SABYASACHI MUKHARJI J. - The assessment years involved in this reference are 1952-53, 1953-54 and 1955-56, corresponding accounting years being 17th July, 1950 to 29th October, 1951, 30th October, 1951, to 17th October, 1952 and 6th November, 1953 to 1st July, 1954, respectively.
The members of the Kedia family held substantial interest both on the assessee-company and in Messrs. Anderson Wright Ltd. Messrs. Anderson Wright Ltd. were appointed managing agents of Messrs. Khardah Co. Ltd. from 1st July, 1948. The total number of issued ordinary shares of Messrs. Khardah Co. Ltd. were 54,000 of the face value of Rs. 100 each. 32,680 of these shares were held by one Mrs. Flora Meyer either in her own name or in the names of her nominees. 9,637 shares were held by Messrs. Anderson Wright Ltd., and the balance by several other persons. Some time in April, 1950, Messrs. Anderson Wright Ltd. purchased all the shares of Mrs. Flora Meyer at a price of Rs. 300 per share. The total price thus came to over a crore of rupees which Messrs. Anderson Wright Ltd. raised by borrowings from various parties including a sum of Rs. 27,54,000 from the assessee company. There is a resolution by the board of directors of the assessee company sanctioning loan dated 15th February, 1951, and under this very resolution the directors of the assessee-company also authorised the assessee-company to be a dealer in shares with retrospective effect from 17th July, 1950. Up to and including the assessment year 1951-52 the assessee had not been dealing in shares but held shares only as investment. The memorandum of association of the assessee-company, however, authorised dealing in shares. The amount of loan advanced by the assessee-company as mentioned hereinbefore to Anderson Wright Ltd. in purchasing shares of Khardah Co. Ltd. was repaid by Anderson Wright Ltd. The major portion of the shares of Khardah Co. Ltd. came to be owned between Anderson Wright Ltd. and the assessee-company both of which were under the control of Kedia family. For the assessment year 1952-53 there was a profit of Rs. 4,495 on the sale of 335 shares of Khardah Co. Ltd. between 16th March, 1951, and 16th May, 1951. The balance of the stock was valued at the market price at the close of the accounting year and on such valuation, after setting off the aforesaid profit of Rs. 4,495, the assessee suffered a loss of Rs. 9,29,485. In the accounting years relevant to the assessment years 1953-54, 1954-55 and 1955-56 there were no scales of these shares but on the valuation of the closing stock at the prevailing market rates on the closing dates of the respective accounting years, the assessee again suffered a loss of Rs. 6,33,534 for 1953-54, earned a profit for the assessment year 1954-55 and again suffered a loss Rs. 66,040 for the assessment year 1955-56. The assessee claimed loss of Rs. 9,29,485 for the assessment year 1952-53, Rs. 6,33,534 for the assessment year 1953-54 and Rs. 66,040 for the assessment year 1955-56 in respect of its dealing in Khardah Co. Ltd. shares and also claimed transfer charges of Rs. 3,684 for the assessment year 1952-53 and Rs. 3,377 for the assessment year 1953-54 as the expenditure incurred for the purpose of its business. For the assessment year 1954-55, the assessee returned a profit from these shares. While assessing the profit disclosed in respect of the assessment year 1954-55, the Income-tax Officer disallowed the claim for the losses in the claim for the losses in the assessment years 1952-53, 1953-54 and 1955-56 as capital losses. The Income-tax Officer came to the conclusion that the shares were acquired by the assessee for helping Anderson Wright Ltd. to retain the managing agency of Khardah Co. Ltd. and for preserving the controlling interest of the Kedia family in these companies and that the purchase of these shares was merely an investment and was not intended to be a dealing in shares.
The Income-tax Officer, in his order for the assessment year 1952-53, has set out the genealogical table of the Kedia family and the dates and particulars of purchase of these shares and the sale of these shares during the said assessment year. The same appears at pages 12 and 13 of the paper book of this reference. It appears that large block of these shares were purchased from concerns which the members of the Kedia family had substantial interest. It also appears from the said particulars that these shares were purchased in different quantities on diverse dates between 18th September, 1950, and May, 1951. They were purchased from several parties. Some were purchased at rates lower than the prevailing market rates on the relevant dates. Out of this purchase of 13,518 shares of Khardah Co. Ltd. 335 of these shares were sold during the relevant assessment year. Out of these sales about 20 shares were sold to Hindustan General Produce Co. Ltd., which is also a concern in which the members of the Kedia family had substantial interest. The Income-tax Officer has dealt with how the money was obtained by Anderson Wright Ltd. for the purpose of acquiring these shares and how the assess got this money for the purpose of acquisition of these shares. It appears that the said shares were acquired with borrowed money. The Income-tax Officer has also referred to the fact that Mrs. Meyer had substantial interest in the said company and she was unloading those shares and if those shares went out of the Dedia family, they apprehended losing control and as such those shares were acquired in this process for the purpose of continued retention of the control of Kedia family in the said company. The Income-tax Officer also referred to the subsequent resolution which authorised dealings of shares with retrospective effect. The Income-tax Officer has also referred in this order to the application of the assessee dated March, 1956, to the Central Board of Revenue regarding time for payment of tax. It appears that in that application the assessee had stated : 'During the year 1950-51 your memorialist has earned substantial amount in jute and jute goods and had invested this fund in shares and securities.' The Income-tax Officer has also relied on the fact that all these 1,286 Khardah Co. Ltd. shares were really deposited and lay frozen because they were with the bank for the purpose of overdraft facilities. The Income-tax Officer has referred to the fact that even when market prices were high, the assessee did not sell all these shares but retained a part of it. In respect of the assessment years 1953-54 and 1955-56 he followed his finding in respect of the assessment year 1952-53 and disallowed the claim on the said basis.
