Case: Sardar Indra Singh And Sons Ltd Vs. Commissioner Of Income-Tax,West Bengal

2. The appellant is a private limited company incorporated in the year 1935 under the Indian Companies Act with the following objects, among others, set out in the memorandum of association :To carry on and undertake any business, transaction, operation or work commonly carried on or undertaken by bankers, capitalists, promoters, financiers, concessionaires, contractors, merchants, managers, managing agents, secretaries and treasurers.To purchase or otherwise acquire, and to sell .... . . . stock, share. . . . . . business concerns and undertakings.To invest and deal with the moneys of the company not immediately required for the companys business upon such securities and in such manner as may from time to time be determined.The company held a large number of shares in other incorporated companies and was realising some of its holdings and acquiring large blocks of shares in other companies. In the return for the assessment year 1938-39, the company showed a loss of Rs. 3,22,221 as a result of the sales of shares and securities during the previous year and this was allowed as a business loss in the computation of its profits. In the assessment for the years 1939-40, 1940-41 and 1941-42, however, the company claimed that the surplus resulting from similar sales during the corresponding account years was not taxable income as such surpluses resulted from a mere change of investments and was, therefore, a capital gain.

Court's reasoning:
6. The principle applicable in all such cases is well settled and the question always is whether the sales which produced the surplus were so connected with the carrying on of the assessees business that it could fairly be said that the surplus is the profits and gains of such business. It is not necessary that the surplus should have resulted from such a course of dealing in securities as by itself would amount to the carrying on of a business of buying and selling securities. It would be enough if such sales were effected in the usual course of carrying on the business or, in the words used by the Privy Council in -Punjab Co-operative Bank Ltd. v. Income-tax Commissioner, Lahore, AIR 1940 PC 230  at P. 235 (A), if the realisation of securities is a normal step m carrying on the assessees business.Though that case arose out of the assessment of a banking business, the test is one of general application in determining whether the surplus arising out of such transactions is a capital receipt or a trading profit. The question is primarily one of fact and there are numerous cases fulling on either side of the line but illustrating the same principle. On the facts found in regard to the nature and course of the companys business, there can be no doubt that the present case falls on the Revenues side of the line.7. Agreeing with the High Court that there was ample material upon which the Appellate Tribunal could arrive at the conclusion which they did,