Commissioner of Income Tax, Bombay Vs.
H. Holck Larsen [1986] INSC 114 (8 May 1986)
MUKHARJI, SABYASACHI (J) MUKHARJI, SABYASACHI
(J) PATHAK, R.S.
CITATION: 1986 AIR 1695 1986 SCR (2)1072 1986
SCC (3) 364 JT 1986 341 1986 SCALE (1)1340
ACT:
Income, exigibility to tax - Purchase and
sale of Right shares acquired under section 81 of the Companies Act, 1956
Whether the assessee is a "dealer"/"trader" or
"investor" Question of law, fact or both explained - Whether trade or
investment is a question OF law - Whether the intention of the assessee
relevant - Assessee's intention is to nurse investments by acquiring and
selling shares - Whether could be treated as "plunging in the waters of
trade".
HEADNOTE:
The Respondent-assessee was a partner in the
firm of Larsen and Toubro, upto 1946. On 7th/8th February 1946 that firm was
converted into a private limited under the same name. In consideration of his
interest in the firm, the assessee was allotted 53,486 Right shares of the
company, as per section 81 of the Companies Act, 1956. During the next few
accounting years upto the financial year 1953-54 during which the company became
a public Ltd. company, the assessee acquired 2,994 shares of the said company
and sold 1550 shares. The purchases and sales of shares of the said company
were few and far between upto the financial year 1953-54 but these became
larger in number and at close intervals in the next few succeeding financial
years ending between 31.3.55 and 31.3.60. During the aforesaid period, the
assessee had acquired 29,969 shares of the said company and sold 37366 shares
thereby making a profit of Rs.
1,65,581. Besides purchasing and selling
equity shares of the said company, the assessee had also dealt in preference
shares of the said company. The assessee had sold shares of Andhra Cement Co.
in the financial year 1954-55, made purchases of shares of S.C.C. and I.C.C. in
the years 1955- 56, 1956-57 and 1958-59 and also of shares of India Cement Co.
and National Carbon in 1955-56 and also sold shares of Guest Keen Williams and
Indian Cement Co. in 1958-59. During all these years the purchases and sales of
equity shares of the said company were more marked than the purchase and sale
of other shares. Besides the sale of equity shares of the said company and
shares of other companies, the 1073 assessee had also sold some of his original
shares of the said company held by him. For all the accounting years upto the
year ending March 31st, 1958 he was assessed as an investor The Income Tax
Officer on a reconsideration of the findings in earlier years took the view
that the assessee was an investor only till March 31st, 1954 but that from the
financial year 1954-55 the assessee was a dealer in shares and therefore,
profits made by him during such years are liable to tax. me first Appeal before
the Appellate Commissioner was rejected. The assessee therefore, filed a second
appeal. In such an appeal before the Tribunal, the assessee contended that (1)
the assessee never purchased equity shares of the said company from any
outsider or any stranger except in a few cases from close friends or from
members of the staff just to accommodate them; (2) that the shares that were
acquired by the assessee were only right shares issued by the company to its
existing shareholders;
(3) that the assessee had to meet huge
personal expenses and tax liability in the relevant accounting periods; (4)
that the assessee had an overdraft account and he wanted to keep the said
overdraft account within reasonable limit; (5) that the assessee wanted to
nurse his investments in the company;
and (6) that the assessee had to and was
forced and compelled by circumstances to sell some of the shares acquired by
him. In the premises, the assessee's contention was that the sales of the said
shares were neither effected voluntarily nor with a view to make any profit nor
under a profit making scheme, but were effected under compelling circumstances
and as no assessee could be a trader by compulsion, the assessee was not a
trader in respect of these shares. Two members namely Judicial Member as well
as Accountant Member gave separate but concurrent opinions and came to the conclusion
that the assessee was a dealer in shares and not an investor. me Tribunal held
: (1) The assessee was the Chairman of the Board of Directors of the said
company. (2) The said company had ever since its inception expanding its
business and asking good profits.
(3) Its capital had increased and, therefore,
right shares were offered to the existing shareholders. (4) The assessee had a
substantial holding of equity shares in the company.
(5) It was not obligatory on the assessee to
acquire right shares. (6) In fact, the assessee was indebted to the bank and
was having an overdraft account on which he was paying interest. (7) Not only
right shares were sold by the assessee, but he 1074 had also sold some of the
original equity shares held by him. In a reference to the High Court, the High
court answered in favour of the assessee and held that the assessee was not a
dealer in shares. Hence the appeal by certificate.
Dismissing the appeals and the connected
special leave petitions, the Court ^
HELD: 1. The Jurisdiction conferred on the
High Court under section 66(1) of the Act of 1922 equivalent to section 256 of
the Act of 1961 was lid ted to entertaining references involving questions of
law. If the point raised on reference related 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 might
have due regard for the view taken by the Appellate Tribunal, its decision would
not be fettered by the Tribunal's view. The High Court was free to adopt such
construction of the document or the statute as appeared to it reasonable. Where
the point sought to be raised on a reference was a pure question of fact, the
finding of fact recorded by the Tribunal must be regarded as conclusive in
proceedings under reference. If however, such a finding of fact was based on an
inference drawn from primary evidentiary facts proved in the case, its
correctness and validity were open to challenge in reference proceedings within
however narrow limits. The assessee or the revenue could contend that the
inference had been drawn on considering inadmissible evidence or after
excluding admissible and relevant evidence and if the High Court was satisfied that
the inference was 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 was not supported by any legal evidence or that the impugned
conclusion drawn from the relevant facts was not rationally possible and if
such a plea was established, the Court might consider whether the conclusion
was not perverse and should not, therefore be set aside. However, it was within
those narrow limits that the conclusions of fact recorded by the Tribunal could
be challenged in a reference t-o the High Court) Such conclusions could never
be challenged on the ground that these were based on mis-appreciation of
evidence. A conclusion 1075 reached by the Tribunal on the ground that it is a
conclusion on a question of mixed law and fact, 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. In dealing with findings on questions of mixed law and fact the
High Court, however, has to accept the findings of the Tribunal on the primary
questions of facts; but it is open to the High Court to examine whether the
Tribunal had applied the relevant legal principles correctly or not; and in
that sense, the scope of inquiry and the context of the Jurisdiction of the
High Court in dealing with such points was the same as in dealing with pure
points of law, and not beyond that. [1085 B-H; 1086 A-C]
1.2 What are the characteristics of the
business of dealing in shares or that of an investor was a mixed question of
fact and law. What is the legal effect of the facts found by the Tribunal and
whether as a result the assessee could be termed a dealer in shares or an
investor was a question of law. In between the domains occupied respectively by
question of fact and law, there is a larger area, in which both these questions
run into each other, forming, so to say conclaves within each other. These are
mixed question of law and fact. The instant case is one of question of law and
fact. [1088 F-G; 1089 D-F]
1.3 Where a person in selling his investment
realised an enhanced price, the excess over his purchase price was not profit
assessable to tax as income, but it would be so if what was done was not a mere
realisation of the investment but an act done for making profit. The
distinction between the two types of transactions is not always easy to make.
