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Commissioner of Income-tax Vs. Mrs. A. Ghosh - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 309 of 1973
Judge
Reported in[1983]139ITR119(Cal)
ActsIncome Tax Act, 1961 - Section 256(1)
AppellantCommissioner of Income-tax
RespondentMrs. A. Ghosh
Appellant AdvocateB.L. Pal, ;S. Sen and ;N. Bhattacharya, Advs.
Respondent AdvocateSanjoy Bhattacharya and ;Aparna Banerjee, Advs.
Cases ReferredClark v. Follet
Excerpt:
- sudhindra mohan guha, j.1. this reference arises out of four applications dated february 11, 1972, made by the commissioner of income-tax, west bengal-ii, calcutta, under section 156(1) of the i.t. act, 1961, in respect of the assessment years 1961-62 and 1964-65. mrs. a. ghosh was the assessee in these two years. but in a set of cases she was assessed in her personal capacity while in others she was the legal heir and representative of her deceased husband, dr. a. ghosh.2. both dr. and mrs. a. ghosh held shares in a public limited company, viz., standard pharmaceutical works ltd. this concern (hereinafter referred to as 'the company') is stated to have been started some time in1934 with whatever personal resources dr. and mrs. ghosh had. dr. ghosh was the technical director and mrs......
Judgment:

Sudhindra Mohan Guha, J.

1. This reference arises out of four applications dated February 11, 1972, made by the Commissioner of Income-tax, West Bengal-II, Calcutta, under Section 156(1) of the I.T. Act, 1961, in respect of the assessment years 1961-62 and 1964-65. Mrs. A. Ghosh was the assessee in these two years. But in a set of cases she was assessed in her personal capacity while in others she was the legal heir and representative of her deceased husband, Dr. A. Ghosh.

2. Both Dr. and Mrs. A. Ghosh held shares in a public limited company, viz., Standard Pharmaceutical Works Ltd. This concern (hereinafter referred to as 'the company') is stated to have been started some time in1934 with whatever personal resources Dr. and Mrs. Ghosh had. Dr. Ghosh was the technical director and Mrs. Ghosh, a director of the company. The company undisputedly was nurtured by Dr. and Mrs. Ghosh. Dr. Ghosh carried on his research work on antibiotics and Mrs. Ghosh, who was also technically qualified, assisted her husband in this regard. The company over the years had made considerable progress in the technical field. The previous year under consideration was the financial year ended on March 31, 1961, so far as the assessment year 1961-62 was concerned. In this period both Dr. and Mrs. Ghosh effected sales of certain shares. According to them, the surplus which arose was assessable only as capital gains and they showed such surplus as income from capital gains.

3. In the case of Dr. Ghosh, the ITO accepted that the surplus arising out of the sale of 1,145 equity shares, acquired prior to 1944, and 14,000 deferred shares, acquired prior to 1946, represented capital gains. There were also sales by Dr. Ghosh of 20,000 equity shares which it is stated in the assessment order were acquired in September, 1960, and sold a few days thereafter. The surplus from such sales was assessed as business income.

4. In the case of Mrs. Ghosh, the ITO accepted that the surplus arising out of the sale of 6,000 ordinary shares and 19,000 deferred shares which represented holdings for over 20 years would be assessable only as capital gains. There were also sales of 29,600 equity shares. These, the ITO held, were acquired and sold in September, 1960, and the surplus was assessable as income from business. The quantum assessed is not in dispute.

5. The assessee, aggrieved with the decision of the ITO, as referred to, appealed to the AAC. In the case of Dr. Ghosh, it was contended that the sum of Rs. 1,50,000 assessed as business income was assessable as capital gains and in the case of Mrs. Ghosh it was contended that the sum of Rs. 2,22,000 assessed as business income should be assessed only as capital gains.

6. The AAC found certain further facts. Dr. and Mrs. Ghosh were stated to be the founder-directors of the company. The original paid-up capital of the company (excluding cumulative and redeemable cumulative preference shares) was Rs. 6,22,440 comprised of :

58,744 equity shares of Rs. 10 eachRs. 5,87,44035,000 deferred shares of Re. 1 eachRs. 35,000

TotalRs. 6,22,440

Out of the above, the shareholdings of each of the assessees was : --

Equity sharesDeferred shares

Dr. Ghosh1,245 sharesRs. 12,45014,357 sharesRs. 14,357Mrs. Ghosh6,080 sharesRs. 60,80019,000 sharesRs. 19,000

Total7,325 sharesRs. 73,25033,357 sharesRs. 33,357

8. The joint holdings of the two assessees was thus only to the extent of Rs. 1,06,607 out of the paid-up capital, referred to, of Rs. 6,22,440.

9. The company needed fresh capital for its penicillin plant and could not secure the same itself and was thus unable by itself to complete the penicillin plant. Both the assessees had become old and Dr. Ghosh, who was 70 years of age, had a breakdown in health so that he became physically unable to attend to the day-to-day affairs of the company and on account of his illness both the assessees wanted to retire, and sold out their shares. They had devoted the best part of their lives to the development of the company and they wanted to hand over the company to a worthy successor who could ably and efficiently run the company. The assessees had then started (from May 28, 1960) negotiation with Dr. Vikram Sara-bhai of the Sarabhai group. At this stage, the appellate order mentions two factors which co-existed, i.e., (a) the company wanted fresh capitalfor installation of the penicillin plant, and (b) the party who was to purchase the shares wanted a controlling interest in the company. Dr. and Mrs. Ghosh had between them only 17.2% of the voting power and the purchasers did not want to buy the small minority holding.

10. To enable the company to get fresh capital and at the same time to pass a controlling interest to the purchasers the method followed was to issue fresh capital and offer it to the existing shareholders. Most of the shareholders did not accept the offer and Dr. and Mrs. Ghosh were able to buy the bulk of the shares. Out of a total of 62,250 equity shares offered to the existing shareholders, Dr. Ghosh bought 20,000 shares and Mrs. Ghosh bought 29,600 shares.

11. Applications for the new shares were made on two occasions and the amount of the application money was paid on August 19, 1960, and September 9, 1960. Allotment of shares was made on September 14, 1960. Allotment money was paid on September 16, 1960, and the shares were transferred by the assessees on September 18, 1960. The allotment money both in respect of the shares of Dr. Ghosh (Rs. 1 lakh) and Mrs. Ghosh (Rs. 1,40,000) was paid by M/s. Karamchand Premchand (P.) Ltd., the purchasers, on September 16, 1960.

