Vildirect: IncomeTax-caselaws-1967-VIL-113-SC-DT

1967-VIL-113-SC-DT

Equivalent Citation: [1967] 66 ITR 473 (SC)

Supreme Court of India

Date: 17.04.1967

DALHOUSIE INVESTMENT TRUST COMPANY LIMITED

COMMISSIONER OF INCOME-TAX (CENTRAL) , CALCUTTA

BENCH

MR V. RAMASWAMY., MR J. C. SHAH. AND MR S. M. SIKRI.

JUDGMENT

The judgment of the court was delivered by

SIKRI J.--

These appeals by special leave are directed against the judgment of the High Court at Calcutta in Income-tax Reference No. 6 of 1961, answering the question referred to it against the assessee, the present appellant before us. The Income-tax Appellate Tribunal had referred the following question :

" Whether, on the facts and circumstances of the case, the surplus derived by the assessee in the sale of its shares and securities in the relevant previous years was a revenue receipt and as such taxable under the Income tax Act ?"

We are unable to answer this question without calling for a supplementary statement of the case.

The relevant facts and circumstances which are mentioned in the statement of the case are as follows : The assessee " was incorporated on 3rd April, 1947, and the principal activity was investment of its capital in shares and stocks. It changed its investments by sale of its shares and stocks from time to time. The income of the company was derived from dividends on shares and interest received by it on the investments. In the years prior to the assessment years under consideration it had purchased and sold some shares. In those assessment years, the department had treated the surplus or the deficit arising out of such purchases and sales as capital gains or losses consequent on the change of investment. " It further appears that, in the accounting years relevant to the assessment years 1953-54 to 1956-57, the assessee sold the following shares with the results noted against each year :

Assessment year	Name & nature of shares out of sales Rs.	Surplus arising
1953-54	6,900 shares of McLeod & Co. Ltd.	6,56,189
1954-55	950 Ordinary shares of Eastern Jute Baling Co. Ltd. 5,000 Pref. shares of Eastern Jute Baling Co. Ltd.	1,79,250
1955-56	Several equity shares	71,722
1956-57	29 Ordinary shares of Darjeeling
	Tea and Chinchona Assn. Ltd.	31

The surplus mentioned in the above table was treated as taxable income in the relevant assessment year.

The statement of the case then proceeds to mention the contentions raised before the Income-tax Officer and his findings. Then it gives the findings of the Appellate Assistant Commissioner. In paragraph 5 of the statement of the case the contentions of the assessee before the Tribunal are stated as follows :

" Before the Tribunal, the appellant repeated its contention that, in the relevant previous years, the company was actually changing its investments and it was not dealing in shares. The applicant explained that in the previous years, relevant to the assessment year 1953-54, the control of McLeod & Co. Ltd. went out of the hands of the directors of the company. It was stated that certain persons, who wanted to acquire the majority of the shares in M/s. McLeod & Co., approached the applicant-company and offered prices which were much higher than that quoted in the market at the time. In these circumstances, the assessee-company sold the shares of McLeod & Co. Ltd. resulting in a profit of Rs. 6,66,190."

Further in the same paragraph it is stated :

" The Tribunal found that this particular assessee was a company of which the activities consisted of investment of its capital in stocks and shares and earning an income therefrom in the shape of dividends, interest, etc. The Tribunal further found that the company changed its investments as a part of its usual activities. The Tribunal held, on the authority of the decision of the Court of Exchequer in the case of Scottish Investment Trust Company v. Forbes, that although the company was an investment company such investments constituted its business and in the course of carrying on such investment business the company periodically sold the shares and stocks. The Tribunal was of the view that varying the investments was an activity of the assessee in the ordinary course of its carrying on the business and the surplus arising on such variations of the investments must be regarded as having been received in the course of its carrying on of the investment business. "

We are unable to find out from this statement whether the Tribunal accepted the explanation of the assessee that, in the previous year relevant to the assessment year 1953-54, the control of McLeod & Co. Ltd. went out of the hands of the directors of the assessee and it was for this reason that the assessee sold the shares of McLeod & Co.

When we turn to the order of the Income-tax Appellate Tribunal disposing of the appeals we find, that after setting out four clauses of the memorandum of association specifying the objects of the assessee, the Tribunal observed :

" In accordance with these objects of the company it invested in shares of various companies. From time to time it purchased shares and also sold some shares presumably for the purpose of making a change in investment in years prior to the assessment years under our consideration. "

Then the order sets out the various sales and purchases during the relevant assessment years and the contentions of the assessee. Here again it is not stated whether the Tribunal accepts the assessee's contention that the sale of 6,900 ordinary shares of McLeod & Co. Ltd. were on account of the relinquishment of the rights of the assessee in the said company, since the control of that company went entirely out of the hands of the assessee. The Tribunal then concluded that varying investment was a part of the usual activities of the assessee, and relying on Scottish Investment Trust Company v. Forbes, it held :

" In fact, the business of the company is investment and in the course of carrying on the investment business, it periodically varied its investment and therefore it was in the course of its carrying on the business that it received a surplus or it had deficit in any year. Therefore, the result must be held to be a revenue income or a revenue loss."

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 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. This court further observed :

" It seems to us that on principle before dividends on shares can be assessed under section 10, the assessee, be it an individual or a company or any other entity, must carry on business in respect of shares ; that is to say, the assessee must deal in those shares. It is evident that if an individual person invests in shares for the purpose of earning dividend he is not carrying on a business. The only way he can come under section 10 is by converting the shares into stock-in-trade, i.e., by carrying on the business of dealing in stocks and shares as did the assessee in Commissioner of Income-tax v. Bai Shirinbai K. Kooka."

Further, the Tribunal has not stated what was the object of the assessee in buying 6,900 ordinary shares of McLeod & Co. It appears from the order of the Income-tax Officer that these shares were purchased in a number of lots from the year 1948 to 1950. It is also not stated as to what was the object in buying other securities, and why did the assessee confine its activities mostly to the shares of McLeod & Co. Ltd. and the companies managed by McLeod & Co. Ltd. We have already mentioned that the Appellate Tribunal did not definitely state whether they accepted the assessee's contention that the sale of 6,900 shares of McLeod & Co. were on account of the relinquishment of the rights of the assessee in the said company since the control of that company went entirely out of the bands of the directors of the assessee.

We may mention that a statement of the case should contain all the facts, whether mentioned by the Income-tax Officer or the Appellate Assistant Commissioner, which the Appellate Tribunal accepts and it should not be left to the High Court or the Supreme Court to discover whether all the findings of the Income-tax Officer and the Appellate Assistant Commissioner had been accepted by the Appellate Tribunal or not. As we have already mentioned, it is not quite clear from the appellate order of the Appellate Tribunal or the statement of the case what facts the Appellate Tribunal really found or accepted as correct.

In the result, we direct the Appellate Tribunal to make additions to the statement of the case in the light of our judgment, and send the amended statement of the case to this court within three months from the date of the receipt of this judgment.

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