Whether the transaction is of one kind or the other depends on the question
whether the excess is an enhancement of the value by realising a security or a
gain in an operation of profit-making. The assessee might invest his capital in
shares with the intention to resell these if in future their sale bring in a
higher price. Such an investment though motivated by a possibility of enhanced
value, did not necessarily render the investment a transaction in the nature of
trade. In the premises the totality of all the facts will have to be borne in
mind and the correct legal principles applied to these. If 1076 all the
relevant factors have been taken into consideration and there has been no
misapplication of the principles of law then the conclusion arrived at by the
Tribunal cannot be interfered with because the inference is a question of law,
if such an inference was a possible one, subject, however, that all the
relevant factors have been duly weighed and considered by the Tribunal the
inference reached by the Tribunal should not be interfered with. [1093 D-H]
J.P. Harrison (Watford) Ltd. v. Griffitos (H.M. Inspector of Taxes), 40 Tax
Cases 281 at 295-296; Leeming v. Jones [1930] 15 T.C. 333 at 357; Stanley
(Surveyor of Taxes) v. The Gramophone and Typewriter, Ltd., 5 Tax Cases 358;
Califoroian Copper Syndicate (Limited and
Reduced) v. Harris (Surveyor of Taxes), 5 Tax Cases 159 at 166; Commissioners
of Inland Revenue v. Lysaght, [1928] A.C. 234 = 13 Tax Cases 511 (at page 247
of Appeal Cases); and Edwards (Inspector of Taxes) v. Baristow and Another, 3
W.L.R. 410 - 28 I.T.R. 579 quoted with approval.
G. Venkataswami Naidu & Co. v.
Commissioner of Income- Tax, 35 I.T.R. 594 S.C.; Oriental Investment Co. Ltd.
v. Commissioner of Income Tax, Bombay 32 I.T.R. 664 S.C.; Sree Meenakshi Mills
Ltd. v. Commissioner of Income Tax Madras, 31 I.T.R. 28 S.C.; Saroj Kumar
Mazumdar v. Commissioner of Income Tax, West Bengal, 37 I.T.R. 242 S.C.;
Ramnarain Sons (Pvt.) Ltd. v. Commissioner of Income-tax, Bombay, 41 I.T.R. 534
S.C.; Janki Ram Bahadur Ram v. Commissioner of Income- tax, Calcutta, 57 I.T.R.
21 S.C.; Miss Dhun Dadabhoy Kapadia v. Commissioner of Income-tax, Bombay, 63
I.T.R. 651 S.C.;
Dalhousie Investment Trust Co. Ltd. v.
Commissioner of Income Tax (Central), Calcutta, 68 I.T.R. 486 S.sC.; P.M. Mohammed
Meerakhan v. Commissioner of Income-tax, Kerala, 73 I.T.R. 735 S.C.; and Raja
Bahadur Kamakhya Narain Singh v. Commissioner of Income-tax, Bihar &
Orissa, 77 I.T.R., 253 S.C. referred to.
2. Section 81 of the Companies Act, 1956
provides that if a company proposes to increase its subscribed capital by
allotment of further shares, such shares should be offered to the existing
share-holders of equity shares and the offer should be deemed to include a
right to renounce the shares.
The right to receive the new shares is
embedded in the old 1077 shares. Therefore the moment, the issue of right
shares are announced the original share was bound to depreciate because a
larger number of people participate in the existing capital. Right shares were
not acquired by the assessee as a matter of free choice. The assessee acquired
those shares if the assessee did not do so, his capital would erode.
Further, as the facts disclose, he had to
find so much more money in order to acquire the shares and it was not always
prudent to permit the overdraft account to swell. The true object in this case
was to prevent depreciation in the value of the shares investment. The assessee
also renounced some of his rights to get the right shares and thereby entered
into these transactions to nurse his investments. In the background of the correlation
of several factors, in the instant case, the action of the assessee was like a
prudent investor and not of a plunger in the waters of trade. [1096 E-G; 1097
8; 1098 F; 1099 F]
3. Consideration of all relevant facts
involves 1) appreciation of all the facts in their proper perspective.
If that is not done it cannot be said that
there has been consideration of all relevant factors. The Tribunal did not
consider the relevant factors in their proper perspective and in particular,
namely, (i) that the assessee was the Chairman of the company and in fact that
if he did not participate in buying right shares there might have been adverse
effect on the market so far as the shares of the company were concerned; (ii)
that he had an overdraft with the Bank; (iii) and that he had to remit money to
Denmark for the purchase of his house. And as such the attitude of a person
entitled to right shares for judging whether he was a dealer and investor was
not viewed in proper dimension but merely noted by the Tribunal resulting in
the non- consideration of a vital factor leading to an erroneous inference. The
Tribunal in this case has undoubtedly noted the assessee's contention of
nursing the investment. The Tribunal, however, has not considered in its order
the actual position as to how then nursing of the ; investment was necessary.
Tribunal thus erred. In that view of the matter the High Court was justified in
interfering with the conclusion reached by the Tribunal. There is no reason to
interfere with the order of High Court. [1099 D-H; 1100 A-B]
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
1954- 55 (NT) of 1974 etc.
1078 From the Judgment and Order dated 10th
August, 1971 of the Bombay High Court in Income Tax Reference No. 124 of 1963.
V. Gauri Shankar and Ms. A. Subhashini for
the Appellant.
S.T. Desai, H. Salve, Ravinder and Ms. A.K.
Verma for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These appeals by certificate arise from the judgment
and decision of the High Court of Bombay dated 10th August, 1971 in Income Tax
Reference No. 124 of 1963.
The question involved in these appeals is
familiar in direct tax laws. The points in controversy are short. But the
adjudication is pending for long. Assessment years involved are 1957-58 and
1958-59. The High Court disposed of these references on 10th August, 1971 and
in 1986 i.e.
nearly after 28 years of the years of
assessment we are posed with the question whether in respect of certain
transactions in those years the assessee was a dealer or an investor and
consequentially whether the income arising from the sale of shares by the
assessee is to be taxed on revenue account of capital account.