12. The Tribunal ascertained that the total amount received by Dr. and Mrs. Ghosh from M/s. Karamchand Premchand (P.) Ltd. was Rs. 10,50,450.

13. The AAC further found that neither Dr. Ghosh nor Mrs. Ghosh in the past had indulged in any trading activities and also that neither of them had bought or sold any capital asset, much less shares. Their activities in the past were stated to have been confined to the management of the company which they had nurtured from its infancy. After selling the shares, Dr. Ghosh remained as a director for name's sake as desired by the purchasers. Mrs. Ghosh retired with a pension. With the sale proceedsfrom the shares a house property was purchased for Rs. 2,50,000 in which they resided and Dr. Ghosh eventually died on December 12, 1965.

14. The AAC then summarised the reasons which weighed with the ITO in considering that the surplus in dispute could be assessed as business income. Those reasons are :

'(1) That the reasons that prompted the acquisition of fresh shares and subsequent sale of the same, namely, that the appellant being old and infirm and was unable to manage the day-to-day affairs of the business of the company and with an end in view to transfer the controlling interest to some other group of industries who could only ably manage the said affairs of the company and ensure its development that the transaction was contemplated and completed was not considered satisfactory in Dr. Ghosh's case and not wholly unreasonable in respect of appellant's old holdings (STC) (as also old holdings) in Mrs. Ghosh's case.

(2) That the appellants had considerable power and influence in the affairs of the company and manipulated his/her position to get the shares allotted in his/her favour only after negotiations regarding sale of his/her investment had been concluded or reached a concluding stage with full knowledge of the outcome of the deal, viz., decent profit.

(3) That the past records of the appellants show that the appellants had not made a similar transaction.

(4) That in the financial year 1963-64, the appellants had made a similar transaction.

(5) That the appellant (Mrs. Ghosh) as managing director owned substantial shares in the company since last 20 years or more.

(6) In the normal course of human conduct a person having decided to get rid of a particular thing as unsuited to his/her purpose, would not at the same time make special efforts and acquire more of that thing.

(7) Originally the negotiations of sale was going on for old holdings and when the negotiation reached a concluding stage, the outcome being a decent margin of profit that through the power and influence as a result of holding important positions in the company the appellants got allotted further shares in their names within an unusually short time and ultimately the fresh shares acquired were also included in the deal, viz., sale of shares.'

15. It was stressed on behalf of the assessees that the new shares were not purchased with the object of carrying out any adventure in the nature of trade, but with the sole object of divesting themselves of their whole interest in the company which was their creation and to ensure that the company may survive and develop in future in competent hands. It was also stated that the price paid by the purchasers was not only towards the shares but for acquiring the controlling interest and it was the purchaserwho insisted on having such an interest and the assessees, without any motive of trade, only gave effect to such a proposal.

16. The AAC, on a consideration of the facts, eventually came to the conclusion that neither of the assessees was a trader and neither had embarked on an adventure in the nature of trade and that being so the surplus in each case was assessable only as capital gains. The appeals of both the assessees were allowed directing that the surplus of Rs. 1,50,000 in the case of Dr. Ghosh and Rs. 2,22,000 in the case of Mrs. Ghosh should be assessed only as capital gains.

17. The Department, aggrieved with the decision of the AAC, appealed to the Tribunal, On behalf of the Department, reliance was placed on the following :

(i) Letter dated May 28, 1960, from Dr. Ghosh to Dr. Vikram Sarabhai which was stated to be the starting point of the negotiations for the sale of the shares.

(ii) Letter dated June 18, 1960, from Dr. Ghosh to Dr. Vikram Sarabhai wherein Dr. and Mrs. Ghosh had agreed to offer Rs. 6,00,000 worth of equity shares (equivalent to 60,000 equity shares) at a price of Rs. 12,00,000 which would help the Sarabhais to secure 56% of the paid-up equity shares.

(iii) Resolution dated June 23, 1960, of the board of directors of the company offering 62,250 ordinary shares' to the existing shareholders.

(iv) Letter dated July 11, 1960, of N. N, Taneja, on behalf of Sarabhai Chemicals, stating that their offer would be open up to June 31, 1960.

(v) Letter dated July 18, 1960, from Dr. Ghosh to Dr. Vikram Sarabhai extending the offer up to June 15, 1960, and stating that he had explained to Taneja the necessity for him (Dr. Ghosh) to continue as a consulting technical adviser.

(vi) Letter dated July 27, 1960, from Taneja to Dr. Ghosh, relating to arrangements to go over to Bombay.

(vii) Letter dated August 9, 1960, from Dr. Vikram Sarabhai to Dr. Ghosh in reply to the letter of July 18, 1960, informing him that they accepted to purchase from Dr. & Mrs. Ghosh 56% controlling interest in the company in terms of para, (i) of the letter of 18th June, 1960 (referred to in item (ii) above).

(viii) The minutes of discussions of a meeting at Calcutta held on August 16, 1960, between Dr. & Mrs, Ghosh on the one part and Dr. Sarabhai and Messrs. Gidwani and Taneja on the other, where the letter of August 9, 1960, (item (vii) above) was considered.

(ix) Letter dated August 31, 1960, from Dr. Ghosh to Dr. Sarabhai regarding certain conditions of Dr. Ghosh continuing as technical adviser which could be incorporated in the agreement of sale. The letter also men-tioned the proposed board meeting of the company to be called on September 14, 1960.

(x) Letter of September 6, 1960, from Dr. Sarabhai to Dr. Ghosh regarding the appointment of new directors, etc.

(xi) Letter of July 31, 1968, (this is subsequent to the assessment) from Karamchand Premchand (P.) Ltd. to Mrs. Ghosh confirming that the price paid was not only for the price of shares but also for acquiring the controlling interest of the company.

18. On behalf of the department, it was submitted that negotiations by the assessees with the Sarabhai Group for the sale of shares were started on May 28, 1960, and when the offer was made by the assessee on June 18, 1960, to selleshares worth Rs. 6 lakhs, the new shares were not even in existence. It was stressed that it was only on June 22, I960, that the directors of the company had passed the necessary resolution authorising that 62,250 new shares (as also some cumulative and redeemable preference shares, the facts regarding which are not relevant to the present statement) be offered to the existing shareholders in the first instance. Because of these facts, it was submitted that the offer on the part of the assessees to sell shares worth Rs. 6 lakhs was clearly a speculative one and the speculative element was further clear when it was considered that the assessees only made a guess that the response from other existing shareholders to the new offer would be poor and the assessees would be able to get the requisite number of shares for completing the deal.

