shares. This inescapably was a transaction of a commercial nature. It had all the attributes of an adventure in the nature of trade. The contention that dealing in buying and selling of shares was not one of its objects is without substance. The Investigation Commission found that dealing in shares was within the objects of the assessee company and this is one circumstance in the totality of the circumstances which must be considered, though by itself it is not determinative of the question. All the circumstances lead to the inference which was rightly drawn by the Investigation Commission and by the High Court. The answer to the first part of the question referred by the Investigation Commission must therefore be in the affirmative.Itwas contended that the question should not have been reframedand we have therefore proceeded to answer the question as framed by the Investigation Commission. In our opinion the question even as framed must be answered in the affirmative. The Notice of Motion to raise other questions in the High Court was rightly dismissed. Apart from the fact that the Notice of Motion was barred by time and there was no application for condonation of delay, the questions which were sought to be raised were rightly held either to be covered by the question answered or they did not arise at all. The constitutional question under Art. 14 of the Constitution cannot be raised in these proceedings because as we have said above this Court is exercising its advisory jurisdiction and its power is confined to the questions which arise in an appeal.