The question that the High Court had to
answer was as follows:
"Whether, on the facts and in the
circumstances of the case, the assessee was a dealer in shares in the
accounting periods relevant to the assessment years 1959-60 and 1960-61?"
The said question was referred by the Tribunal to the High Court at the
instance of the asseessee.
The assessee, H. Holck Larsen, was a partner
in the firm of M/s Larsen & Toubro (hereinafter referred to as the 'said
company') unto 1946. On 8th February, 1946/7th February, 1946, that partnership
was converted into a private limited company 1079 of the same name. In
considerations of his interest in the firm, the assessee was allotted shares of
the company.
Against payment of cash, the assessee got
1875 equity shares and against his interest in the partnership firm, he got 53,
486 equity shares. During the next few accounting years upto the financial year
1953-54, the assessee acquired 2,994 shares of the said company and sold 1,550
shares. According to the statement of the case, the purchases and sales of
shares of the said company were few and far between upto the financial year
1953-54, but these became larger in number and at close intervals in the next
few succeeding years. The chart would indicate the position in this respect
_________________________________________________ (1) (2) (3) (4) (5) Financial
No of Value No. Of Sale year shares (Rs.) Shares Price ending acquired sold
(Rs.) _________________________________________________ 31-3-1955 ----- -----
4,60O 51,173 31-3-1956 6,111 61,110 13,955 1,88,433 31-3-1957 6,1026 1,020
7,661 1,24,406 31-3-1958 1,256 12,560 5,050 63,721 31-3-1959 5,500 55,000 5,200
87,810 31-3-1960 11,000 1,11,000 10,400 2,45,732
_________________________________________________ During the years mentioned in
the chart, the assessee had acquired 29,969 shares of the said company and sold
37,366 shares thereby making a profit of Rs. 1,65,581.
Besides purchasing and selling equity shares
of the said company, the assessee had also dealt in preference shares of the
said company. The assessee had sold shares of Andhra Cement Co. in the
financial year 1954-55, made purchases of shares of S.C.C. and I.C.C. in the
years 1955-56, 1956-57 and 1958-59 and also of shares of India Cement Co. and
National Carbon in 1955-56 and also sold shares of Guest Keen Williams and
Indian Cement in 1958-59. During all these years the purchases and sales is
equity shares of the said company were more marked than the purchase and sale
of other shares. Besides the sale OF equity shares of the said company and
shares of other companies stated above, the assessee had also sold some of his
original shares of the said company held by him.
1080 On these facts the assessee contended
before the Income Tax Officer that the assessee was only an investor and not a
dealer in shares but this contention was rejected by the Income Tax Officer and
the Appellate Assistant Commissioner.
Aggrieved by the said decision of the
Appellate Assistant Commissioner, the assessee filed second appeal before the
Tribunal. Before the Tribunal it was contended on behalf of the assessee (1)
that the assessee never purchased equity shares of the said company from any
outsider or any stranger except in a few cases from close friends or from
members of the staff just to accommodate them; (2) that the shares that were
acquired by the assessee were only right shares issued by the company to its
existing shareholders;
(3) that the assessee had to meet huge
personal expenses and tax liability in the relevant accounting periods; (4)
that the assessee had an overdraft account and he wanted to keep the said
overdraft account within reasonable limit; (5) that the assessee wanted to
nurse his investments in the company and (6) that the assessee had to and was
forced and compelled by circumstances to sell some of the shares acquired by
him. In the premises, the assessee's contention was that the sales of the said
shares were neither effected voluntarily nor with a view to make any profit nor
under a profit making scheme, but were effected under compelling circumstances
and as no assessee could be a trader by compulsion, the assessee was not a
trader in respect OF these shares. The Tribunal rejected the said contentions.
The Tribunal held: (1) The assessee was a
Chairman of the Board of Directors of the said company. (2) The said company
had ever since its inception expanding its business and making good profits.
(3) Its capital had increased and, therefore, right shares were offered to the
existing shareholders. (4) The assessee had a substantial holding of equity
shares in the company. (S) It was not obligatory on the assessee to acquire
right shares. (6) In fact, the assessee was indebted to the bank and was having
an over- draft account on which he was paying interest. (7) Not only right
shares were sold by the assessee, but he had also sold some of the original
equity shares held by him.
The Tribunal was of the view that as the
Chairman of the Board of Directors of the said company, the assessee knew the
financial position of the company and also knew that the 1081 company's
business was expanding and flourishing, and yet he sold away the shares of such
a company held by him. The sale, according to the Tribunal, must have been to
earn profits. The frequency of the acquisition of right shares and the sales in
large numbers in quick succession, according to the Tribunal, established the
motive to make profit and that all the dealings in shares were part and parcel
of a profit making scheme.
The Tribunal noted that the Appellate
Assistant Commissioner had found that in some years, the income of the assessee
was much more than the expenses he had to meet and notwithstanding that fact,
the assessee had sold some shares. The Tribunal further noted that the
correctness of this finding was neither challenged before the Tribunal nor
anything established to the contrary. According to the Tribunal, therefore, if
the assessee was under no obligation to acquire right shares, there was no
necessity for him to apply for and obtain right shares except to make profits
on their sales. According to the Tribunal, it is far from the conduct of a
prudent and reasonable man like the assessee to expect him to sell away his
capital assets to meet the recurring personal expenditure. The frequent
acquisition of right shares at par coupled with the fact that even some of the
original holdings were sold, were against the assessee's intention of nursing
his investments according to the Tribunal.
The Tribunal noted that according to the
Appellate Assistant Commissioner, such an activity was 'self- destructive
purpose by self-cancelling activity'. The Tribunal was in agreement with the
view of the Appellate Assistant Commissioner and came to the conclusion that it
was the idea of huge profits that the assessee was making by sale of shares of
the said company that compelled him to acquire right shares frequently and in
large numbers notwithstanding the fact that he was indebted to the bank and he
was having an overdraft account with it. The facts that the assessee did not
sell all the right shares or that the founder of the company was interested in
acquiring right shares or that he did not take all the right shares offered to
him because of his financial liability, according to the Tribunal, would not
affect the issue. The Tribunal, therefore, came to the conclusion that 1082 the
assessee was doing business in the assessment years under consideration.