19. The next line of argument on behalf of the Department was that the application money alone for the new shares was paid by the assessees and even here a loan against a fixed deposit had to be taken. It was submitted that after paying the application money the balances in the bank accounts of the assessees were meagre. The allotment money it was stated was paid by the purchasers and immediately thereafter the shares were transferred and it was, therefore, manifest from those facts that there was no intention to keep the shares as an investment.

20. Another argument put forth on behalf of the department was that, at a later date, Karamchand Premchand themselves had purchased 10,000 shares of the company at par and this clearly showed that in the higher price paid to the assessee there was a clear profit received by the assessee.

21. The last submission was that even if it is assumed that a controlling interest was acquired and sold by the assessee, looking to all the circumstances, and the short space of time involved, the acquisition and parting with the controlling interest was an adventure in the nature of trade and the surplus was assessable as business income. Support for the argument was sought to be derived from the decision of the Supreme Court in Ramkumar Agarwalla and Brothers v. CIT : [1967]63ITR622(SC) .

22. On behalf of the assessee, it was submitted that it was the total effect of all the relevant factors that determined the character of a transaction. It was stated that Dr. and Mrs. Ghosh were the founders of the company and they had kept on working with the company from 1934 to 1960, In 1960 Dr. Ghosh, who was about 70 years old, wanted to retire after a long service and so also Mrs. Ghosh. Due to the advances in technology the company required large funds if the company was to make any progress. Dr. Ghosh did not have the finances. Some method had to be found whereby Dr. and Mrs. Ghosh, who wanted to dispose of their existing shares, could do so. Factually, though Dr. and Mrs. Ghosh, because of their long and intimate association with the company, had effective control over the affairs of the company, i.e., a de facto control, they had only a minority interest. They approached the Sarabhais, who had the money, for selling the shares. Though the Sarabhais were willing to pay a larger amount than the face value of the shares, because Dr. Sarabhai knew the intrinsic worth of the company and its business, they wanted to ensure that the de facto control which had hitherto been exercised by the assessee because of the personal relation they had with the other shareholders of the company, would be transferred to them in the only manner which was effective, i.e., by giving them (M/s. Karamchand Premchand (P.) Ltd. of the Sarabhai group) the de jure controlling interest in the company. The new shares were acquired and parted with by the assessees, it was stated, only to fulfil the requirements of the purchasers. The acquisition of the new shares, it was submitted, meant nothing personal to the assessee and the transactions in acquiring and disposing of the same were entered into with the two-fold object of selling the shares which the assessees had held for several years and realising a proper price for the efforts put in by the assessees in fostering the growth of the company as also in providing the company itself with the funds it directly needed.

23. It was stated that neither of the assessees had traded in shares earlier or done business except managing the affairs of the company. It was stressed that there was no element of speculation on the part of the assessees in assuring that the existing shareholders would not subscribe to the new issue and they would be able to acquire and give to the Sarabhais, as desired by them, the controlling interest, because all that the assessees did was to make with intelligent foresight, a normal assumption in the light of the experience they had gained over the years in working with the company and the other shareholders. It was further submitted that this was particularly so because dividends normally declared in the past (7%) were not high and it was clear to the assessees that only persons with a proper knowledge of science and technology and also having sufficient funds would subscribe to the shares knowing the intrinsic worth of the company andits future prospects and others would not subscribe. After the take over by the Sarabhai group, the dividends, it was stated, went up to 20%.

24. Regarding the submission on behalf of the Department that Karam-chand Premchand themselves had also made purchases of shares at par and, therefore, need not have paid a higher price for purchasing shares from the assessees, it was stated that the higher price was paid to the assessees for getting the controlling interest. While on this aspect, it was submitted that as the controlling interest was acquired and disposed of, in the hands of the assessees the surplus would be only a capital receipt. As the facts were materially different in Ramkumar Agarwalla's case : [1967]63ITR622(SC) relied on by the Department, the ratio of that case, it was stated, had no application to the present matter.

25. The acquisition of a controlling interest, and parting with the same, by the assessee, it was submitted, was only to fulfil the agreement with the Sarabhai group which was legally enforceable. Referring to the decision in the case of G. Venkataswami Naidu & Co. v. CIT 0065/1958 : [1959]35ITR594(SC) and the submission of the department, that if the purchase was made with the intention to resell there would be a presumption of an adventure in the nature of trade, reference was invited in particular to the observation of the court at p. 610 :

'Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive ; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position, and that is, that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.'

26. It was stated that looking to the facts in the present case, which have been detailed above, even if the intention to resell did exist at the time of purchase, the transactions, looking to the totality of circumstances, was not an adventure in the nature of trade. In this view also, it was submitted that the ratio of the other cases relied on, on behalf of the department, did not also help the stand of the department.

27. On behalf of the assessee, reliance was placed on the ratio of certain decisions. Referring to the decision in Saroj Rumor Mazumdar v. CIT : [1959]37ITR242(SC) , it was submitted that even where there was an anticipation of profit it was eventually held by the Supreme Court that the transaction was not an adventure in the nature of trade. It was submitted that the profit motive at the time of entering into a transaction was also not a decisive test in determining the nature of the transaction as was held in CIT v. P.K.N. Co. Ltd. : [1966]60ITR65(SC) . Relying on the decision in Raja Bahadur Kamakhya Narain Singh v. CIT : [1970]77ITR253(SC) , it was submitted that the inference to be drawn in the present case also would be that the assessee was trying to realise an existing capital asset and the surplus would be nothing but capital gains. The next decision to which attention was drawn was that of Ramnarain Sons (P.) Ltd. v. CIT : [1961]41ITR534(SC) , where the Supreme Court had held that by purchasing shares at a price far in excess of their market price to facilitate the acquisition of the managing agency a capital asset was acquired, and the loss incurred on the sale of some of those shares was a capital loss. Similarly, it was submitted, relying on the ratio in CIT v. National Finance Ltd, : [1962]44ITR788(SC) , which was again a case where shares were purchased at a higher value for acquiring a controlling interest.

28. Adverting to the source of the funds with which the acquisition of the shares were made, it was submitted that the payment of application money was out of the assessee's own funds. This was so because even the loan taken was against the assessee's own fixed deposits. The payment of allotment money was no doubt by the purchasers but looking to the transaction as a whole, this, it was submitted, could not impress the transaction with the stamp of an adventure in the nature of trade. It was finally urged that the order of the AAC should be upheld.

