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1989 DIGILAW 35 (CAL)

COMMISSIONER OF INCOME-TAX v. JESSOP AND CO. LTD.

1989-02-14

BABOO LALL JAIN, SUHAS C.SEN

body1989
SUHAS CHANDRA SEN, J. ( 1 ) THE following two questions have been referred to this court under Section 66 (2) of the Indian Income-tax Act, 1922 :" (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the question whether the loss on sale of 3,25,000 shares of British India Corporation was a revenue loss is dependent on the suit pending in the High Court between the assessee and Sohanlal and Co. and that if the judgment in the said pending suit shows that the transactions in British India Corporation shares were real, the loss claimed amounting to Rs. 3,82,278 will have to be allowed as a revenue loss. (ii) Whether, on a consideration of the totality of the facts and circumstances of the case, the Tribunal should have held that even assuming that the said British India Corporation shares were sold to Sohanlal and Co. , the loss arising therefrom was not a trading loss. " ( 2 ) IN this case, the dispute relates to certain transactions of shares of British India Corporation. These shares were purchased along with some other shares of some other companies by Jessop and Co. The dealings in purchasing shares of British India Corporation resulted in a loss of Rs. 75,000 and the assessee, Jessop and Co. Ltd. , claimed the same to be a trading loss and wanted this loss to be set off against the profit of the year. The Income-tax Officer was of the opinion that the assessee speculated in shares and that the shares were never purchased or sold from real shareholders and the transactions were done through brokers on blank transfers. The Income-tax Officer further affirmed that it was never the intention of the assessee to take delivery of the shares which were mostly sold within one month of their purchase and never registered in the asses-see's name. He, therefore, held that these dealings were of a speculative nature and disallowed the deduction of a sum of Rs. 2,44,778. The assessee appealed to the Appellate Assistant Commissioner and arguments were made on behalf of the assessee who was also examined by the Appellate Assistant Commissioner. The Appellate Assistant Commissioner also examined the question of purchase and loss of shares in depth. He noticed that, except for the purchase of the shares of the Indian Cable Co. 2,44,778. The assessee appealed to the Appellate Assistant Commissioner and arguments were made on behalf of the assessee who was also examined by the Appellate Assistant Commissioner. The Appellate Assistant Commissioner also examined the question of purchase and loss of shares in depth. He noticed that, except for the purchase of the shares of the Indian Cable Co. , all the other purchases and sales had been made either from or to Sri H. D. Mundhra and it appeared that the only purpose of these transactions was to enable Sri H. D. Mundhra either to acquire control of other companies or to amalgamate them or to help him to dispose of his own shares. He further found that as far as the shares of British India Corporation were concerned, the broker, Sohanlal and Co. , denied having purchased the shares from the assessee and the assessee had filed Suit No. 1508 of 1959 in the Calcutta High Court for recovery of the amount due from Sohanlal and Co. He also found that there was no evidence of shares having been delivered. In the circumstances, he came to the conclusion that the loss suffered by the assessee in the transactions could not be allowed as a trading loss because the dealings in the shares did not constitute a normal trading activity of the assessee. ( 3 ) THIS finding of fact has been stated in the statement of the case made to the High Court by the Tribunal. Thereafter, the Tribunal mentioned in brief the disputes by the following order :"regarding the British India Corpoaration shares, the question is dependent on the suits pending in the High Court If the transactions were real and not fictitious, the question of the loss being revenue loss will have to be independently considered. The judgment in the suit would show whether the transactions were real. If they were, we would consider the result to be revenue in nature. The assessee had embarked on transactions in shares. There is nothing to show that the assessee was trying to acquire the shares with any other motive than of a commercial nature. " ( 4 ) ON the above facts and circumstances of this case, the Tribunal has referred two questions of law to this court which have already been set out in the beginning of this judgment. There is nothing to show that the assessee was trying to acquire the shares with any other motive than of a commercial nature. " ( 4 ) ON the above facts and circumstances of this case, the Tribunal has referred two questions of law to this court which have already been set out in the beginning of this judgment. ( 5 ) THE finding of the Tribunal, to say the least, is most unsatisfactory. It says that regarding British India Corporation, the question is dependent on the suit pending in the High Court. Whether a loss is a trading loss or not must be decided by the Tribunal having regard to the facts and circumstances of this case on the date the loss is claimed. It is well-settled that whether there is a trading loss or not and whether such loss has taken place in any particular year are questions, basically, of fact. Therefore, the Tribunal should have decided the question on the facts and circumstances of the case brought out on record. The Tribunal has observed that whether the transactions were real and not fictitious will have to be independently considered. On this aspect of the case, there is a good deal of controversy. The Appellate Assistant Commissioner has pointed out certain facts, viz. , Mr. H. D. Mundhra was the only person who was a director of the company and the shares were being dealt with by the company in which H. D. Mundhra was appointed also as a director. ( 6 ) SECONDLY, while in the balance-sheets, the directors showed the loss at the time of sale of the shares, the directors had described the purchase and sale thereof as investments. ( 7 ) THIRDLY, in the balance-sheet of the company, the shares were shown as investments. The Tribunal has simply stated that "the assessee had embarked on transactions in shares, but there is nothing to show that the assessee was trying to acquire the shares with any other motive than of a commercial nature. " This observation was made by a complete misapplication of mind. The Tribunal had disposed of the case only on two grounds, namely, (1) the suit is pending, and (2) there is lack of evidence of noncommercial motive. " This observation was made by a complete misapplication of mind. The Tribunal had disposed of the case only on two grounds, namely, (1) the suit is pending, and (2) there is lack of evidence of noncommercial motive. The Tribunal erred in making the finding of fact as to trading loss and, secondly, about the complete absence of evidence which is stated in paragraph 3 of the statement of the case. On behalf of the assessee, certain other features were mentioned by counsel, in particular, the facts which have been mentioned in paragraph 5 of the Appellate Assistant Commissioner's order. In our view, the Tribunal has not properly appreciated the facts as also the legal issues involved in the case. ( 8 ) IN our view, the case must be sent back to the Tribunal for fresh disposal. We remand the case to the Tribunal and the Tribunal will go into the facts that have been brought on record and consider the facts brought out before the Appellate Assistant Commissioner and give its decision after taking into consideration all the facts. ( 9 ) THEREFORE, the case is remanded to the Tribunal without answering the second question that has been raised. ( 10 ) QUESTION No. (i) is answered in the negative. So far as question No. (ii) is concerned, the Tribunal will consider whether the loss is a trading loss or not. This question will have to be decided by the Tribunal after considering the facts as directed above and also after hearing the submissions of the learned advocate of the assessee and also the facts mentioned by the Appellate Assistant Commissioner.