Two members namely Judicial Member as well as
Accountant Member gave separate but concurrent opinions for coming to the
conclusion that the assessee was a dealer in shares. In his separate order, the
Accountant Member had observed that in the assessment years 1956-57 to 1960-61,
both inclusive, the acquisition of the shares was large and so also the sale of
shares and in the first three accounting years, the shares sold were much more
than the shares acquired by right. The right shares acquired in those three
years were 6,111, 6102 and 1,256 whereas the assessee had sold from time to
time right shares which were 13,955, 7661 and 5,050 respectively. The maximum
number of shares held by the assessee was little over 56,600 and this number
went down progressively from the assessment year 1953-54 to assessment year
1958-59 by about 15,000. The Accountant Member, therefore, was of the view that
it was not possible to accept the submission of the assessee that the shares
were sold only to reduce the overdraft taken from the bank.
It may be mentioned, while on this aspect,
that during the first few years apart from the years in question i.e.
1959-60 and 1960-61, i.e. from the assessment
years 1955-56, 1956-57, 1957-58 and 1958-59, the assessee had been treated by
the revenue as an investor in shares and was not taxed on the dealings of these
shares. This is an aspect which requires to be taken into consideration in
conjunction with other factors in answering the question. The second point on
this aspect is that for subsequent years for which Special Leave Nos. 8292-8293
of 1979 are pending are for the assessment years 1968-69 and 1969-70 and in
those two years the Tribunal had accepted the position that the assessee was an
investor and not a dealer in shares. This position, however, according the
revenue, had to be accepted in view of the judgment of the Bombay High Court in
the instant case which is under appeal before this Court. Therefore, it was not,
according to the counsel for the revenue, on any divergence of finding or any
different inference being drawn from the said findings but because of decision
of the Bombay High Court and out of deference to it, the assessee had to be
treated as an investor. The findings of the Tribunal for those two years are
1083 also the subject matter of Special Leave Petition 8292 and 8293. These
will have to be disposed of along with these appeals.
The High Court in the impugned judgment
answered the question in favour of the assessee and held that the assessee was
not a dealer in shares.
In this case the facts have been enumerated
and tabulated in the statement of the case. The Tribunal on those facts came to
the conclusion that the assessee was for the relevant two years a dealer in
shares. The High Court, however, in answer to the question held to the contrary
and held that the assessee was an investor in shares.
In the background of these facts, two
questions arise, where courts have to deal with these types of transactions.
The first question is, whether the findings
of the Tribunal or the fact finding body is based on evidence from which the
conclusions arrived at by the said fact finding body can be said to be either
reasonable or possible. Therefore, in the context of the controversy in the
instant case, it is necessary to examine that what were the facts found by the
Tribunal and whether all the facts have been fully considered by the tribunal
for the conclusions drawn. If the conclusions drawn by the Tribunal are pure
inferences of facts, then no question of law arises and no occasion is caused
for interference. If, however, the conclusion arrived at by the fact finding
body is such that no reasonable man could possibly have arrived at, then
conclusion arrived at by the Tribunal would be without evidence and perverse in
law. If there is material to support the conclusion, the fact that another body
or the court might have arrived at a different conclusion is not relevant.
The second question is what are the legal
principles applicable to the facts of these types of cases to determine whether
the conduct was that of a dealer in shares or an investor in the shares.
The two questions have been dealt together in
many decisions which may be noted, though no case can provide guidance for all
situations.
1084 How in case of sale of share the object
or the purpose of selling the shares, in order to determine whether one was a
dealer in shares or an investor in shares, should be viewed may be looked at
from the angle of Lord Reid in J.P. Harisson (Watford), Ltd. v. Griffiths (H.M.
Inspector of Taxes) 40 Tax cases 281 at 295-296 when he observed:
"The question has been asked in a number
of cases:
"If this was not trading, what was
it?" With all deference to those who have used that argument, I do not
think that it is very useful in most cases.
Human affairs - and business affairs - are of
infinite variety. They do not fit neatly into categories or classes. Innominate
contracts and transactions are of frequent occurrence, and I would not expect
to find appropriate names to denote new kinds of operations devised for the
sole purpose of gaining tax advantages. In the present case the question is not
what the transaction of buying and selling the shares lacks to be trading, but
whether the later stages of the whole operation show that the first step - the
purchase of the shares - was not taken as, or in the course of, a trading
transaction." The real question as Lord Reid said was not whether the
transaction of buying and selling the shares lacks the element of trading, but
whether the later stages of the whole operation show that the first step - the
purchase of the shares - was not taken as or in the course of, a trading
transaction. It was, further, reiterated in that decision that where a question
of inference from certain facts found by the Tribunal arises, unless the court
comes to the conclusion that the inference drawn by the Tribunal could not be
reasonably drawn at all, then it is not proper to interfere with that finding
of facts.
How a question of this nature should be
viewed has been indicated by this Court as early as 1958 in G. Venkataswami
Naidu & Co. v. Commissioner of Income-tax, 35 I.T.R. 594 S.C.. The question
there was whether sale of a land to a company could be treated in the facts and
circumstances of the case as an adventure in the nature of trade. There, on the
facts this 1085 Court upheld the findings of the Appellate Tribunal in
affirming that the assessee knew that it would be able to sell the lands to the
managed company whenever it thought it profitable to do so; that the assessee
had purchased the four plots of land with the sole intention of selling them to
the mills at a profit which intention raised a strong presumption in favour of
the view taken by the Tribunal.
This Court reiterated that the jurisdiction
conferred on the High Court under section 66(1) of the Act of 1922 (hereinafter
called the 'old Act') i.e. section 256 of the Act of 1961, (hereinafter called
the 'new Act') was limited to entertaining references involving questions of
law. It was emphasised that if the point raised on reference related 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 might have due regard for the view taken by the
Appellate Tribunal, its decision would not be fettered by the Tribunal's view.