29. The Tribunal found that the authorised capital had not been increased by 31st March, 1960, but stood increased by 31st March, 1961, to Rs. 50 lakhs. Thus, even before the negotiations between Dr. Ghosh and Dr. Sarabhai started on May 28, 1960, (letter of this date is item (i) on p. 124 supra) the Tribunal held that the board of directors had considered it necessary to raise the authorised capital of the company as well as to issue new shares. The Tribunal thus found that the need for additional funds was felt by the company even before the start of any negotiations between Dr. Ghosh and Dr. Sarabhai.

30. According to the Tribunal, a reading of the letter dated 18th June, 1960, in the background of the directors' resolution of the 19th February, 1960, showed the intention of Dr. Ghosh to secure financial collaboration for the company and to pass on to the Sarabhais the controlling interest in the company. The Tribunal held that from the letter it was clear that it was made known to the Sarabhais that the existing shares held by the assessee were less than the number of 6 lakhs shares which Dr. & Mrs. Ghosh hadoffered to give to the Sarabhais. According to the Tribunal, it was, therefore, manifest that to pass on the stipulated number of shares the assessees would have to obtain new shares. The latter, in the view of the Tribunal, could be taken as showing that the assessees did not intend to hold the new shares, which they would have to acquire to fulfil the deal. They were also to get Rs. 12 lakhs for Rs. 6 lakhs worth of shares and the excess price realised would definitely be a surplus to the assessee. The objects, as spelt out in the letter, were to obtain financial collaboration for the company and to give the Sarabhais the controlling interest. The Tribunal observed that they had already found that there was evidence of the company having felt the necessity for additional funds as far back as February 19, 1960. In a resolution of the board of directors passed on August 19, 1960, (annex. 'D-2' and forms part of the statement) it was stated that procuring of raw materials was becoming difficult and larger stockpiling had to be made and further capital was, therefore, found to be an urgent necessity. The financial need, according to the Tribunal, therefore, continued. The Tribunal held that there was no evidence to suggest that the assessees who had nurtured the company did not act for furthering the interests of the company. The Tribunal stated that it could not be said that the dominant interest of the assessees was to make a personal gain out of the acquisition and transfer of new shares.

31. On June 23, 1960, the directors passed a resolution offering further shares to the existing shareholders. This included the 62,250 new equity shares of Rs. 10 each. In pursuance of the resolution, a letter was issued to all the existing shareholders on July 8, 1960, offering the new shares to them. It was ascertained by the Tribunal that 67 persons (including the two assessees) offered to subscribe to the new shares. From the minutes of the meeting held by theassessees with Dr. Sarabhai on August 16, 1960, it was noticed that the number of equity shares applied for was 2,338. Dr. and Mrs. Ghosh were to arrange to obtain out of the balance of the offer of new shares, the number which would give them an absolute majority of voting rights. The number of persons who offered to subscribe to the shares, in the view of the Tribunal, was clearly indicative of sufficient time having been allowed to all the shareholders to subscribe if they desired to do so to the new issue. The Tribunal held that there was no evidence to suggest that the issue of shares was arranged or rushed through in any manner to help the assessees to corner any shares of the new issue. When the offers from existing shareholders were found inadequate, the assessees applied for, and obtained, additional shares. In the background of the facts stated above, the Tribunal did not agree with the department that in offering to give shares worth Rs. 6 lakhs at a timewhen the assessees did not possess such shares they were taking any speculative plunge. The assessees, the Tribunal observed, were associated with the company for a number of years and it was reasonable to assume that they would have known the difficulties in securing additional funds, which made them come to the conclusion that the existing shareholders would not be interested or would not have the resources to subscribe fully or even adequately to the new offer.

32. The letter of June 18, 1960, and August 31, 1960, according to the Tribunal spelt out the reasons for which Dr. Ghosh wanted to continue as technical director. In the letter of June 18, 1960, it was stated that Dr. Ghosh would continue as technical director but without executive power or responsibility so that the new officers appointed may become fully conversant with the technical part of the production. If after one year his services were not required or his health did not permit, he stated he would retire completely, otherwise, he had stated he may continue for not more than 4 years further.

33. The reasons which have been set out in the letters for Dr. and Mrs. Ghosh to continue as directors, in the view of the Tribunal, showed only a desire on their part to ensure that a smooth take over of the affairs of the company by the Sarabhais took place and the technical know-how was also passed on in a proper manner. The intentions expressed by the assessees, according to the Tribunal, did not conflict with the plea put forth by the assessees that because of old age and failing health they wanted to dispose of their shareholdings and retire.

34. The letter of August 9, 1960, was from Dr. Sarabhai to Dr. Ghosh. This letter, according to the Tribunal, further showed that the Sarabhais were acquiring the controlling interest from the Ghoshes.

35. On a consideration of the entire evidence, to summarise, the facts which the Tribunal found are that Dr. and Mrs. Ghosh had nurtured the company from its infancy and had been associated with the company for well over a score of years. They had become old and they wanted to retire. For this purpose, they wanted to dispose of their shareholding barring perhaps a few shares which they wanted to hold for sentimental reasons. Neither of the assessees, excepting for their association with the. company, had ever done any business on their own. They had also never sold any shares previously. The Ghoshes, and through them the company, was in possession of technical know-how of a high order. The company, however, was short of funds to achieve its object of manufacturing antibiotics, etc. The company was thus in urgent need of financial collaboration and there was evidence of such need prior to the start of negotiations by the assessees with the Sarabhais. The existing shareholders did not have or were unwilling to put in adequatefresh funds. A party, viz., the Sarabhais, who could provide the requisite financial collaboration was found. The Sarabhais, however, insisted on acquiring a controlling interest. Without acquiring such controlling interest they had no intention to put in their funds. It would, therefore, have been impossible for the Ghoshes to sell to Sarabhais their existing shares unless they could pass on to the Sarabhais a controlling interest in the company. From the fact that even when new shares were offered the response from existing shareholders was poor, it was evident that the assessees could not have found ready purchasers for their own existing shares from persons other than the Sarabhais. The assessees applied for new shares and parted with them so as to secure and transfer to the Sarabhais as desired by them, the controlling interest in the company. The assessees had further kept the company fully informed of the negotiations and the terms on which the Sarabhais had agreed to come in. The dominant object in acquiring and parting with the new shares in the circumstances as set out could not be attributed to making a personal gain though a sizeable surplus did accrue to the assessees as a result of the transactions. For, Dr. and Mrs. Ghosh requesting for continuing as directors for some time after the Sarabhais stepped in, adequate and convincing reasons such as that it was necessary for purposes of passing on the knowledge of technical operations and for allaying the fears of labour, were given. These, according to the Tribunal, were weighty considerations and did not in any way detract from the assertions that the assessees were becoming old and wanted to retire. It was made clear that Dr. Ghosh was to continue as technical director without any administrative and executive responsibilities and further he would continues a director for a specified period only if his health permitted. Thus, in the new capacity, the Tribunal was of the view, he would have worked with considerably less strain than before. The Tribunal then concluded :

