BRIJLAL GUPTA J. - This is a reference under section 66(1) of the Income-tax Act. The question which has been referred for the opinion of the court i :
'Whether on the facts and in circumstances of this case the surplus realisation of Rs. 7,750 by the sale of 1,125 shares of the Soora Jute Mills Co. Ltd. was revenue income of the assessee liable to tax under the Indian Income-tax Act?'
The facts giving rise to the reference ar : that in the assessment year, 1946-47, the assessee was assessed in the status of an individual. In that assessment a sum of Rs. 7,750 was included as the assessees share of the surplus realisation by the sale of 9,000 shares of the Soora Jute Mills Co. Ltd., which stood in the name of the Lala Shyamsunder Ji and out of which the assessee held 1,125 shares. It may be stated that 36,000 shares of Soora Jute Mills Co. Ltd., were purchased on April 20,1944, at the rate of Rs. 32 per share from Messrs. Mangani Ram Bangar & Co. of Calcutta as follow :
1. Lala Ram Prasad Ji
2. Lala Ramgopal Ji
3. Lala Ramratan Ji
4. Lala Shyamsunder Ji
On February 1, 1945, Lala Shyamsunder Ji purchased 250 shares from Lala Ramratan Ji at the rate of Rs. 32 per share. Thus, the total holding of shares in the name of Lala Shyamsunder Ji came to be 9,000 shares.
Lala Ramkishan Ji, the assessee, was a partner in the firm of Messrs. Ramkishan Baldeo Prasad and the 9,000 shares which stood in the name of Shyamsunder Ji were held by the partners of the firm as follow :
(a) In the account of Ram Bharosey
(b) ,, ,, Ramkishan
1,125 shares (the assessee)
(c) ,, ,, Baldeo Prasad
(d) ,, ,, Satya Prakash
(e) ,, ,, Shyamsunder Ji
All the 36,000 share purchased on April 20, 1944, were sold to Messrs. Mangani Ram Bangar & Co. at the rate of Rs. 40-12-0 per share in April 1945, that is, after nearly one year of their purchase, at profit of Rs. 8-12-0 per share. The assessees net profit on the sale of 1,125 shares owned by him came to Rs. 7,750.
During the assessment proceedings the question arose about the liability of Rs. 7,750 to tax. The case of the assessee was that he was not a dealer in shares and the shares had been purchased merely for acquiring the managing agency of Soora Jute Mills Co. Ltd., and is the managing agency could not be secured, the shares were sold, and the surplus on sale was an accretion of a capital nature and was not a revenue receipt. His case was not accepted by the Income-tax authorities and by the Income-tax Appellate Tribunal. All of them held that the surplus was income liable to tax.
The findings recorded by the income-tax authorities were that the shares held by the assessee represented his stock-in-trade and the surplus realisation by sale of the stock-in-trade was a revenue receipt liable to tax. In arriving at this conclusion the income-tax authorities relied upon the assessment proceedings for the preceding year in which the income from dealing in shares had been included in the total computation of the assessees income.
Against the findings recorded by the income-tax authorities the assessee went up in appeal before the Income-tax Appellate Tribunal and contended before it that he had purchased the shares merely for the purpose of investment of the shares did not represent his stock-in-trade. The Tribunal held that the assessee was a dealer in shares and 'had entered into profit-making scheme, the object of which was the managing agency of the Jute Mills, and further the shares of the Soora Jute Mills Co. Ltd. were purchased and sold at profit because the market had gone up.' In the result the Tribunal held that the amount of Rs. 7,750 was rightly subjected to tax.
It may be stated that the Tribunal had not recorded its findings in its appellate order in precisely the same terms in which it recorded it in the statement of the case, and which have been quoted above. In the Appellate order of Judicial Member recorded as his findings as follow :
'The facts on record clearly show that the assessee and the other persons associated with him entered into profit-making scheme and the object being to acquire the managing agency of the Soora Jute Mills Co. Ltd. In furtherance of this profit-making scheme the shares of the Soora Jute Mills Co. Ltd. were purchased and were ultimately sold at some profit because the market had gone up. In the preceding year the assessee had income from shares of the Hindustan Commercial Bank. The profit of Rs. 1,687 for the preceding year was shown in the return itself by the assessee. It cannot, therefore, be disputed that the assessee was dealing in shares. The assessees conduct in the preceding year and his conduct in purchasing shares for the purpose of acquiring a managing agency show that the ultimate object was to make profit. This was a profit making scheme and the realisation made by the assessee must be held to be revenue receipt.'