It was free to adopt such construction of the document or the statute as
appeared to it reasonable. Where the point sought to be raised on a reference
was a pure question of fact, the finding of fact recorded by the Tribunal must
be regarded as conclusive in proceedings under reference. If, however, such a
finding of fact was based on an inference drawn from primary evidentiary facts
proved in the case, its correctness and validity were open to challenge in
reference proceedings, within, however, narrow limits. The assessee or the
revenue could contend that the inference had been drawn on considering
inadmissible evidence or after excluding admissible and relevant evidence; and
if the High Court was satisfied that the inference was 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 was not
supported by any legal evidence; or that the impugned conclusion drawn from the
relevant facts was not rationally possible; and if such a plea was established,
the court might consider whether the conclusion was not preverse and should
not, therefore, be set aside. It was to be remembered, however, that it was
within those narrow limits that the conclusions of fact recorded by the
Tribunal could be challenged in a reference to the High Court. Such conclusions
could never be challenged on the ground that these were based 1086 on
misappreciation of evidence. A conclusion reached by the Tribunal on the ground
that it is a conclusion on a question of mixed law and fact, 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. In dealing with findings on questions of mixed law and fact the
High Court however, has to accept the findings of the Tribunal on the primary
questions of facts; but it is open to the High Court to examine whether the
Tribunal had applied the relevant legal principles correctly or not; and in
that sense, the scope of enquiry and the context of the jurisdiction of the
High Court in dealing with such points was the same as in dealing with pure
points of law, and not beyond that.
Before considering other cases it may be
appropriate to refer to the report of Royal Commission on Taxation of Profits
and Income of England, which was presented to the Parliament of United Kingdom
in June 1955. There, the Royal Commission considered whether a simple test
could be evolved that would separate taxable cases from non-taxable one. The
Royal Commission noted that one was that profit arising from any realisation of
property should be declared by law to be taxable income if the property had
been acquired with a view to profit-seeking. This seems to have been the kind
of test envisaged by the 1920 Commission where they spoke of "any profit
made on a transaction reccognisable as a business transaction, i.e., a transaction
in which the subject matter was acquired with a view to profit-seeking".
The difficulty, the Royal Commission felt, about applying that test was that,
in any normal sense of the words, a "view of profit- seeking" might
accompany many transactions that would not be called business transaction.
Since few investors it was noted could expect that their investments would
remain exactly stable in value in their hands, they are bound to contemplate
the probabilities of rise or fall and it is hardly to be expected that they
will not choose one for which they hope or expect a rise. The Royal Commission
noted that Lord Buckmaster in Leeming v. Jones, [1930] 15 T.C. 333 at 357 had
observed that "an accretion to capital" did not become income merely
because the original capital was invested in the hope and expectation that it
would rise in value.
1087 The Royal Commission at page 39 of the
report observed that there should be no single fixed rule i.e. each case must
be decided according to its own circumstances. The general line of enquiry that
had been favoured by appeal Commissioners and encouraged by the Courts,
according to the Royal Commission, was to see whether a transaction that is
said to have given rise to a taxable profit bears any of the "badges of
trade". The Royal Commission was of the view that seemed to them the right
line, and it had the advantage that it based itself on objective tests of what
was a trading adventure instead of concerning itself directly with the
unravelling of motive. At the same time, the Royal Commission was of the view
that there was some lack of uniformity in the treatment of different cases
according to the tribunals before which these had been brought. The Royal
Commission sought to identify these "badges of trade" as follows:
"(1) The subject matter of the
realisation. While almost any form of property can be acquired to be dealt in,
those forms of property such as commodities or manufactured articles, which are
normally the subject of trading are only very exceptionally the subject of
investment. Again property which does not yield to its owner an income or
personal enjoyment merely by virtue of its ownership is more likely to have
been acquired with the object of a deal than property that does.
(2) The length of the period of ownership.
Generally speaking, property meant to be
dealt in is realised within a short time after acquisition.
But there are many exceptions from this as a
universal rule.
(3) The frequency or number of similar
transactions by the same person. If realisation of the same sort of property
occur in succession over a period of years or there are several such
realisations at about the same date a presumption arises that there has been
dealing in respect of each.
(4) Supplementary work on or in connection
with the property realised. If the property is worked up in 1088 any way during
the ownership so as to bring it into a more marketable condition; or if any
special exemptions are made to find or attract purchasers, such as the opening
of an office or large-scale advertising, there is some evidence of dealing. For
when there is an organised effort to obtain profit there is a source of taxable
income.
But if nothing at all is done, the suggestion
tends the other way.
(5) The circumstances that were responsible for
the realisation. There may be some explanation, such as a sudden emergency or
oportunity calling for ready money, that negatives the idea that any plan of
dealing prompted the original purchase.
(6) Motive. There are cases in which the
purpose of the transaction of purchase and sale is clearly discernible. Motive
is never irrelevant in any of these cases. What is desirable is that it should
be realised clearly that it can be inferred from surrounding circumstances in
the absence of direct evidence of the seller's intentions and even, if
necessary, in the face of his own evidence." In Oriental Investment Co.,
Ltd. v. Commissioner of Income-tax, Bombay, 32 I.T.R. 664 S.C. this Court had
occasion to deal with the question of how far the finding in respect of dealing
in shares was a question of fact or a question of law or a mixed question of
fact and law. This Court observed that what were the characteristics of the
business of dealing in shares or that of an investor was a mixed question of
fact and law. What is the legal effect of the facts found by the Tribunal and
whether as a result the assessee could be termed a dealer in shares or an
investor was itself a question of law. The mere fact that a company had within
its objects the dealing in investment in shares, did not give to the company
the characteristics of a dealer in shares, but if other circumstances were
proved it might be relevant for the purpose of determining the nature of the
activities of the Company. This Court observed that inference from facts would
be a question of fact or a question of law according as the point for
determination is one of pure fact or a mixed question of law and fact. A
finding of fact without evidence 1089 to support it or based on relevant and
irrelevant matters is not unassailable. This Court observed at page 669 of the
report that it was difficult to draw a line and draw a distinction as to what
was a question of law and what was a question of fact. After referring to
several authorities, this Court came to the conclusion that though English
decisions began with a broad definition of what were questions of law,
ultimately the House of Lords decided that a "matter of degree" was a
question of fact and it had also been decided that a finding by the Commissioners
of a fact under a misapprehension of law or want of evidence to support a
finding were both questions of law. This Court observed as to what are the
characteristics of the business of dealing in shares or that of an investor was
a mixed question of fact and law. What is the legal effect of the facts found
by the Tribunal and whether as a result the assessee could be termed a dealer
in shares or an investor was a question of law. As was observed by Venkatarama
Ayyar, J. in Sree Meenakshi Mills Limited v. Commissioner of Income-Tax,
Madras, 31 I.T.R. 28 S.C. that in between the domains occupied respectively by
question of fact and law, there is a large area, in which both these questions
run into each other, forming, so to say conclaves within each other. These are mixed
question of law and fact. The instant case is one.
In the case of Stanley (Surveyor of Taxes) v.
