1. Messrs. Kishan Prashad & Co.Ltd., Ambala, is a company which carries on the business of commission agency, hire purchase and money-lending. During the year ending September 30, 1958, relevant to the assessment year 1959-60, the company sold certain Government securities of the value of Rs. 2,00,000 on which it suffered a loss of Rs. 14,581. This loss was claimed by the company from the Income-tax Officer as a business loss but was disallowed on the ground that it was a capital loss. The company filed an appeal before the Appellate Assistant Commissioner which was accepted on the ground that the company was a dealer in shares and securities and that this business was mentioned as one of the businesses which the company was allowed to carry on in its memorandum of association. The revenue filed an appeal before the Income-tax Appellate Tribunal. On December 10, 1963, the Tribunal passed an order to the effect that the material brought on the record was not sufficient to decide the appeal and remanded the case to the Income-tax Officer directing him -
(i-a) to obtain from the assessee a tabular statement showing the purchases and sales of the securities in earlier years;
(i-b) to obtain from the assessee copies of the minute book of the directors recorded at the time of each such purchase or sale ;
(i-c) to state how such profits and losses were dealt with by the assessee in its profit and loss account ;
(i-d) to state how such profits and losses were actually dealt with inthe assessment;
(ii) to state clearly what materials have been brought on the record to controvert the specific observation recorded by the Appellate Assistant Commissioner (as reproduced below) in the assessment year 1951-52: '1. Sale of securities.--The appellant-company does deal in shares and securities as one of its regular business activities and profits or losses on such deal would be within the ambit of Section 10.'
2. The Income-tax Officer submitted his remand report on March 24, 1964. With this report were annexed the details of securities purchased and sold by the assessee-company and the profit and loss earned by it. On the basis of the said report and taking into consideration all the circumstances of the case, the Tribunal allowed the appeal holding that the loss was a capital loss and not a revenue loss. The assessee-company asked for a reference to this court and the Tribunal has submitted a statement of the case and referred the following question of law for our opinion :
' Whether, on the facts and in the circumstances of the case, the company had been rightly held as an investor in securities and not a dealer therein '
3. The details of securities purchased and sold by the assessee-company show that on January 15, 1946, securities worth Rs. 5,00,000 were purchased out of which securities of the value of Rs. 2,50,000 were sold on July 15, 1948, and the remaining securities worth Rs. 2,50,000 were sold on October 28, 1949. In the first sale made on July 15, 1948, there was neither profit nor loss but in the second sale made on October 28,1949, there was a loss of Rs. 2,500. The company then purchased securities worth Rs. 4,000 in 1952 which were sold-on July 23, 1957, resulting in a loss of Rs. 145. The Company purchased securities of the value of Rs. 2,00,000 on October 28, 1949, and sold them on November 22, 1957, resulting in a loss of Rs. 14,581. The losses of Rs. 2,500 and Rs. 145 relating to earlier sales were taken to the profit and loss account and were allowed by the income-tax department but the loss of Rs. 14,581 was disallowed. These transactions do not lead to the conclusion that the assessee-company was doing the business of dealing in securities, the transactions being very few in the course of eleven years. The company had also written a letter to the Income-tax Officer on November 11, 1961, in which it was explained that:
' All the above securities excluding Rs. 4,000 were purchased by the company with a view to invest its surplus funds and to earn interest therefrom. They were purchased in the ordinary course of business. The interest so earned from these securities has already suffered tax during all these years. '
4. From this submission of the assessee-company itself the Tribunal concluded that the assessee had invested its surplus funds with a view to earning interest and, therefore, it could not be said that it was a business transaction and profit or loss was liable to be included in the business income of the assessee. In the remand report, the Income-tax Officer had stated that no copies of minute books of the directors had been supplied by the assessee-company regarding the purchase and sale of the securities as the assessee had stated that there was no resolution regarding the purchase and sale of securities. Regarding the sale of securities of Rs. 2,00,000 on November 22, 1957, there existed resolution No. 3 dated October 16, 1957. It was also mentioned in the remand report that the balance-sheets of the assessee-company for the earlier years showed that these securities were treated as non-trading investment. A letter dated October 7, 1957, written by the Bombay branch of the assessee-company was also handed over to the Income-tax Officer which was sent by him along with the remand report and this letter suggested that the intention of the assessee-company was to hold the securities for earning interest and not for dealing in them. This letter clearly showed that the motive for the sale was not the reaping of the profits or reducing the lossess but it was inadequacy of return on the investment, and, therefore, it clearly suggested that the securities were held as an investment and not as stock-in-trade.
5. Apart from the fact that in the memorandum of association of the assessee-company, one of the objects stated is ' to deal in money, notes, bills, hundis and other securities ', there is no evidence brought on the record to show that the company in fact carried on the business of dealing in securities. As I have already said above, the transactions are too few to lead to the conclusion that it was a regular business of the company. The fact that in previous years the losses on the sale of securities were taken to the profit and loss account does not preclude the income-tax authorities from concluding that the sale of securities made on November 22, 1957, resulted in a capital loss and not a revenue loss on the ground that the assessee-company had invested surplus funds for the purchase of securities with the motive of earning interest. If the motive had been to deal in securities, the company would have sold them as soon as the market went up and there is no evidence brought on the record that the market did not go up after the purchase had been made by the company and that it continued to fall. Moreover, on the evidence on the record, the Tribunal has come to the finding of fact that the purchase of securities represented investment of surplus finds made by the company and did not show that It was the regular business of the company to deal in securities. On the facts and in the circumstances of this case, we are, therefore, of the opinion, that the conclusion of the Income-tax Appellate Tribunal was a correct one.
6. The result is that the question referred to us for opinion is answered in the affirmative. The Commissioner of Income-tax will be entitled to his costs which we assess at Rs. 150.