The Accountant Member, who concurred with the opinion of the Judicial Member as quoted above, observed as follow :
'I agree. The assessee admitted before the Income-tax authorities that the sole purpose of the purchase of shares in Soora Jute Mills Co. Ltd. was to obtain the managing agency of that company. He further admitted that having failed to obtained this managing agency he resold the shares. The assessee, therefore, joined in the a common venture with some other persons to obtain some business agency. In my opinion therefore the purchase and sale of the shares were part of the business venture and any surplus arising out of the sale was a profit out of the business venture and, therefore, liable to tax.'
On the basis of the above findings the learned counsel for the assessee, relying strongly on the decision of the Supreme Court in Ram Narain Sons (P.) Ltd. v. Commissioner of Income-tax, urged that on the findings that the shares had been purchased for the acquisition of the managing agency and had been sold because the managing agency could not be obtained, even though the sale was at some profit, it did not result in income liable to tax and the Tribunal was in error in holding otherwise. There can be no doubt that on the finding of the Tribunal this must be the result and it would not matter that in the preceding year the assessee was dealer in shares or that he had made some profit on the sale in question.
Sri R.L. Gulati, learned counsel for the Income-tax department, has, however, argued that the finding recorded by the Tribunal that the shares had been acquired for the acquisition of the managing agency was without any basis, and indeed in disregard of the materials on the record. He urged that in recording the finding in its appellate order the Tribunal purported to rely on 'the facts on the record'. According to Sri Gulati there were no facts on the record to show that the purpose of the purchase of shares were the acquisition of the managing agency. He further argued that where there is either no material in support of a finding or the finding is perverse and not rationally possible, or if the finding is inconsistent with the evidence or contradictory of it, the finding of fact is to be deemed to be erroneous in point of law, and such a findings is not conclusive and binding upon the High Court. He went on to urge that in such a situation it is open to the High Court to go behind the finding and to look into the facts itself and draw its own conclusion. In support of his submission Sri Gulati relied on the decision of the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, Liquidators of Pursa Ltd. v. Commissioner of Income-tax and the decision of the Calcutta High Court in Bhikamchand Bagri v. Commissioner of Income-tax in which relying on the said decisions of the Supreme Court and on certain other decisions of the same court and of the House of Lord, the Calcutta High Court went behind the finding recorded by the Income-tax Appellate Tribunal, and examined the evidence for itself and recorded its own findings.
It seems to me that a similar situation has arisen in the present case and findings of the Income-tax Appellate Tribunal that the shares were purchased for the acquisition of the managing agency of the Soora Jute Mills Co. Ltd. was without basis and is liable to be disregarded.
I, therefore, proceed to examine the evidence for myself. On the point of the object of the purchased of the shares there was only the statement of Satya Prakash, the son of the assessee. The statement is a short one and may be reproduced in extens :
'I purchased the shares of Soora Jute Mills with Shri Ram Rattan Guptas group, which consisted of Ram Rattan Gupta, Ram Prasad Gupta and Ram Gopal Gupta. 36,000 shares in all were purchased from Shri Mangani Ram Bangar of Calcutta. Out of 36,000 shares 9,000 shares belonged to Shri Shyam Sunder Gupta which were subdivided between Ram Kishan, Baldeo Pd., Ram Bharosey, Shyam Sunder and myself. Myself and Shyam Sunder had a talk with Shri Ram Rattan Gupta that on getting the control of the company one of us will have to go to Calcutta to look after the affairs of the company. This was the attraction for me taking 4 annas share in this block purchase. The shares were sold subsequently to Mangani Ram Bangar as we could not get the control of the mills.'