The Gramophone and Typewriter, Limited, 5 Tax Cases 358 the Court of Appeal in
England had dealt with that question. The Court of Appeal in England observed
at 374 of the report as follows:
"It is undoubtedly true that, if the
Commissioners find a fact, it is not open to this Court to question that
finding unless there is no evidence to support it. If, however, the
Commissioners state the evidence which was before them and add that upon such
evidence they hold that certain results follow, I think it is open, and was
intended by the Commissioners that it should be open, to the Court to say
whether the evidence justified what the Commissioners held." In Calfornian
Copper Syndicate (Limited and Reduced) v.
Harris (Surveyor of Taxes), 5 Tax Cases 159
at 166 Lord 1090 Justice Clerk observed that the test was whether the sum of
gain that has been made was a mere enhancement of value by realising a
security, or was it a gain made in an operation of business in carrying out a
scheme for profit-making.
In Commissioners of Inland Revenue v.
Lysaght, [1928] A.C. 234= 13 Tax Cases 511 (at page 247 of Appeal Cases Lord
Buckmaster observed that the distinction between questions of fact and
questions of law is difficult to define, but if the circumstances found by the
Commissioners in the special case were incapable of reaching the conclusion
reached by them, then the conclusion could not be protected by saying that it was
a conclusion of fact since there were no materials upon which that conclusion
could depend. But if the incidents relating to certain factors which lead to
the conclusion were varying that certainly produce the result then the matter
must be a matter of degree, and the determination of whether or not the degree
extended so far as to make a man in that case resident or ordinarily resident
in England was for the Commissioners and it was not for the Courts to say
whether they would have reached the same conclusion.
The question was again considered in Edwards
(Inspector of Taxes v. Baristow and Another, 3 W.L.R. 410 = 28 I.T.R.
579. There the House of Lords held that the
facts found led inevitably to the conclusion that the transaction was an
adventure in the nature of trade and that the Commissioners' inference to the
contrary should be set aside. Viscount Simonds observed that whether the
transaction was not an adventure in the nature of trade was an inference of
fact but could be set aside because it appeared that the Commissioner had acted
without any evidence or on a view of the facts which could not reasonably be
entertained. In making that inference the Commissioners were to be assumed to
have been rightly directed in law as to the characteristics which distinguish
such an adventure, and, so far as the Scottish courts had diverged from this
approach to such problems, the other approach adopted by the English courts was
to be preferred. Lord Radcliffe observed that without any misconception of law
appearing on the face of the case stated, the facts found may be such that no
person acting judicially and properly as to the relevant law could have come to
the determination reached.
1091 We have noted Lord Reid in J.P. Harisson
(Watford), Ltd. v. Griffiths (H.M. Inspector of Taxes) (supra) saying that
intention at the time of the purchase was a relevant and often a conclusive
factor whether the resale was in the nature of an adventure in trade or not.
But in Saroj Kumar Mazumdar v. Commissioner of Income-Tax, West Bengal 37
I.T.R. 242. (SC), this Court referred to the observations of Lord Dunedin in
the case of Jones v. Leeing (supra) where the House of Lords observed that the
fact that a man did not intend to hold an investment might be an item of
evidence tending to show whether he was carrying on a trade or concern in the
nature of trade in respect of his investments, but per se it led to no
conclusion whatever.
In the case of Rannarain Sons Pvt. Ltd. v.
Commissioner of Income Tax, Bombay 41 I.T.R. 534 S.C. this Court observed that
in considering whether a transaction was or was 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 were associated with the
concept of trade or business. The inference on this question raised by the
Tribunal on the facts found was of mixed law and fact and was open to challenge
before the High Court on a reference. The question whether the assessee's
transactions amounted to dealing in shares and properties or to investment, was
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,
was a question of law.
In the case of Janki Ram Bhadur Ram v.
Commissioner of Income Tax, Calcutta 57 I.T.R. 21 S.C. this Court observed that
the profit motive in entering a transaction was not decisive, for an accretion
to capital did not become taxable income merely because an asset was acquired
in the expectation that it might be sold at a profit. This Court further
observed that if a transaction was related to the business which was normally
carried on by the assessee, though not directly part of it, an intention to
launch upon an adventure in the nature of trade might readily be inferred.
This Court had occasion to consider the
question of new shares offered to the holder of old shares in a company with
right to renounce in the case of Miss Dhun Dadabhoy Kapadia v.
1092 Commissioner of Income-Tax, Bombay, 63
ITR 651 S.C. There, the appellant, who was not a dealer in shares, held by way
of investment 710 ordinary shares in the Tata Iron and Steel Co. Ltd. The
company made an offer to her by which she was entitled to apply for 710 new
ordinary shares at a premium with an option of either taking the shares or
renouncing there, wholly or partly, in favour of others. The appellant
renounced her right to all the 710 shares on 12th June, 1956, and realised Rs.
45,262.50. When this amount was sought to be wholly taxed as a capital gain,
the appellant claimed that on the issue of the new shares, the value of her old
shares depreciated, since the market quotation of the old shares which was Rs.
253 per share on 1st June, 1956 fell to Rs. 198.75 on 4th June, 1956 and that a
result of this depreciation she suffered a capital loss in the old shares to
the extent of Rs. 37,630 which she was entitled to set off against the capital
gains of Rs. 45,262.50. In the alternative she claimed that the right to receive
the new shares was a right which was embedded in her old shares and,
consequently when she realised the sum of Rs. 45,262.50 by selling her right,
the capital gain should be computed after deducting from that amount the value
of the embedded right which became liquidated. It was held that the appellant
was entitled to deduct from the sum of Rs. 45,262.50 the loss suffered by way
of depreciation in the old shares.
The question was again considered by this
Court in Dalhousie Investment Trust Co. Ltd. v. Commissioner of Income-Tax
(Central), Calcutta, 68 ITR 486 S.C. There this Court on the facts came to the
conclusion that the assessee dealt with the shares of Moleod and Co. and the
allied companies as stock-in-trade, and that these were in fact purchased even
initially not as investments but for the purpose of sale at a profit and
therefore the transactions amounted to an adventure in the nature of trade, and
the profit derived by the appellant from the sale of share was therefore
revenue receipt and as much liable to income-tax.
It was held that the decision of department
in the earlier years that the transactions were in the nature of change of
investments was not binding in the proceedings for assessment during the
subsequent years.