'48. The presence of an intention to resell at the time of purchase is a relevant factor which would raise a strong presumption that the transaction is an adventure in the nature of trade but as observed by the Supreme Court in Venkataswami Naidu's case 0065/1958 : [1959]35ITR594(SC) , the presumption is not conclusive and could be offset by the presence of other factors. In the present case, the assessee, when purchasing the new shares, had no intention to retain the same and had, in fact, agreed to part with them to Karamchand Premchand. However, the purchase of the new shares cannot be attributed to an act which was completely of their own volition. Unless they had sufficient shares to pass on a controlling interest they would not have been able to sell their existing shares. The company required funds and unless a controlling interest was given, the Sarabhais were not willing to enter into any financial collaboration. The assesseeshad kept the company informed of their negotiations with the Sarabhais. If the company, which required funds, could have secured for itself a more advantageous deal, it is only to be assumed some efforts in that regard would have been made by the company for which there is no evidence. The presence of the intention to resell, which was there even before the purchase does not, in the circumstances we have set out, in our view, give the transaction the stamp of an adventure in the nature of trade.

49. As observed by the Supreme Court in CIT v. P.K.N. Co. Ltd. : [1966]60ITR65(SC) , profit motive in entering into a transaction is also not decisive in making it one which is an adventure in the nature of trade. Such was also the observation of their Lordships in Janki Ram Bahadur Ram v. CIT : [1965]57ITR21(SC) . We have already found, as a fact, that the making of a personal gain was not the dominant objective in the assessees' entering into the transaction and, therefore, the fact that as a result of the transactions a sizeable surplus did result to the assessees does not make the transaction an adventure in the nature of trade.

50. The assessee had never purchased and sold shares earlier and the purchase and sale of the present shares were certainly not allied to any business carried on by the assessees whose only association with the business world in the past was working for the company which they had nurtured. There was a specific reason for their being desirous to part with their existing shareholdings. This was because they were growing old and they wanted to retire. There is no evidence to indicate that they acted in any way against fulfilling their object. The transaction was not an adventure in the nature of trade.

51. Even if the acquiring and passing on of controlling interest is considered in isolation, it would, in the circumstances of the case, be acquiring and parting with of a capital asset and the surplus derived therefrom cannot be a profit from an adventure in the nature of trade.

52. Even if we go to the utilisation of the sale proceeds we do not find that they have been channelled into any trading activities.

The assessees used a good part of the proceeds for purchasing a house in which they subsequently resided. Excepting for Dr. Ghosh continuing as a technical director of the company (divested of all executive powers and responsibilities) for the object of ensuring a smooth take over by the Sarabhais, the assessees did not also participate in any business activities subsequently.'

36. Thus, for the assessment year 1961-62, the appeals of the Department in respect of both the assessees were dismissed.

'46. We now come to the assessment year 1964-65. On December 20, 1962, investments were made by Dr. H. Ghosh in 365 Second Mortgage Debenture Bonds of the company (fetching an interest of 6 1/2%). Theamount invested in the bonds was Rs. 36,500. In the case of Mrs. Ghosh there was an investment in 433 such bonds. The amount invested was Rs. 43,300. The assessment order sets out the source of the funds. The funds were out of the resources of one or the other of the assessees and there were no borrowings from outsiders for this purpose. The total issue of debentures by the company was for Rs. 15,00,000. In terms of the trust deed dated 21-9-1962, the debenture-holders had the option, at any time after the expiry of 6 months from the date of issue of the debentures, but not later than one year from the date of such issue, by giving one calendar month's notice, to exchange the said debentures into fully paid up equity shares. The rate of conversion was one debenture to be exchanged for 10 fully paid equity shares of Rs. 10 each. The assessees exercised on 10-10-1963, which was within the stipulated time, such option. Out of the equity shares obtained, 3,500 shares (equivalent to 350 debentures) were sold by Dr. Ghosh for Rs. 1,09,500 and 4,000 shares (equivalent to 400 debentures) were sold by Mrs. Ghosh for Rs. 1,24,000. The surplus which accrued to each of the assessees was as under :

Purchase priceSale priceSurplus Rs.Rs.Rs.

Dr. Ghosh35,0001,08,50073,500Mrs. Ghosh40,0001,24,00084,000

The surplus, as indicated above, was shown by each assessee in the return of income as capital gains.

47. The stand of the assessees in returning the surplus as capital gains was that they only wanted a fixed income and they were not interested in fluctuating dividends and hence when the debentures which yielded a fixed income was converted into shares they sold their shares in conformity with their desire to have a fixed income rather than fluctuating income in the form of dividends.

48. The Income-tax Officer was of the view that the past conduct of the assessee was relevant and considering that, in respect of the assessment year 1961-62, he had held the surplus from transactions in shares to be profits from an adventure in the nature of trade, concluded that the intention of the assessees was to make a profit. In his view, as the debentures were purchased after the completion of earlier negotiations which culminated in the transactions in shares considered in the assessment year 1961-62, the assessees were fully aware of the potentialities and could foresee the market value that could be obtained for the equity shares. He finally held that the surplus in each case was profit from an adventure in the nature of trade and was assessable as business income. The order of the Income-tax Officer in the case of Dr. H. Ghosh (through Mrs. Ghosh, is annex. ' E-1') and the order of the Income-tax Officer in the case ofMrs. Ghosb is annex. 'E-2' and both form part of the statement of the case.

49. The assessees appealed. The Appellate Assistant Commissioner, after setting out the facts as found in respect of the assessment year 1961-62 and making reference to the appellate decision for that year, upheld the plea of the assessees that the surplus in each case was assessable only as capital gain.

50. The department, aggrieved with the decision of the Appellate Assistant Commissioner, appealed to the Tribunal. The learned departmental representative took the Tribunal through the facts and submitted that, in view of the legal principles relied on by him in arguing the appeals for 1961-62, the transactions clearly bore the impress of an adventure in the nature of trade.

