Case: Oriental Investment Company Limited Vs. Commissioner of Income Tax, Bombay

2. The facts giving rise to the appeal are that the Petitioner company was incorporated on July 29, 1924 as an investment company, the object of which are set out in cl. III of the Memorandum of Association and more particularly in1, 2, 15 and 16 of that clause. The assessment years under review are9, excepting the yearAccording to its petition made in the High Court of Bombay, the petitioner company dealt with its assets asPetitioner Company purchased during the period 1st July 1925 to 30th June 1928 shares of the value of Rs. 1,86,47,789 major portion of which was comprised of shares in the Season Group of Mills. During the year ended 30th June 1929 the Petitioner Company promoted two companies known as Loyal Mills Ltd. and Hamilton Studios Ltd. and took over all their shares of the value of Rs. 10 1/2 lacs. In the year 1930, the Petitioner Company purchased shares of Rs. 1,33,930. During the period of 9 years from 1st July 1930 to 30th July 1939 no purchases were made with the exception of a few shares of Loyal Mills Ltd. taken over from the staff of E. D. Sassoon and Co. Ltd. who retired from service. In the year ended 30th June 1940 reconstruction scheme of the Appollo Mills Ltd., took place under which debentures held by the Petitioner Company in the Appollo Mills Ltd., were redeemed and proceeds were reinvested in the new issue of shares made by the Appollo Mills Ltd. Out of the purchases of the value of Rs. 2,794 made by the Petitioner Company during the year ended 30th June 1941 Rs. 2000/was the value of shares of the Loyal Mills Ltd. taken over from the retiring staff. In the year ended 30th June 1943 the Petitioner Company took over from the David Mills Co. Ltd. shares of The Associated Building Co. of the value of Rs.After this there were no purchases at all to this date excepting purchases of the value of Rs. 34,954 during the year ended 30th June,sales are contained in para. 3 (b) which may berelation to the purchases made by the Petitioner company as stated above no appreciable sales of shares were made during the period 29th July 1924 to 30th June 1942 the sales made in the year ended 30th June 1929 of the value of Rs. 1,29,333 included shares of the value of Rs. 45,000 in the Loyal Mills Ltd. sold to the members of the staff and shares of the value of Rs. 43,833 representing sterling investments handed over to the creditors of the Petitioner Company in part repayment of the loan taken from them in the year ended 30th June 1931 shares of the value of Rs. 7,48,356 were handed over to the creditors in payment of the loan granted by them. From the year ended 30th June 1943 E.D. Sassoon and Co. Ltd., started relinquishing the managing agencies of the various mills under their agency and the shares held by the Petitioner Company in the Sassoon Group of Mills were handed over to the respective purchasers of the Millsgives the history of the acquisition and disposal of shares and also how the various transactions were entered into and why Prior to 1940 the assessee company made a claim every year for being treated as a dealer in investments and properties but this contention was consistently repelled and up to the assessment yearthe assessee company was assessed on the basis of being an investor but it appears that for the assessment yearand the two following years43 the Department accepting the plea of the assessee company treated it as a dealer in shares, securities and immovable properties and assessed it on that basis. For these years and for the assessment yearthe company made its Return on that basis. But after the Return had been filed for the yearthe assessee company withdrew its Returns and filed a revised Return on March 7, 1944, contending that it was not a dealer but merely an investor. Along with the Return it filed a letter dated March 6, 1944, in which inter alia itReturn of Total Income which was submitted with the Companys letter of 25th May 1943 was prepared in conformity with the ruling of the IncomeTax Officer in theassessment that the company was to be assessed as a dealer in investment. Since that Return was submitted the Central Board of Revenue has decided that the Company is an investment Holding Company and accordingly an amended Return of Total Income under S. 22 (1) of the IndianAct is submitted herewith on which the assessment formay be based, as on this particular question the company obviously cannot have one status for Excess Profits Tax and another forwas also contended that it never carried on any business in the purchase or sale of shares, securities or properties and therefore prayed that in view of the order of Central Board of Revenue made on its application under S. 26(1) of the Excess Profits Tax Act it should be assessed forpurposes as an investor and not as a dealer.3. TheOfficer rejected this plea and "held the investments as theof its business therein which it carried on during the previous year also" The company took an appeal to the Appellate Assistant Commissioner which was dismissed and the order of theOfficer upheld. It then appealed to theAppellate Tribunal, Bombay, where the same contentions were raised but were repelled. The Tribunalcompany having itself raised the point in all the prior years that it was a dealer in investments and properties, it would appear to be difficult to understand why the company now