There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, who first heard the appeal being Appellate Assistant Commissioner, Range-II, was of the opinion that the Income-tax Officer had not given certain facts and he directed a report to be made by the Income-tax Officer. The Income-tax Officer submitted his report on 7th March, 1962. A portion of the said report has been set out at page 32 of the paper book in the present reference. The appeal ultimately came up for hearing before the Appellate Assistant Commissioner, Income-tax, Range-I.
The Appellate Assistant Commissioner in his order referred to the fact that in respect of other shares in the earlier years, though there was no share dealing, the Income-tax Officer had accepted the fact that the assessee company had started dealing in shares from the beginning of the assessment year 1952-53. It also appears that in the appeal of Anderson Wright Ltd., against the assessment of profits realised on sale of shares of Khardah Co. Ltd. of which Messrs. Anderson Wright Ltd. were the managing agents, the Appellate Assistant Commissioner accepted the contention of Anderson Wright Ltd. and ordered deletion of the profits on sale of shares of Khardah Co. Ltd. The Tribunal in that appeal did not agree with the finding of the Appellate Assistant Commissioner and held that acquisition of shares was not with a view to safeguard the managing agency of Khardah Co. Ltd. but was with a view to earn profits by dealing in shares. So it appears that the acquisition of these shares by Anderson Wright Ltd. was held to be for dealing in shares. It was argued that when the managing agents of Khardah Co. Ltd. had not been held as investors in shares of that company but as dealers in shares of Khardah Co. Ltd., it would be meaningless to imagine that the assessee company who had some interest in the managing agency company had acquired the shares of Khardah Co. Ltd. while the acquisition by the managing agents themselves have been held to be dealing in shares. The Appellate Assistant Commissioner accepted the said argument. The Appellate Assistant Commissioner, in those circumstances, allowed the claim for losses in respect of those shares dealings for the said years.
There was a further appeal before the Income-tax Appellate Tribunal. The Tribunal, after setting out the facts in its order, has referred to the contentions made by the revenue as well as the main reasons in the order of the Income-tax Officer and these are :
'(a) Until immediately before the start of the accounting year relevant for the assessment year 1952-53 the assessee was not a dealer in shares but only an investor therein.
(b) Although the assessee claimed to have become a dealer in shares on and from the 17th July, 1950, the resolution authorising the assessee to do so was passed by its board of directors much later on the 10th February, 1951.
(c) These shares were acquired to help the Kedia family to stabilize its control over Khardah Co. Ltd.'
The Tribunal has discussed the facts and circumstances leading up to the acquisition of these shares, the manner in which the shares were purchased and the argument that the shares were not immediately sold though, at point of time, the market prices were higher than the purchase prices. The Tribunal observed that in deciding a question of this nature the problem has to be considered in the light of the assessees intention in acquiring the shares and that intention has to be judged by the conduct of the assessee. The Tribunal has analysed and discussed the conduct of the assessee and the relevant circumstances. It appears that the main argument was that these shares were acquired for the purpose of retention of these shares by members of Kedia family inasmuch as the Kedia family was interested in having control over the Khardah Co. Ltd. But this had already been achieved through the purchases made by Anderson Wright Ltd. itself. It appears that the total number of issued ordinary shares of Khardah Co. Ltd. was Rs. 54,000. In order therefore to have an absolute controlling interest, 27,000 shares were required. Now Anderson Wright Ltd., even after having sold part of its acquisition of Khardah Co. Ltd. shares, held directly and through persons having interest in it for all these years much more shares than the said requisite number. Therefore, for the purpose of retention or acquisition of the control over Khardah Co. Ltd., there was no reason for the assessee to acquire those shares. Another aspect of the matter is that bulk of these shares were acquired from sister concerns, that is to say, concerns where members of Kedia family were interested. These shares therefore were already in the family. Therefore retention or acquisition of control of Khardah Co. Ltd. by members of Kedia family could not have been the purpose for acquisition of these shares. The Tribunal has also referred to the manner in which these shares were acquired, that is to say, in different quantities. The Tribunal has also referred to the fact that these were acquired with the borrowed money. The Tribunal therefore dismissed the appeals.