51. The learned counsel for the assessee, on the other hand, submitted that the pattern of investment in the past showed that the assessees were always looking for a fixed return. Whenever they invested money it was in the shape of fixed deposits in banks. When the company issued the debentures to the tune of Rs. 15 lakhs, the assessees made some investments therein as it provided for a fixed rate of yield of 6 1/2%. There was a clause permitting conversion at the option of the assessees. The option, however, had to be exercised within a stipulated period. The assessees exercised the option within this period and secured equity shares. However, in consonance with their avowed object of having a fixed return, they did not want to hold the shares, though the prospects of dividend were attractive (the dividend declared for the year ended 31-3-1962 was 20%) and so shares were sold and funds invested sc as to secure a fixed return.

The submission of the learned counsel was that there was no element of trade in the transaction and only the base with reference to which a fixed return could be had was broadened.'

37. The Tribunal, with reference to the above, concluded :

'52. We have carefully considered the rival submissions. In deciding the appeals for the assessment year 1961-62, we have set out the full history and as such we are not covering the ground again. The debentures, as floated by the company, were to the extent of Rs. 15 lakhs. The assessees had subscribed only to a small portion thereof. While the assessees held the debentures they were entitled to a fixed return on the investment. The option to convert the debentures into shares had to be exercised within a particular period. The assessees, therefore, were compelled to act within the period if they wanted to exercise the option failing which they would have forfeited the right. They decided to exercise the option and thereby secured equity shares. From the figures of the balance-sheet of thecompany as on 31-3-1964, as given in the assessment orders, it would appear that the option of conversion was exercised by almost all the debenture-holders, the debentures having been converted to the extent of almost Rs. 14.99 lakhs. The assessees, therefore, apparently did nothing unusual in exercising the option. As the equity shares did not give them a fixed return they sold the same shortly thereafter and received funds which enabled them to invest a larger capital for securing a fixed return. In our view, the transactions entered into by the assessees were not in the course of any trade. The assessees only acted in a prudent manner to enable them to secure the maximum fixed return that was possible by broadening the capital base. We agree with the Appellate Assistant Commissioner that the surplus in the case of both the assessees were assessable only as capital gains.'

38. Both the appeals for the assessment year 1964-65 were thus dismissed.

39. In the facts and circumstances of the case, the Tribunal referred the following two questions :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the transaction entered into by the assess-see in the purchase and sale of shares was not an adventure in the nature of trade ?

(2) If the answer to question No. 1 is in the negative then whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the surplus arising out of sale of shares was assessable as capital gains and not as business income ?'

40. In the facts and circumstances, it is to be seen whether the findings of the Tribunal that the transaction in question was not an adventure in the nature of trade can be justified in law. But we have been reminded by Mr. Sanjoy Bhattacharya, the learned advocate for the assessee, as to the scope of this court of reference to interfere with the findings of the Tribunal. According to him, if the Tribunal considers the evidence and, after applying the correct test or principles of law, comes to a conclusion and if that cannot be described as unreasonable or perverse, there is no scope for interference. He relies on the decision of this court in CIT v. East Coast Commercial Company Ltd. : [1970]75ITR8(Cal) and also in the case of this court in CIT v. Produce Exchange Corporation Ltd. : [1963]50ITR308(Cal) . The Supreme Court also gave a similar warning in the case of CIT v. Ashoka Marketing Company : [1972]83ITR439(SC) .

41. As to the characteristics or test to be applied for coming to a decision on the point before us, both Mr. Balai Pal, learned advocate for the Revenue, and Mr. Bhattacharya, the learned advocate for the assessee, relied on the decision of the Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT 0065/1958 : [1959]35ITR594(SC) . In this case also their Lordships invery clear terms laid down the principles for interference by a court in a reference. We may quote the relevant portions as stated in pp. 601 and 602 of the report :

'There is no doubt that the jurisdiction conferred on the High Court by Section 66(1) is limited to entertaining references involving questions of law. If the point raised on reference relates to the construction of a document of title or to the interpretation of the relevant provisions of the statute, it is a pure question of law ; and, in dealing with it, though the High Court may have due regard for the view taken by the Tribunal, its decision would not be fettered by the said view. It is free to adopt such construction of the document or the statute as appears to it reasonable. In some cases, the point sought to be raised on reference may turn out to be a pure question of fact ; and if that be so, the finding of fact recorded by the Tribunal must be regarded as conclusive in proceedings under Section 66(1). If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in the case, its correctness or validity is open to challenge in reference proceedings within narrow limits. The assessee or the revenue can contend that the inference has been drawn on considering inadmissible evidence or after excluding admissible and relevant evidence, and, if the High Court is satisfied that the inference is the result of improper admission or exclusion of evidence, it would be justified in examining the correctness of the conclusion. It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence ; or that the impugned conclusion drawn from the relevant facts is not rationally possible ; and if such a plea is established, the court may consider whether the conclusion in question is not perverse and should not, therefore, be set aside. It is within these narrow limits that the conclusions of fact recorded by the Tribunal can be challenged under Section 66(1). Such conclusions can never be challenged on the ground that they are based on misappreciation of evidence. There is yet a third class of cases in which the assessee or the revenue may seek to challenge the correctness or the conclusion reached by the Tribunal on the ground that it is a conclusion on a question of mixed law and fact. Such a conclusion is no doubt based upon the primary evidentiary facts, but its ultimate form is determined by the application of relevant legal principles. The need to apply the relevant legal principles tends to confer upon the final conclusion its character of a legal conclusion and that is why it is regarded as a conclusion on a question of mixed law and fact. In dealing with the findings on questions of mixed law and fact the High Court would no doubt have to accept the findings of the Tribunal on the primary questions of fact, but it is open to the High Court to examine whether the Tribunal had applied the relevant legal principlescorrectly or not ; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure points of law.'

42. Their Lordships followed the principle enunciated in Sree Meenakshi Mitts v. CIT : [1957]31ITR28(SC) .

43. On this background, we would caution ourselves in approaching the matter, but it may be noted that there is no allegation by either party that an inference has been drawn by the Tribunal on considering inadmissible evidence or after excluding admissible evidence. The conclusion of fact drawn by the Tribunal has not been challenged by the Revenue on the ground of perversity. That being so, our task has been easier and we are required to see whether the Tribunal has applied the relevant legal principles correctly or not and in doing so has arrived at a correct decision.

