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Commissioner of Income-tax Vs. Karam Chand Thapar and Sons Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 102 of 1972
Judge
Reported in[1978]115ITR250(Cal)
ActsIndian Income Tax Act, 1922 - Section 66(1)
AppellantCommissioner of Income-tax
RespondentKaram Chand Thapar and Sons Ltd.
Appellant AdvocateSuhas Sen, Adv.
Respondent AdvocateDebi Pal and ;M. Seal, Advs.
Cases Referred(b) Ashoka Viniyoga Ltd. v. Commissioner of Income
Excerpt:
- .....case, the sum of rs. 2,50,375 realised by the assessee on the sale of the shares was assessable as business income of the assessee or as capital gains ?'6. mr. suhas sen, learned counsel for the revenue, contended at the hearing that on the facts found and particularly in view of the magnitude and frequency of the transactions which the assessee had, the conclusion was inescapable that the assessee was carrying on business of dealing in shares. mr. sen drew our attention to the relevant clauses of the memorandum of association of the assessee as follows :'the objects for which the company is established are : (1) to acquire, hold and otherwise deal with shares, stocks, debentures... (2) to acquire any such shares, stocks, debentures...and to exercise and enforce all rights and powers.....
Judgment:

Sen, J.

1. This reference relates to the income-tax assessment of Messrs. Karam Chand Thapar & Sons Ltd., for the assessment year 1957-58, the relevant accounting year being the year ended on the 30th June, 1956. The assessee, at the material time, held shares in various companies valued at Rs. 81,69,853 consisting of 'quoted investments' and 'unquoted investments'. The assessee since 1943-44 has been purchasing and selling shares every year, but in all these past years the assessee had not been treated as a dealer in shares. In the assessment year in question transactions in such purchase and sale of shares resulted in a profit of Rs. 3,21,837-9-0 on sale of certain shares and also a loss of Rs. 71,462-15-0 on sale of other shares. The assessee disclosed in its return a sum of Rs. 86,601 as capital gains. The Income-tax Officer, however, assessed as business profits a sum of Rs. 2,50,375 holding that the same was realised on sale of shares as a trading profit. The Income-tax Officer based his findings on the following :

(a) One of the objects of the assessee was to take part in the formation of other companies.

(b) The assessee sold the shares of different companies in furtherance of such object.

(c) The assessee was also an investment trust company.

(d) The frequency of purchase and sale of shares and magnitude of the transactions indicated that dealing in shares was in fact carried on as a business during the year.

2. Being aggrieved, the assessee preferred an appeal where the Appellate Assistant Commissioner held that the surplus realised on sale of the shares was not trading profit and could only be assessed as capital gains. He found that in the past years the assessee had not been held to be a dealer and that there was nothing to show that the assessee had become a dealer in the year in question. Hs also found that some of the shares sold had been acquired several years back and held for a long period which indicated that they were not the stock-in-trade of the assessee.

3. Being aggrieved by this order, the revenue preferred a further appeal to the Income-tax Appellate Tribunal. It was contended in the appeal that the earlier assessments were made without full investigation and, in any event, the findings in the earlier years would not necessarily lead to the same finding in the year in question. It was further contended that the objects clause in the memorandum of the assessee permitted dealing in shares. Contentions to the contrary were made on behalf of the assessee.

4. The Tribunal noted that the object for which the assessee came into existence was to function as an investment trust company for the furtherance whereof a power to purchase and sell shares was necessary. Dealing in shares was not an integral part of such business and, therefore, any profit arising from sale of shares would not be a trading profit or a receipt in the nature of revenue. The Tribunal further noted that the assessee with holdings of the value of over Rs. 80 lakhs in most of the years had transactions involving less than 10% of its total holdings. From the number of transactions involved having regard to the size of the holdings the Tribunal found that the assessee had merely changed a few of its investments and did not embark on a business of dealing in investments. The number of transactions were not so large as to suggest, a regular business but were in the nature of variation of investments. The Tribunal accordingly rejected the appeal preferred by the revenue.

5. On the application of the Commissioner of Income-tax, West Bengal I, under Section 66(1) of the Indian Income-tax Act, 1922, the Tribunal has referred the following question as a question of law arising from its order:

'Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,50,375 realised by the assessee on the sale of the shares was assessable as business income of the assessee or as capital gains ?'

6. Mr. Suhas Sen, learned counsel for the revenue, contended at the hearing that on the facts found and particularly in view of the magnitude and frequency of the transactions which the assessee had, the conclusion was inescapable that the assessee was carrying on business of dealing in shares. Mr. Sen drew our attention to the relevant clauses of the memorandum of association of the assessee as follows :

'The objects for which the company is established are : (1) To acquire, hold and otherwise deal with shares, stocks, debentures...

(2) To acquire any such shares, stocks, debentures...and to exercise and enforce all rights and powers conferred by or incident to the ownership thereof......

(26) To sell, manage, exchange, dispose of...or otherwise deal with, all or any part of the property......of the company.'

7. He submitted that there was nothing in the memorandum which barred the assessee from carrying on business of dealing in shares and that the transactions only had to be examined in order to determine their nature.