The Tribunal has referred to this court the following questions under section 66(1) of the Indian Income-tax Act, 1922 :
'(1) Whether, on the facts and in the circumstances of the case, the assessee had been rightly held to be a dealer in respect of the shares of Messrs. Khardah & Co. Ltd. and the assessees claim for the losses of Rs. 9,29,485 and Rs. 66,040 had been rightly allowed for the assessment years 1952-53 to 1955-56
(2) Whether, on the facts and in the circumstances of the case, transfer charges of Rs. 3,684 and Rs. 3,387 incurred for acquiring the shares of Khardah Co. Ltd. were properly allowed as revenue expenditure for the assessment years 1952-53 and 1953-54, respectively?'
Mr. D. K. Sen learned counsel for the revenue, contended before us that there were about 9 different features about this acquisition which taken together, according to him, led to the conclusion that these shares were not acquired for the purpose of share dealing. Mr. Sen referred to the fact that a large bulk of shares was being held by Mrs. Flora Meyer and if they were released to the market there were chances of Kedia family losing control over Khardah Co. Ltd. Mr. Sen also referred to the fact that this acquisition was made for the retention of the control and according to him, was done with the borrowed money by adjustments in different books of Anderson Wright Ltd., Co. Ltd. Khardah and the assessee-company. Mr. Sen submitted that the resolution on a subsequent date authorising dealing in shares with retrospective effect was of a significant nature. Mr. Sen then drew our attention to the absence of any documents authorising the loan by the board of directors. Mr. Sen also said that an ordinary dealer in shares would dispose of the shares as soon as the market prices went up. But that was not done in this case. According to him, that is a very significant pointer to the fact that they were not held in the usual course of share dealing. The fact that these shares were acquired at lower prices than the market prices in some cases, according to him, also led to the same conclusion. The learned counsel also urged that small quantity of shares that were retained indicate that these shares were not being held as a share dealer. Mr. Sen also drew our attention to then application made to the Central Board of Revenue in 1956 in which the assessee had itself stated, that its money had been invested in shares. Mr. Sen then submitted that if the assessee was dealing in shares then it would not have allowed its shares to lay frozen by having a bulk of it deposited to secure an overdraft account from the bank.
Mr. Sen drew our attention to the decision of the Supreme Court in the case of Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income-Tax, where the Supreme Court held that by the purchase of shares at prices in excess of their market price to facilitate the acquisition of the managing agency a capital asset was acquired by the appellant-company. In those circumstances, the Supreme Court came to the conclusion that the intention in purchasing the shares was not to acquire them as part of the stock-in-trade of its business in shares. The loss incurred by the sale of these shares was therefore loss of a capital nature. The Supreme Court was further of the opinion that, in considering whether a transaction is or is not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the legal requirements which are associated with the concept of trade or business. The inference on this question raised by the Tribunal on the facts found is of mixed law and fact and is open to challenge before the High Court on a reference under section 66 of the Income-tax Act. The question whether the assessees transactions amounted to dealing in shares and properties or in investment, is a mixed question of law and fact and the legal effect of the facts found by the Tribunal on which the assessee could be treated as a dealer or an investor, is a question of law. It is, however, significant to note that in that case it was found by the Supreme Court that the purchase of the shares was to facilitate the acquisition of managing agency of the company. In those circumstances, the Supreme Court held that it was not a dealing in shares. In the case before us it is necessary to find out the purpose of the purchase. Was it to retain control by Kedia family of Khardah Co. Ltd. or not, is the question. On an appraisal of facts, the Tribunal has come to the conclusion that it was not for that purpose.
Mr. Sen also relied on the decision of the Supreme Court in the case of Commissioner of Income-tax v. National Finance Ltd., where the Supreme Court held : 'Whether a particular loss is a trading loss or a loss on the capital side, depends on the facts of each case...... The problem must be approached in each case in the light of the intention of the assessee, having regard to the legal requirements which are associated with the concept of trade or business.'
There the Supreme Court came to the conclusion that,
'Though.... the intention of one company could not be attributed to another company even though the proprietorship of the companies might be the same, in cases like the present, the court is not concerned with a theoretical question as to whether, an assessee being a separate legal entity, but with the question whether a particular loss suffered by the company was a capital loss or a revenue loss.'
