CIVIL APPELLATE, JURISDICTION Civil Appeal No.
282 of 1955.
Thus the question under Art.
The assessee companypany therefore took out a Notice of Motion on November 8, 1952, which was dismissed by the High Court on the ground that either the questions which were sought to be raised did number arise out of the finding of the Commission or they were included in the question which had been referred and answered by the High Court.
An appeal was taken to the Supreme Court against this order.
12 1/2 lacs to the promoters of the assessee companypany and the whole of their holding of 19,76,000 shares at Rs.
The Commission found that it was number the intention of the assessee companypany to retain the whole block of shares and that the sale of 13 lakhs odd shares was an adventure in the nature of trade, and directed that appropriate assessment be made, under the Indian Income tax Act and Excess Profits Tax Act.
1 S.C.R. 646, discussed.
During the negotiations between the Sassoons and the promoters of the.
The Investigation Commission by their order dated May 1, 1949, found 1 that a distinction should be made between the 6 lacs shares which the assessee companypany intended to and did retain and the 13 lacs odd shares which it intended to and did sell the former was kept in order to enable the assessee companypany to make their Managing Agency rights effective.
31 of 1951.
V. Viswanatha Sastri and I. N. Shroff, for the appellants.
Some shares were sold later 1,20,000 shares were transferred to 13 numberinees of the Morarka Group at companyt price.
Kishan Prasad Co. v. Commissioner of Income tax, Punjab, 1955 27 I.T.R. 49, Edwards v. Bairstow, 1956 A.C. 14 and Venkataswami Naidu Co. v. The Commissioner of Income tax, 1959 SUPP.
4 4 0 per share Rs.
M s. Ramnarain Sons Pr.
Appeal by special leave from the judgment and order dated March 20, 1953, of the Bombay High Court in Income tax Reference No.
The inference drawn from this by the Commission was that a distinction had to be drawn between the 6 lacs shares which the assessee companypany intended to retain and did in fact retain and the 13 lacs odd shares which they intended to sell and did sell.
On November 1, 1943, a tripartite agreement was entered into between the Sassoons as Assignors, the promoters of the companypany as Confirming Parties and the assessee companypany as Assignees.
According to the agreement the assessee companypany bad to take the whole of the block of shares belonging to the Sassoons and pay at Rs.
It was therefore necessary and it was intended to sell the 13 lacs odd shares in order to pay off the Sassoons both for the Managing Agency and the shares.
The promoters of the assessee companypany entered into an agreement with the Sassoons on April 27, 1943, by which the Sassoons agreed to transfer their Managing Agency in the Mill Co. for Rs.
By that agreement the Managing Agency rights were for .ally transferred to the assessee companypany so also the Share Certificates for the whole of holding of the Sassoons in the Mill Co. and the necessary blank transfer deeds went Before the agreement of April 27, 1943, and during the companyrse of negotiations with the Sassoons the promoters of the assessee companypany entered into an arrangement with some share brokers for the sale of a large portion of the total holding of 19,76,000 shares of the Mill Co. The price of these shares varied from Rs.
assessee companypany, the promoters of the assessee companypany had started negotiations with certain brokers for the transfer of 13 lacs odd shares soon after the arrangement between the Sassoons and the assessee companypany was companypleted.
It was promoted by two groups of persons who for the sake of companyvenience may be called the Morarka Group and the Bubna Group.
As a result of the sale of shares the assessee companypany received a sum of Rs.
They held 19,76,000 shares out of the 25 lacs.
From this finding the inference drawn by the Commission was that the sale of 13 lacs odd shares was an adventure in the nature of trade.
4 4 0 per share, i.e., for Rs.
20 lakhs as its paid up capital, it was necessary to sell 13 lakhs odd shares in order to pay off the Sassoons both for the Managing Agency and the shares.
16,52.600 as excess over the purchase price which amount on taxation was held by the Income tax Officer number to be profits and therefore number taxable.
5 13 0.
The Apollo Mills Co., Ltd. of Bombay with a capital of Rs.
The Judgment of the Court was delivered by KAPUR, J. This is an appeal against the judgment and order of the High Court of Bombay in a reference under s. 8 5 of the Taxation on Income Investigation Commission Act, 1947 Act XXX of 1947 , hereinafter termed the Act.
These shares were to be transferred to the promoters or to the companypany which they were proposing to float.
From the very beginning the intention of the promoters of the assessee companypany was to sell all the 13 lacs odd shares and in pursuance thereof they were sold.
2 each.
The case of the assessee companypany was referred to the Investigation Commission.
83,98,000.
As a result of sale of all these 13,74,000 shares the assessee companypany received a sum of Rs.
Therefore during the companyrse of negotiations the promoters of the assessee companypany entered into an agreement with some brokers for the sale of Rs.
Although the High Court did number so hold, the Notice of Motion was barred by time, being filed after more than six months allowed under s. 66 2 of the Indian Income tax Act.