44. Mr. Pal argued that it would appear that Dr. Ghosh and Mrs. Ghosh started negotiations with the Sarabhai group to sell shares worth Rs. 6,00,000 at a time when the shares were not even in existence. It would be amply clear, according to Mr. Pal, that they had no mind to hold the shares for themselves or otherwise enjoy them but those were acquired solely and exclusively with the intention to resell at huge profit. Such a dominant intention, according to Mr. Pal, is not offset by other considerations. In support of his argument, he relies on the lines quoted below from the decision in G. Venkataswami Naidu & Company v. CIT 0065/1958 : [1959]35ITR594(SC) , at p. 610 :

'Cases may; however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade.'

45. To meet the case of the assessee that it was a sale or solitary transaction entered into by the assessee, he made a reference to the decision of the Supreme Court in the case of CIT v. Sutlej Cotton Mills Supply Agency Ltd. : [1975]100ITR706(SC) , wherein it was observed that neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade. In this very page of the report, the Supreme Court clearly enunciated the law as hereunder :

'In the absence of any evidence of trading activity in cases of purchase and resale of shares, it has been held that profit arising from the resale is an accretion to the capital. If a transaction is in the assessee's ordinary line of business there can be no difficulty in holding that it is in the nature of trade. But the difficulty arises where the transaction isoutside the assessee's line of business and then, it must depend upon the facts and circumstances of each case whether the transaction is in the nature of trade.'

46. At p. 712 of the report, it is also stated that the capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment.

47. Mr. Pal also cites the decision of the Supreme Court in the case of Dalmia Cement Ltd. v. CIT : [1976]105ITR633(SC) and argues that if the intention of resale was there from the beginning and was really the dominant intention to part with the shares at a profit, the inevitable conclusion would be that the transaction was in the nature of trade.

48. Thereafter, Mr. Pal refers to certain English cases in support of his contention that if the intention be resale at a profit, the natural presumption would be that the transaction is an adventure in the nature of trade. First, he refers to the decision of the House of Lords in the case of Edwards v. Bairstow & Harrison [1955] 36 TC 207 ; 28 ITR 579. In this case, Bairstow and Harrison who were respectively a director of a leather manufacturing company and an employee of a spinning firm, purchased a complete cotton spinning plant in 1946, with the object of selling it as quickly as possible at a profit. They hoped to sell the plant in one lot, but ultimately had to dispose of it in five separate lots over the period from November, 1946, to Februrary, 1948. Assessments to income-tax in respect of profits arising from this transaction were made under Case I of Schedule D for the years 1946-47 and 1947-48. On appeal, the General Commissioners found that it was an isolated case and not taxable, and discharged the assessments.

49. The case was remitted by the Chancery Division to the Commissioner to hear legal arguments and answer the question whether the transaction was an adventure in the nature of trade. They decided, on further consideration, that the transaction was not an adventure in the nature of trade. Lord Radcliffe, in his judgment, at p. 229 of the report, observed as follows (see also p. 592 of 28 ITR) :

'Here are two gentlemen who put their money, or the money of one of them, into buying a lot of machinery. They have no intention of using it as machinery, so they do not buy it to hold as an income-producing asset. They do not buy it to consume or for the pleasure of enjoyment. On the contrary, they have no intention of holding their purchase at all. They are planning to sell the machinery even before they have bought it. And in due course they do sell it, in five separate lots, as events turned out. And, as they hoped and expected, they make a net profit on the deal, after charging all expenses such as repairs and replacements,commissions, wages, travelling and entertainments and incidentals, which do in fact represent the cost of organising the venture and carrying it through.'

50. In conclusion, it was held by their Lordships that the only reasonable conclusion on the evidence before the Commissioner was that the transaction was an adventure in the nature of trade. According to Mr. Pal, the dominant intention in this case was to resell the machinery. Next Mr. Pal refers to the decision in the case of Johnston v. Heath [1970] 46 TC 463 ; [1971] 82 ITR 261. In this case, the respondent was employed by a building company at a salary of 520 a year. Early in 1962, one of the directors told him that the company would be prepared to sell for 15,000, a plot of 6 1/4 acres, which had planning permission but had not been developed because of drainage difficulties ; it was producing no income from rents. The respondent asked, if he could buy it if he could raise the price and was told that he could. His capital amounted to 2,250. It was his intention to resell the land as soon as possible and not to develop it himself. The respondent did not advertise the land for sale or place it in the hands of agents, but he approached three companies, and also investigated the possibility of borrowing the purchase price from relatives with the idea of selling when the problem of drainage was solved. On 28th March, 1962, he contracted to sell the land to one of the above-mentioned companies for 25,000; on 5th April, 1962, he contracted to buy it from the building company. He had never before sold property which he had bought for that purpose. Mr. Pal refers to the judgments of Mr. Justice Goff at p. 467 (see also p. 266 of 82 ITR) of the report. His . Lordship summarised as follows : In the first place, it was found that the land was undeveloped and non-income producing. Secondly, Mr. Heath was unable to finance the purchase himself. Thirdly, it was clear that his means would not service a loan to allow retention. Fourthly, it was held that he had no intention to develop the land himself and, indeed, he had no means to do so. Fifthly, he had actually contracted to resell the land before he entered into any contract to buy it.

51. In the above findings, it was found that the purchase and sale were adventure in the nature of trade.

52. Next, Mr. Pal makes a reference to the case of Eames v. Stepmell Properties Ltd. [1966] 43 TC 678 (CA). In this case, the respondent-company, Stepmell Properties Ltd., was assessed in respect of an order for 1961-62, under Case I of Schedule D of the I.T. Act, 1952 (U.K.), to tax on a sum of 47,900, the profit which the respondent-company had made on sale of some fifty acres of land which the company had acquired immediately after the incorporation or within two days, on July 10, 1959, for 2,100. Tt was assessed upon the footing that the profit in question wasproperly to be regarded as the profit of a trading transaction. The respondent-company appealed against the assessment to the Special Commissioners and upon that appeal they were successful. The Crown came in further appeal. Mr. Pal refers to the judgment of Buckley J., at p. 692 of the report. It is observed by his Lordship that the land in question was the land in respect of which B. & W. Ltd. were already in negotiation, purporting to act on the respondent-company's behalf, for its sale to the county council, and that it was known that the county council wanted to acquire the land in reality one must recognise that this was land which everyone knew was going to be sold in the very near future to the Warwickshire County. Council and his Lordship could not accept the view that the purchase of property which was on the verge of being sold could be properly regarded as an investment, for one element at least of an investment must be that the acquirer of the investment intended to hold it, at any rate, for some time, with a view to obtaining either some benefit in the way of income or obtaining some profit, but not an immediate profit by resale.