In P.M. Mohammed Meerakhan v. Commissioner of
Income- tax, Kerala, 73 ITR 735 S.C. this Court reiterated that it was not 1093
possible to evolve any single legal test or formula which could be applied in
determining whether a transaction was an adventure in the nature of trade or
not. The answer to the question must necessarily depend in each case on the
total impression and effect of all the relevant factors and circumstances
proved therein and which determine the character of the transaction.
In Raja Bahadur Kamakhya Narain Singh v.
Commissioner of Income-Tax, Bihar & Orissa, 77 ITR 253 S.C. the question of
adventure in the nature of trade was again considered by this Court and it was
reiterated that since the expression "adventure in the nature of
trade" implied the existence of certain element in the transactions which
in law would invest these with the character of trade or business and the
question on that account became a mixed question of law and fact, the court
could review the Tribunal's findings if it had misdirected itself in law. It
was fairly clear that where a person in selling his investment realised an
enhanced price, the excess over his purchase price was not profit assessable to
tax as income, but it would be so, if what was done was not a mere realisation
of the investment but an act done for making profit. The distinction between
the two types of transactions is not always easy to make.
Whether the transaction is of one kind or the
other depends on the question whether the excess is an enhancement of the value
by realising a security or a gain in an operation of profit-making. The
assessee might invest his capital in shares with the intention to resell these
if in future their sale bring in a higher price. Such an investment, though
motivated by a possibility of enhanced value, did not necessarily render the
investment a transaction in the nature of trade.
In the premises the totality of all the facts
will have to be borne in mind and the correct legal principles applied to
these. If all the relevant factors have been taken into consideration and there
has been no misapplication of the principles of law then the conclusion arrived
at by the Tribunal cannot be interfered with because the inference is a
question of law, if such an inference was a possible one, subject, however,
that all the relevant factors have been duly weighed and considered by the
Tribunal, the inference reached by the Tribunal should not be interfered with.
1094 In order to determine the question
involved in the instant appeals, certain features will have to be borne in
mind. All the right shares were acquired directly as right shares at par from
the company. It was further urged that as Chairman assessee was duty-bound to
support the issue of new shares by the company. Sales were made to reduce his
overdraft, according to the assessee. The sales were also made to purchase a
house in Denmark and for which permission had been obtained from Reserve Bank
of India to remit Rs. 1 lakh. This would appear from the assessment order for
1959- 60.
It was further emphasised that the market
price was lower on the date of sale and there was no profit motive.
The Income-tax Officer, however, held that
profit was the intention of the assessee for acquisition of the shares. The
shares acquired after 1st April, 1954 were held as trading stock. This date was
chosen by the Income-tax Officer because from this date, the assessee started
selling as well as buying shares on a large scale. Therefore, according to the
revenue, this indicated dealings in shares. It may be noted that as such there
was basis for choosing that.
The Tribunal, however, after consideration of
all these facts came to the conclusion that the assessee was a dealer in
shares.
The judgment of the High Court under appeal
which incidentally is reported in 85 I.T.R. at page 285 held that the decision
in the earlier years that the assessee was an investor was not binding for
subsequent years, that the assessee was always an investor. The High Court
further observed that the frequency of transactions was not decisive. According
to the High Court, it was necessary to appreciate the implications of the
issuance of right shares and purchase thereof by the assessee. Right shares
were issued by virtue of the provisions of section 81 of the Companies Act. It
is not necessary to set out the provisions dealing with the issue of right
shares. The issuance of the right shares depreciates the value of the original
shares initially.
In the impugned judgment, it was held that
whether the transactions of sale and purchase of shares were trading
transactions or in the nature of investment was a question of 1095 law and must
be viewed in the light of the intention of the assessee.
On the question of how the right shares
affect the original shares, our attention was drawn to Investments - An
Introduction to Analysis and Management Fifth Edition, wherein it was
emphasised at page 35 of the book that the world economies offered a wide
variety of securities or assets to satisfy the investor's desire for return and
risk.
Most investors are risk-averse, and attempt
to maximize their wealth. As a principle, investors maximize wealth by
maximizing return and minimizing risk. Investment may be defined as the
purchase by an individual or institution it was observed of an asset that
produces a return proportional to risk over some future period. The
investments, it was further observed, available for purchase were typically
financial assets, but real or tangible assets might be included among the
alternative investments.
Another principle guiding investment, it was
emphasised at page 604 of the book, was the main reason for diversification -
reduction of a risk of loss of capital and income. Investors face an unknown
and uncertain future and try to diversify the investments. As a general rule it
was emphasised at page 603 of the book, growth of capital was a desirable
objective of portfolio management. This did not mean that every investor must
invest in growth stocks; this would be Inconsistent with many investors' needs.
A fund can be built up from reinvested income as well as through the purchase
of growth shares. A large fund does provide more income for the investor than a
small fund. Many investors have increased the capital value of their funds
through reinvested dividends and interest income. Some wanted income, some
capital gains, and some a combination of both.
In spite of these variations, several
objectives should be considered as basic to a well-executed investment
programme.
The guiding principles establish the
indifference curve of risk versus return for the investor.
To various other authorities our attention
was drawn to highlight this aspect.
In Business Finance - F W Paish and R J
Briston, Sixth 1096 |Edition at page 115, it was observed how issue of right
shares depreciates the value of the original shares. It was thus observed :
"Since the price to be paid for the new
shares is substantially below the current market price of the existing ones,
the price per share of the enlarged issue will normally be below the price of
the old shares before the issue, and the price of the old share will therefore
tend to fall; but shareholders will recover this loss either by taking up the
new shares themselves or by selling their rights. If they neglect to do either
they will suffer a loss of value on their existing shares without compensation,
unless the company, as is now normally the case, sells their rights on their
behalf and pays over the proceeds to them.
Whatever happens, either the shareholders
will take up the shares themselves or they or the company will sell their
rights to someone else who will do so. The success of the issue can therefore
be assured, provided that it is not too large in relation to the capital
already issued." As noted above, section 81 of the Companies Act, 1956 so
far as relevant for the present purpose provides that if a company proposes to
increase its subscribed capital by allotment of further shares, such shares
should be offered to the existing share-holders of Equity Shares and the offer
should be deemed to include a right to renounce the shares.
The right to receive the new shares is
embedded in the old shares. Therefore the moment, it was emphasised by the High
Court, the issue of right shares are announced, the original share was bound to
depreciate because a larger number of people participate in the existing
capital.