8. In support of his contentions Mr. Sen cited Commissioner of Income-tax v. Clive Row Investment Holding Co. Ltd. : [1977]107ITR600(Cal) for the following observation of a Division Bench of this court, at page 608 :

'A company may deal in shares for different purposes : (a) it may deal in shares for the purpose of carrying on the business of buying and selling securities; (b) it may also deal in shares for the purpose of investment and invest its capital in shares ; (c) such investment may be made in certain cases for obtaining the control of another company.

If the business consists of buying and selling shares, then whatever surplus the company receives from such business must necessarily be a revenue receipt. The problem is not so simple when the company is an investment company and has invested its capital in shares. In such a case the company can still deal in shares as a normal incident of or step in its business. Again, the surplus as a result of such dealing in shares may be treated as revenue receipt, vide cases of Sardar Indra Singh & Sons v. Commissioner of Income-tax : [1953]24ITR415(SC) and Californian Copper Syndicate v. Harris [1904] 5 TC 159.

But it is also settled law that profits realised on a change of investment simpliciter from one type of share to another or arising on mere realisation of investment in shares may not be treated as revenue receipts and hence taxable.'

9. Mr. Sen submitted that even if it be held that the assessee is an investment company, its dealing in shares, made in the course of its business, should be held to be revenue receipts.

10. Dr. Debi Pal, learned counsel for the assessee, contended on the other hand that on the facts found by the Tribunal it was clear that the assessee was not carrying on business as a dealer in shares but was holding its shares only as an investment company. Necessarily, the assessee, from time to time, had entered into transactions for the purpose of changing its investments. Dr. Pal cited the following decisions in support of the assessee's case.

(a) Dalhousie Investment Trust Co. Ltd v. Commissioner of Income-tax : [1967]66ITR473(SC) .

This was cited for the following observation of the Supreme Court at page 476 of the report:

'We are unable to answer the question referred because the mere fact that an investment company periodically varies its investment does not necessarily mean that the profits resulting from such variation is taxable under the Income-tax Act. Variation of its investments must amount to dealing in investments before such profits can be taxed as income under the Income-tax Act. In Bengal and Assam Investors Ltd. v. Commissioner of Income-tax : [1966]59ITR547(SC) , this court held that the mere fact that a company is incorporated to carry on investment does not show that it is carrying on business.' (b) Ashoka Viniyoga Ltd. v. Commissioner of Income-tax : [1968]70ITR381(Cal) . The facts in this case were that the assessee had claimed a loss on sale of shares. This claim was resisted by the revenue on the ground that such shares were held as investment and the transfer of shares was effected between companies under the control of the same group due to reasons other than that of trade and that the resulting loss was not a trading loss. The Tribunal upheld the contentions of the revenue and held that the loss was on realisation of investments and not a business loss. On a reference, this court hold that the Tribunal had come to the conclusion taking into account relevant facts and it could not be said that the conclusion was perverse in the sense that it could not reasonably be entertained. The order of the Tribunal was upheld.

(c) Karamchand Thapar & Bros. P. Ltd, v. Commissioner of Income-tax : [1971]82ITR899(SC) . The assessee, in that case, the same as in the present case, had claimed a trading loss on account of sale of a block of shares of a sister concern. The Income-tax Officer did not accept the assessee's claim and held that the transaction was not a genuine one and, in any event, the loss incurred was a capital loss. On appeal, the Appellate Assistant Commissioner held the loss to be a capital loss but found that the transaction was genuine. The Tribunal agreed with the Appellate Assistant Commissioner that the loss was a capital loss but did not go into the question whether the transaction was genuine or not. On these facts, the Supreme Court held, inter alia, as follows:

(a) Whether a particular loss was a capital loss or a revenue loss was a mixed question of law and fact.

(b) The Tribunal was justified in drawing the inference that the loss was a capital loss.

(c) The fact that the assessee had shown the shares as investmentshares in its books as also in its balance-sheet was a relevant but not aconclusive circumstance at which the Tribunal could have relied for drawingthe inference that the loss was a capital loss. _

11. In the present case, we find that the Tribunal has relied upon the following facts in coming to the conclusion that the surplus in the hands of the assessee by reason of the transactions in shares was a capital gain and not a business profit.

(a) The assessee was carrying on business as an investment company in consonance with its memorandum of association.

(b) The transactions entered into by the assessee were less than 10 per cent, of the total holding of its shares.

(c) Prior to their sale the shares had been held for a fairly long period.

12. The facts found by the Tribunal have not been challenged. In view of the law laid down in the decisions considered above, it cannot be said that there was no material before the Tribunal to come to the conclusion that the assessee was not carrying on business as a dealer in shares. Such a conclusion cannot be said to be perverse in view of the evidence before the Tribunal. In any event, the findings of the Tribunal have not been challenged as perverse. It is not for this court in reference to re-appreciate evidence so as to take a different view on facts.

13. For the reasons as stated above, we answer the question in favour of the assessee by saying that the amount realised by the assessee on the sale of the said shares was assessable, if at all, as capital gains. In the facts and circumstances of this case, there will be no order as to costs.

C.K. Banerji, J.

14. I agree.


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