53. In the above facts this particular transaction was held to be one of trading character and that the profit was one in respect of which the company must be properly assessed to tax.

54. According to Mr. Bhattacharya, the facts of the case were entirely different and this had no application to the present case.

55. Reference is also made by Mr. Pal to the case of Turner v. Last [1965] 42 TC 517 (Ch D). In this case, Cross J. observed that having regard to the affidavits of final financial position and to the fact that there was a quick resale and above all to the fact that the Commissioners heard him to give evidence it could not be said that there was no evidence upon which they could come to the conclusion that he was not telling the truth when he had said that he did not resell the Green Field. In conclusion, his Lordship observed as follows ;

'Of course, the mere fact that when you buy property, as well as intending to use and enjoy it, you have also in your mind the possibility that it will appreciate in value, and that a time may come when you may want to sell it and make a profit on it, does not of itself make you a trader ; but if the position is that you intend to sell it as soon as you can to recover the cost of the purchase, the position is obviously very different--and that is what the Commissioners, having heard the appellant, thought was the position here.'

56. Lastly, Mr. Pal cites the decision in the case of Clark v. Follet [1973] 48 TC 677 (Ch D). In this case, the question was whether the purchase and resale of the firm by Mr. Clark in 1964 was an adventure in the natureof trade and whether the difference between the purchase price and the resale price constituted a profit chargeable to income-tax. It was held that the purchase with the intention of immediate resale constituted an adventure in the nature of trade.

57. It may be noticed that in all these cases, referred to by Mr. Pal, there was absolutely no other consideration other than the motive for profit.

58. In conclusion, Mr. Pal argues that having regard to the motive for sale for a huge profit and with special reference to the fact that the assessee made a profitable bargain, it would not be proper and just to hold that it is a case of capital accretion, but is a profit derived from an adventure in the nature of trade.

59. Mr. Bhattacharya, in reply, points out that even the motive for profit cannot be the sole criterion for finding whether the transaction was in the nature of an adventure in the nature of trade.

60. With reference to the decision of the Supreme Court in the case of CIT v. P.K.N. Co. Ltd. : [1966]60ITR65(SC) , and specially with reference to p. 73 of the report, he argues that profit motive in entering into a transaction is also not decisive. In the case of Janki Ram Bahadur Ram v. CIT : [1965]57ITR21(SC) , it is held by the Supreme Court that the fact that the appellant made a profitable bargain when he purchased the property and that it had desired to sell the property if a favourable offer was forthcoming could not without other circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade. Similar view was also expressed earlier by the Supreme Court in another case, viz., Saroj Kumar Majnmdar v. CIT : [1959]37ITR242(SC) , where it was observed by his Lordship thus:

'.....even assuming that the Tribunal was right in its conclusion asto the second alternative, viz., that the purchase was made in the hope of making a profit after re-sale, the matter is not concluded. In this connection, a reference may be made again to the decision in the case of IRC v. Reinhold [1953] 34 TC 389 (C Sess), where it was argued on behalf of the Revenue that a profit made in a transaction which was in the nature of an investment in the hope and expectation of a rise in price, may be an accretion of capital, but that if at the time of the purchase the purchaser had resolved to sell the property in the event of a profit being made, and instructions had been issued to his agents accordingly, the transaction could not have been treated as an investment, but was truly an adventure in the nature of a trade, and the profit thus made must be treated as an income. This argument was not accepted as valid.'

61. Thus, on an analysis of the cases referred to above, it appears that there is no general or universal test, according to the learned advocate, for arriving at the conclusion that the character of a transaction can be judged solely on the application of any absolute rule, principle or test, but every case is to be judged by its own facts and circumstances.

62. It has already been mentioned while stating the facts that the Tribunal observed that both Dr. Ghosh and Mrs. Ghosh became ill and they wanted to retire by disposing of their holdings barring a few shares which they wanted to hold for sentimental reasons. The company was short of funds to achieve its object of manufacturing antibiotic drugs, etc. A company, viz., Sarabhais, was found which could provide the requisite financial collaboration. Sarabhais, however, insisted on acquiring the controlling interest. It was, therefore, found impossible for the Ghoshes to sell to the Sarabhais their existing shares unless they could pass on to the Sarabhais the controlling interest of the company. In this context, the assessee floated new shares and bought them so as to secure (sic) an approval of Sarabhais, as desired by them, the controlling interest in the company. It was also found that it was not a part of the assessee's ordinary business to make investment in shares. It was apparent, therefore, that there might be profit motive but it was not a sole or dominant motive.

63. These facts may now be applied to the test laid down by the Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT 0065/1958 : [1959]35ITR594(SC) . The assessees were not traders in the purchase of the shares and their resale and these were not a part of their usual trade and business or incidental to it. The transactions of purchase and sale were not repeated. The purchase of shares was not made with the sole intention to resell on profit. It was held by the Supreme Court in this very case that even in the application of this test a distinction will have to be made between initial intention to resell on a profit which is present but not a dominant or sole intention. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is in the nature of a trade. But, in the present case, it is found by the Tribunal, that the motive for profit, if any, has been sufficiently offset by other factors, viz., an anxiety to secure funds for the purpose of manufacturing antibiotics on their retirement from active service of the management of the company.

64. Again, on the fact that the transaction in question was not in the line of business of the assessee and it was not an isolated or a single instance of transaction like that, a burden would be on the Revenue to bring a case within the statute, namely, that it was an adventure in the nature of a trade and the Revenue does not appear to have been successful in discharging the onus.

65. Thus, as to the principle of law applied by the Tribunal, it cannot be said that the profit motive even if it would be there, would be conclusive to find the transactions as an adventure irf the name of profit, as found by the Supreme Court in the case of CIT v. P.K.N. Co. Ltd. : [1966]60ITR65(SC) and in the case of Janki Ram Bahadur/Ram v. CIT : [1965]57ITR21(SC) .

66. It has been found by the Tribunal in the context of the matter that themotive of profit was not the dominant or sole objective of the assessee inentering into the transaction. Thus, the Tribunal was amply justified inholding that the transaction in question was not an adventure in thenature of trade.

67. We, accordingly, answer question No. 1 in the affirmative and infavour of the assessee,

68. As we answer question No. 1 in the affirmative, question No. 2 doesnot arise.

69. Each party will pay and pear its own costs.

Sabyasacht Mukharji, J.

70. I agree.


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