The High Court emphasised that in this case
the assessee had acquired the right shares and sold them and he also renounced
some of those rights. The question which the High Court was confronted with was
whether by indulging in those transactions, the assessee was trading in shares
or whether he entered into those transactions in the old capacity of an
investor. The High Court was of the view that the course of 1097 dealings in
the instant case showed that the dominant motive of the assessee in acquiring
and selling the new shares and in renouncing some of the right shares was to
prevent the inevitable erosion of his capital. If the assessee, according to
the High Court, had not acted in the manner he did, his original investments
would have depreciated in value, and therefore, in a sense he entered into
these transactions to nurse his investments. It was important to bear in mind,
and that could be appreciated if one had regard to what has been noted before
that the Right shares, according to the High Court, were not acquired by the
assessee as a matter of free choice. The assessee acquired, according to the
High Court, those shares because if the assessee did not do so, his capital
would erode. But as is apparent from the facts noted before, he had to find so
much more money in order to acquire the shares and it was not always prudent to
permit the overdraft account to swell.
Having regard to all the facts as noted by
the High Court and referring to the relevant decision, the High Court was of
the view that true object in this case was to prevent depreciation in the value
of his investment. The assessee also in this case, as we have noted before,
renounced some of his rights to get the right shares.
The High Court was of the view that the true
intention of nursing the investment has not been appreciated by the Tribunal.
Therefore, in the light of the facts, the Tribunal's inference was not a
justified one in the facts and circumstances of this case.
At the outset it must be stated that the
Tribunal in its order has noted that according to the assessee, the contention
of the assessee was that with a view to keep the bankdraft within reasonable
limit and with the price object of nursing his investments in the company, the
assessee had to and was forced and compelled by circumstances to sell some of
the shares and the Tribunal has also noted that the assessee would not be a
trader by compulsion. The Tribunal had considered these arguments. The Tribunal
also noted that the assessee was the Chairman of the Board of Directors. The
Tribunal also noted that ever since its inception, the company was expanding
its business and making good profits.
Its capital had increased and, therefore,
right shares were offered to the existing shareholders. The assessee had a
substantial holding 1098 of Equity Shares in the company. It was therefore,
according to the Tribunal, not obligatory on the assessee to acquire right
shares. The Tribunal considered the acquisition of right shares in the
background of the indebtedness of the assessee to the bank and he was having an
overdraft account on which he was paying interest. The Tribunal noted the
frequency of the acquisition of the right shares and the sales in large numbers
in quick succession, and according to the Tribunal, the motive was to make
profit and that all the dealings in shares were part and parcel of a profit
making scheme. The Tribunal further noted that the Appellate Assistant
Commissioner, in fact, had found that in some years the income of the assessee
was much more than the expenses he had to meet and notwithstanding that fact,
the assessee had sold some shares. According to the Tribunal, the correctness
of this finding had neither been challenged before the Tribunal nor anything
established to the contrary. The Tribunal was of the view that the assessee was
under no obligation to acquire right shares. There was no necessity for him to
apply for right shares except to make profits. It was far from the conduct of a
prudent and reasonable man like the assessee to expect him to sell away his
capital assets to meet the recurring personal expenditure, according to the
Tribunal. The frequent acquisition of right shares at par coupled with the fact
that even some of the original holdings were sold, was against the submission
that the sale was to nurse the investment.
According to the Tribunal if the fact of the
overdraft by the assessee was borne in mind and if the fact of overdraft is
kept in view then it could not be said that the assessee had purchased the
right shares with a view to what can be ascribed as nursing the investments.
Therefore bearing the principles of the
different cases which we have set out hereinbefore and considering the motive
in the light of the transactions and the intention with which the shares were
acquired, nature of the shares, the question has to be judged whether there has
been trading in shares or in the words of Lord President Clyde, whether there
was plunge in the waters of trade, in buying shares or acquisition of shares,
(see The Balgownie Land Trust Ltd. v. The Commissioner of Inland Renenue, 14
Tax Cases 684 at 691).
1099 The High Court, in our opinion, made a
mistake in observing whether transactions of sale and purchase of shares were
trading transactions or whether these were in the nature of investment was a
question of law. This is a mixed question of law and fact. The entirety of the
said facts have been dealt with both by the Tribunal as well as the High Court.
The High Court observed that there was nothing on record to show as to what
extent and what measure, the overdraft account was utilised for acquiring right
shares nor indeed was anything to show the gain which was likely to result
which in fact resulted to the assessee by paying interest on the borrowed fund.
But the relevant facts must be considered in its proper perspective. It appears
that the facts, that the assessee was the Chairman of the Company - effect of
the issue of right shares vis-a- vis original shares had not been fully kept in
proper perspective by the Tribunal in its evaluation. It further appears that
the fact that the assessee was the Chairman of the company and in fact that if
he did not participate in buying right shares, that would have adverse effect
on the value of the shares of the company, was also not kept in view by the
Tribunal. Consideration of all relevant facts involves appreciation of all the
facts in their proper perspective. If that is not done it cannot be said that
there has been consideration of all relevant factors.
Tribunal, it appears, fell into error in not
taking into consideration properly and fully- though it noted, the fact that if
the right shares were not subscribed by the assessee, his original shares would
depreciate in value, but the assessee was also in need of money - he had an
overdraft with Bank and he had to remit money to Denmark for the purchase of a
house - and further when right shares were issued had he not subscribed to
these, there might have been adverse effect on the market so far as the shares
of the company were concerned. In the background of the correlation of these
factors the action of the assessee was like a prudent investor and not of a
plunger in the waters of trade. The dealings in the right shares by the
assessee keeping in the background these were right shares and effect of
non-subscription the value of the original shares were not fully appreciated by
the Tribunal. And as such the attitude of a person entitled to right shares for
judging whether he was a dealer and investor was not viewed in proper dimension
but merely noted by the Tribunal resulting in the non consideration of a vital
factor leading to an erroneous 1100 inference. The Tribunal in this case has
undoubtely noted the assessee's contention of nursing the investment. The
Tribunal, however, has not considered in its order the actual position as to
how the nursing of the investment was necessary. Tribunal thus erred. In that
view of the matter the High Court was justified in interfering with the
conclusion reached by the Tribunal. There is no reason to interfere with the
order of High Court.
In the premises these appeals must fail and
are dismissed with costs.
In the view we have taken the Special Leave
Petition Nos. 8292-8293 of 1979 are accordingly dismissed. In the facts and
circumstances, however, of these cases, there will be no order as to costs of
these applications.
S.R. Appeals and Petitions dismissed.
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