As the assessee companypany had only RS.
2 S.C.R. 846, distinguished.
The assessee companypany is a private limited companypany which was incorporated on May 6, 1943, with a paid up capital of Rs.
50 lacs divided into 25 lacs shares of Rs.
The remaining shares the assessee companypany retained.
19,76,000 shares.
At the instance of the assessee companypany the Commissioner of Income tax, Bombay City, by his order dated May 1, 1951, referred the following question to the High Court Whether on the facts found by the Commission the sum of Rs.
The assessee companypany was the applicant before the High Court and is the appellant before us and the Commissioner of Income tax, Bombay City, was the respondent in the High Court and is the respondent here also.
16,52,600 being the excess price realised by the sale of 13,74,000 shares of the Mill Company, was profit and as such taxable or whether it was either of the nature of a capital appreciation or a casual and number recurring receipt and as such exempt from taxation under Section 4 3 vii of the Income tax Act.
16,52,600 as excess over the purchase price.
By deducting therefrom the profits of Rs.
Held, that in companysidering the question whether the transac tion was or was number an adventure in the nature of trade, the companyrt had to take into companysideration the intention of the assessee keeping in view the legal requirements which are associated with the companycept of trade or business In the present case, the transaction that companysisted of buy ing the managing agency of the Mill Company and the block of shares held by Sassoons was inescapably one of a companymercial nature and had all the attributes of an adventure in the nature If of trade.
The assessee companypany was taxed by the Income tax Officer but the sum of Rs.
14 of the Constitution companyld number be raised in these proceedings because this Court like the High Court was exercising its advisory jurisdiction and its power was companyfined to the question which arose before the High Court.
When the Act came into force the case of the assessee companypany was referred to the Investigation Commission by the Central Government and the Investigation Commission made its report on November 9, 1949, in Case No.
20 lacs.
12 1/2 lakhs for the managing agency.
In all 10,00,000 shares out of the total holding of the Mill Co. were sold to these brokers and they in turn sold these block of shares in smaller lots to a number of purchasers.
The paid up capital of the assessee companypany was Rs.
April 12.
16,52,600 which was the excess of the sale price over the purchase price of 13,74,000 shares was held number to be profit and therefore number taxable.
406A. By this report the Commission directed that appropriate assessment be made under the Indian Income tax Act for the assessment year 1945 46 and the Excess Profits Tax Act for the companyresponding chargeable accounting period.
N. Rajagopal Sastri and D. Gupta, for the respondent.
2 each, had as its Managing Agents M s. E. D. Sassoon Co. Ltd., who for the sake of brevity, will be referred to in this judgment as the Sassoons.
The assessee companypany submitted that the profits of the entire holding of the shares had number been worked out and had therefore number been transferred to the profit and loss account.
20 lacs only and according to the agreement they had to take the whole block of shares belonging to the Sassoons and pay for the shares as well as for the Managing Agency both of which were separately valued in the agreement.
By clause 3 of this agreement the sale of the Managing Agency and the transfer of the shares was to be simultaneously companypleted and neither party companyld require the companypletion of the one without the other.
5 8 0 to Rs.
total of 25 lakhs shares of RS.
In its application for reference under s. 8 5 of the Act the assessee companypany wanted some other questions also to be referred but the Investigation Commission only referred the question which has been set out above.
Being a reference under s. 8 5 of the Act, it was heard and decided by three judges of the High Court.
Ltd. v. Commissioner of Income tax, Bombay, 1961 2 S.C.R. 904, Tata Hydro Electric Agencies, Bombay v. The Commissioner of Income tax, Bombay Presidency Aden, 1037 L.R. 64 I.A. 215, Commissioner of, Income tax, Central and United Provinces, Lucknow v. M s. Motiram Nandram, 1939 L.R. 67 I.A. 71, Jones v. Leeming, 1930 A.C. 415, Commissioner of Inland Revenue v. Reinhold, 1953 34 T.C. 389 and Saroj Kumar Mazumdar v. Commissioner of Income tax, West Bengal, Calcutta, 1959 SUPP.
4 4 0 per share, the capital investment must amount to 121 lakhs and 251 lakhs, i.e., 38 lacs and odd.
5 that the intention to sell which the assessee companypany entertained from the very outset was a companyplete answer to the argument that the acquisition was in the nature of an investment.
In giving its finding the Commission said Aggregating the 121 lakhs paid for the Manag ing Agency right and the full price of 6 lakhs and odd shares at Rs.
At the instance of the assessee companypany the question was referred to the High Court under S. 8 5 of the Taxation on Income Investigation Commission Act, 1947, which held that there were materials to justify the finding of the Commission that the purchase and sale of about 13 lakhs odd shares was an adventure in the nature of trade.
Against this judgment and order of the High Court the assessee companypany has companye in appeal to this Court by special leave.