On the authority of this case, it could certainly have been urged that, if it was established that, in order to help M/s. Anderson Wright Ltd. to retain control of Khardah Co. Ltd., the assessee had required these shares, then that would be an acquisition of a capital nature. But, in view of the facts found by the Tribunal, the problem cannot be looked at from that point of view.
Dr. Pal, learned counsel for the respondent, contended before us that the Tribunal has duly considered all the facts of this case and the Tribunal has weighed both the points of view and had the correct legal principles in mind and in that view of the matter he urged that we should not interfere with the order of the Tribunal. Dr. Pal relied on the decision of this court in the case of Commissioner of Income-tax v. Produce Exchange Corporation Ltd. where this court held that the High Court could not go behind the facts found by the Appellate Tribunal unless there was ground for thinking that the findings of fact were not based on any evidence at all or were contrary to such evidence or were capricious. In that case what had happened was that in the relevant assessment year that the shares were purchased with borrowed money, both the purchases and sales were at the prevailing market rate and one of the objects of the assessee-company was to carry on business in dealing in shares. The Tribunal came to the conclusion that it was a trading loss in dealing in shares. This court did not find it possible to interfere with the said finding of the Tribunal. Dr. Pal also relied on the decision of this court in the case of Ashoka Viniyogo Ltd. v. Commissioner of Income-tax, where this court observed whether the loss incurred in dealing in shares is a trading loss in investments is a mixed question of law and fact. The Tribunal had come to the conclusion that incurred by the assessee was not a trading loss. This court observed, if on the available facts it could not be said that the conclusion arrived at by the Tribunal was perverse in the sense that the conclusion had been arrived at on a view of the facts which could not reasonably be entertained, such conclusion could not be challenged on the ground that it was based on misappreciation of evidence.
In the case of Raja Bahadur Visheshwara Singh v. Commissioner of Income-tax the Supreme Court observed that :
'If on the evidence which was before the Tribunal, that is to say, the substantial nature of the transactions, the manner in which the books had been maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holdings, the Tribunal came to the conclusion that there was material to support the finding that the appellant was dealing in shares as a business, it not be interfered with by the High Court.'
In the decision of the Supreme Court in the case of Homi Jehangir Gheesta v. Commissioner of Income-tax, the Supreme Court has observed that :
'In determining whether an order of the Appellate Tribunal would give rise to a question of law, the court must read the order of the Tribunal as a whole to find out whether every material fact for and against the assessee, has been considered fairly and with due care;........ and whether the conclusion reached by the Tribunal has been coloured by irrelevant considerations or matters of prejudice.'
It appears to us that the Tribunal correctly applied the principles, that is to say, to find out the intention of the parties and for that purpose examined the conduct of the parties and the relevant surrounding circumstances. Reading the order as a whole, we are satisfied that the Tribunal has fairly considered the main points in the controversy between the parties, that is to say, what was the purpose of the acquisition of these shares. The Tribunal has noted the fact that it was done with the borrowed money; generally it does raise a presumption that it was a dealing in shares. We are, of course, aware that there are cases where industrialists have borrowed large sums of monies for the purpose of acquisition of controlling interest of certain concerns. It is important to realise that the Tribunal has borne this aspect of the matter in mind and has also examined the alleged reasons for the acquisition of these shares. The Tribunal had before it the substantial nature of the transaction and having examined all the aspects of the matter the Tribunal had come to its conclusion. It is true that the Tribunal did not specifically refer to the fact about the application by the assessee to the Central Board of Revenue wherein the assessee had stated that it had invested its money in shares. It is also true that the Tribunal in its order has not referred to the fact that a part of these shares were frozen in the sense that they were deposited with the bank for the purpose of overdraft. It has been urged before us that the application before the Central Board of Revenue was made subsequent to the acquisition that is to say, in 1936. Furthermore, the word 'invested' had been used in a loose fashion and indicated that the money had been kept blocked in shares and not in the sense that it had been invested as capital. Be that as it may, it does not seem to us that specific point was urged before the Tribunal. Even if it was done, we do not think that it is such a material point which would vitiate the consideration of the main controversy in this case. It is true that there is no specific reference to the fact that some of the shares were kept with the bank. The Tribunal, in paragraph 14 of its order, has referred to the manner how the shares were acquired and dealt with by the company. The nature of the transaction was before the Tribunal and it appears to us that the Tribunal had adverted itself to the main points of controversy in this case bearing in mind the correct principle in approaching this problem. Bearing in mind the correct principles the Tribunal had, on material before it, come to its conclusion which cannot be described as perverse or based on no evidence. We cannot, therefore, interfere with the same even though we, on re-appreciation of facts, may be inclined to take a different view of the matter. No separate argument was advanced before us in respect of question No. 2.
In that view of the matter, both the questions referred to this court must be answered in the affirmative and against the revenue. The Commissioner of Income-tax will pay the cost of this reference.
DEB J. - I agree.