seeks to get the position changed and desires the Income tax Officer to treat it as if it was not dealing in shares, securities and immovable properties.The Tribunal after holding that the company was under no misapprehension when it claimed to be a dealer in investments in the earlier years because it was then always incurring losses and that the present contention was raised because it made "substantial profits"we have no doubt that, according to the companys memorandum of association and its own assertions made all along in the past, the assessee company is a dealer in investments and properties and the income arising to it on the sale thereof has been rightly held by the Income tax Officer to be business profits liable to tax under the ordinary provisions ofAct. Thus the grounds on which the case was decided against the assessee were (1) that the assessee claimed to be a dealer or an investor according as it incurred losses or made profits and (2) that because of the objects contained in the memorandum of association and because of its assertion made in the past as being a dealer the assessee could not be held to be an investor.The company then applied to the Appellate Tribunal under S. 66 (1) of the Indian Income Tax Act for a reference of the following questions for the opinion of the HighWhether on the facts and in the circumstances of the case the assessee company can rightly be treated as a dealer in investments and properties; and(2) Whether the profits and losses arising from the sale of shares, securities and immoveable properties of the assessee company can be taxed as business profits."The prayer was rejected because in the opinion of the Tribunal no question of law arose out of its order. It said:"The Tribunal did not decide the point merely because the companys memorandum of association gave power to the company to deal in investments and properties, but it was actually found that the company had dealt in investments and properties throughout and had also all along in the past asserted that it was a dealer in investments andwas more then it had said in its appellate order.6. The assessee Company then made an application under S. 66(2) of the Indian Income Tax Act for requiring the Appellate Tribunal to state the case and refer it to the High Court but this application was dismissed, and then the company obtained Special Leave to appeal to this Court.

Reasoning:
25. A review of these authorities shows that though the English decisions began with a broad definition of what are questions of law, ultimately the House of Lords decided that a "matter of degree" is a question of fact and it has also been decided that a finding by the Commissioners of a fact under a misapprehension of law or want of evidence to support a finding are both questions ofresult of the authorities is that inference from facts would be a question of fact or of law according as the point for determination is one of pure fact or a mixed question of law and fact and that a finding of fact without evidence to support it or if based on relevant and irrelevant matters is not unassailable.In the instant case the Appellant Tribunal in its appellate order has set out the amount of profits made by the assessee company in the years of assessment9. It has also mentioned the inconsistent positions taken up by the assessee in first claiming to be a dealer and then to be an investor which according to the tribunal was due to the fact that it was incurring losses in the earlier years and had begun making profits when the claim of being an investor was put forward. But the two basic facts on which the Tribunal has based its findings are :1. the objects set out in the memorandum of association of the assessee company.2. the previous assertion by the assessee company that it was a dealer in investments and not merely an investor. Counselfor the assessee relies on the decision of Kishan Prasad and Co. Ltd. v. Commr. of27 I T R 49 : ((S) A I R 1955 S C 252) (S) where this Court held that the circumstances whether a transaction is or is not within the powers of the company has no bearing on the nature of the transaction or on the question whether the profits arising therefrom are capital or revenue income and, therefore, it is contended that the Tribunal had relied upon an irrelevantfor Revenue on the other hand refers to the judgment in Lakshminarayan Ram Gopal v. Government of Hyderabad,I T R 449 at p.461 : (A I R 1954 S C 364 at p. 369) (T) where the objects of an incorporated company were held not to be conclusive but relevant for the purpose of determining the nature and scope of its activities.Merely because the company has within its objects the dealing in investment in shares does not give to it the characteristics of a dealer in shares. But if other circumstances are proved it may be a relevant consideration for the purpose of determining the nature of activities of an assessee. Whether in the instant case it will have any relevance because of other materials on which the assessee company was relying in support of its case that it was merely an investor and not a dealer will have to be considered when the suggested questions of law are answered.32.As to what are the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law. What is the legal effect of the facts found by the Tribunal and whether as a result the assessee can be termed a dealer or an investor is itself a question of law.