The only object of purchase of the shares pointed out in this statement was the possibility of Satya Prakash or Shyamsunder going to Calcutta to look after the affairs of the company in case the control of the company had been acquired. Satya Prakash speaks of the acquisition of shares by his father Ramkishan (assessee) as his own acquisition. He does not speak of the capacity in which, it at all, he might have to go to Calcutta 'to look after the affairs of the company.' There is not a word in the statement about the purchase being for the acquisition of managing agency. It is not stated what was the authorised or issued share capital of the company and whether 36,000 shares represented a majority of the share capital. There is nothing to show that the various persons who pruchased 36,000 shares were patners in a joint venture for acquiring the managing agency or were merely the independent holders of certain portions of the stock. The whole situation and the meaning and the effect of the statement were carefully analysed by the Income-tax Officer. The assessment order is an annexure to the statement of the case, the material portion from which may be quote :
'Assessees version is that along with L. Ramrattan Guptas group assessee and three other associates of his purchased 36,000 shares of Soora Jute Mills with a view to acquire 51% interest in management and control of the mills and that the group actually succeeded in getting directors of its own in the board of directors. Assessee states that since after all this it was found that the managing agency could not be acquired as the existing managing agency had a long term contract of about 20 years or so with the mills, he along with others of group sold shares and the transaction was thus not at all in the nature of business.
In the first instance, assessees version as above is not proved, and it is very unlikely that assessee would not have known at the time of purchase of shares the facts about the existing contract of the tenure of the then managing agency. As a shrewd businessman assessee would naturally not have taken the risk of purchasing these shares with a view to acquire to managing agency without finding out the position of tenure of the then managing agency. No evidence of any kind has been offered and assessee relies only on his own statement. Even this much has not been proved that assessee along with other persons as alleged actually obtained 51% interest in the mills by the purchase of 36,000 shares. Assessee has not stated the total number of the shares of the mills. Further, there is nothing to show that assessee and his three associates had at all joined the other persons headed by L. Ramrattan Gupta for obtaining 51% interest in the mills. None of the assessee and his associates was taken on the board of directors. No evidence has been produced to show that any efforts for obtaining the managing agency were made by assessee or that the existing managing agency had actually a long term contract of 20 years or more and there was no possibility of getting the managing agency soon. There is nothing to show that shares were sold on or immediately after failing in such efforts. On the other hand from the 'margin of profit earned it appears that sale of shares was a deliberate adventure in the nature of business done at a time when the trend of prices was high. Assessee has offered no data about the trend of prices also. Assessee has been dealing in shares in the past also. For all these reasons, I hold that the shares represented only stock-in-trade of assessees shares and were not at all capital investments.'
I am satisfied that the interpretation put by the Income-tax Officer on the assessees version of the nature of the transaction is correct and the only version possible in the circumstances of the case.
It may be stated that in another Income-tax Reference No. 123 of 1957 which we heard along with the above reference and which dealt with a question in respect of the nature of the surplus realisation by another purchaser of the shares, namely, Shyamsunder, the Tribunal itself held that there was no reliable evidence to prove that 36,000 shares had been purchased for acquiring managing agency of Soora Jute Mills.
In appeal the Appellate Assistant Commissioner seems to have fallen into an error but not quite as gross as that error into which the Tribunal fell. The Appellate Assistant Commissioner held that while 'the dominant subject was to make a profit out of the transaction it was also to take over the managing agency.'
I cannot help observing that the judgment of the Tribunal is very unsatisfactory in this case. As shown above, it is quite clear from the materials on the record that the purchase of the shares by the assessee was to make a profit by their sale. The assessee was a dealer in shares in the preceding year. He had himself offered the surplus on the sale of shares of the Hindustan Commercial Bank to be taxed as profits from business and was taxed on that footing. There is a presumption of the continuity of business. There was no evidence to show that the business of share dealing which the assessee had in the preceding year was ever given up by him. The assessee held the shares for about a year and did not sell them immediately as one would have expected him to do if the only object with which they had been purchased was to acquire the managing agency and that object had fallen through. It could not have taken a whole year for the assessee to find out that the existing managing agency had yet a long term to run and would not be available. There is the further fact of acquisition of another 250 shares by Shyamsunder from Lala Ramrattan Ji in February 1945. It was only when these 250 shares are added to the original holding of 8,750 shares of Shyamsunder that his total holdings comes to 9,000 shares out of which the assessee held 1,125 shares. There could be no other motive at all for the purchase of the additional 250 shares in February 1945, except the motive of gain.
For all these reasons the question referred must be answered in the affirmative.
A copy of this judgment shall be sent to the Income-tax Appellate Tribunal under the seal of the court and the signature of the Registrar under section 66(5) of the Act. The department shall be entitled to its cost fixed at Rs. 200.
M.C. DESAI C.J. - I agree that the question be answered in the affirmative. I also agree with the order preferred by my brother Brijlal Gupta.
Question answered in the affirmative.