BIRDS INVESTMENTS LTD Vs. COMMISSIONER OF INCOME TAX
LAWS(CAL)-1963-7-3
HIGH COURT OF CALCUTTA
Decided on July 23,1963

BIRDS INVESTMENTS LIMITED Appellant
VERSUS
COMMISSIONER OF INCOME-TAX Respondents


Referred Judgements :-

SCOTTISH INVESTMENT TRUST CO. V. FORBES [REFERRED]
CALIFORNIAN COPPER SYNDICATE V. HARRIS [REFERRED]
<RC>ITR 1965 55 284;COMPCAS 1965 35 143;ILR(CAL) 1967 1 629;LAWSUIT(CAL) 1963 0 97;</RC> <HC>HIGH COURT OF CALCUTTA</HC> <JGN>SANKAR PRASAD MITRA,K. C. SEN</JGN> <APL>BIRDS INVESTMENTS LIMITED</APL> <RP>COMMISSIONER OF INCOME-TAX</RP> <AT>INCOME TAX REFERENCE 42 OF 1954</AT> 23.07.1963 <DT>JULY 23,1963</DT> <SUBJECT>DIRECT TAXATION</SUBJECT> INCOME TAX ACT,1922 SEC 34; <SI><ACT>INCOME TAX ACT,1922</ACT> <S>S.34</S> <ACT>INDIAN INCOME-TAX ACT,1922</ACT><S>S.66(1)</S><S>S.34</S><S>S.34(1)</S> <ACT>INDIAN COMPANIES ACT,1913</ACT><S>S.2(2)</S> </SI> <FV></FV> <ADV>S. MITRA,D. PAL,B. L. PAL [REFERRED TO]
RADIO PICTURES LTD. V. COMMISSIONERS OF INLAND REVENUE [REFERRED]
IMPERIAL TOBACCO CO. (GREAT BRITAIN AND IRELAND) LTD. V. COMMISSIONERS OF INLAND REVENUE [REFERRED]
DUNN TRUST LTD. V. WILLIAMS [REFERRED]
SARDAR INDRA SINGH AND SONS LIMITED CALCUTTA VS. COMMISSIONER OF INCOME TAX WEST BENGAL [REFERRED]
MAHARAJ KUMAR KAMAL SINGH VS. COMMISSIONER OF INCOME TAX BIHAR AND ORISSA [REFERRED]
MAHARAJADHIRAJ SIR KAMESHWAR SINGH VS. STATE OF BIHAR [REFERRED]
BHIMRAJ PANNALAL VS. COMMISSIONER OF INCOME TAX BIHAR AND ORISSA [REFERRED]
CALCUTTA DISCOUNT COMPANY LIMITED VS. INCOME TAX OFFICER COMPANIES DISTRICT I CALCUTTA [REFERRED]
KARAPURA DEVELOPMENT COMPANY LIMITED VS. COMMISSIONER OF INCOME TAX WEST BENGAL [REFERRED]
PUNJAB CO-OPERATIVE BANK LTD VS. COMMISSIONER OF INCOME-TAX [REFERRED]
BHIMRAJ PANNA LAL VS. COMMISSIONER OF INCOME TAX [REFERRED]



Cited Judgements :-

COMMISSIONER OF INCOME TAX VS. CLIVE ROW INVESTMENT HOLDING CO LTD [LAWS(CAL)-1975-7-24] [REFERRED TO]
COMMISSIONER OF INCOME TAX, CALCUTTA VS. BURRAKUR COAL CO. LTD., CALCUTTA [LAWS(CAL)-1966-4-29] [REFERRED TO]


JUDGEMENT

- (1.)In this reference under Section 66(1) of the Indian Income-tax Act, 1922, hereinafter described as the " Act", the following questions have been raised for the opinion of this court:
"(1) Whether the Income-tax Officer had jurisdiction to make a supplementary assessment for 1946-47, under Section 34 by proceeding under that section as amended in 1948

(2) Whether Section 31 of the Indian Income-tax (Amendment) Act (XXV of 1953) has the effect of making Section 34 of the Indian Income-tax Act, 1922, as amended in 1948, retrospective

(3) Whether the supplementary assessment in this case is barred by limitation

(4) Whether, in the circumstances of this case, the submission by the assessee of the reconciliation of capital reserve account (annexure marked ' C'), amounted to a full and true disclosure of all the material facts necessary for his assessment within the meaning of Section 34(1) of the Indian Income-tax Act, 1922, as amended in 1948

(5) Whether, in the circumstances of this case, the information furnished to the Income-tax Officer by the letter dated 26th October, 1949 (annexure marked ' B '), can be held to be information such as would entitle the Income-tax Officer to initiate proceedings under Section 34(1)(b) as amended in 1948

(6) Whether, on the facts and in the circumstances of this case, the assessee-investment company's holdings of stocks and shares partake of the nature of circulating capital, and whether any realisations of excess over cost on sales thereof are the company's business profits chargeable to Income-tax -

(2.)The facts of the case as appearing from the statement of the case submitted by the Income-tax Appellate Tribunal, as also from other materials appearing in the paper-book, are stated as follows :
The applicant-assessee, Messrs. Birds Investments Limited, hereinafter described as the company, is, as its name indicates, an investment company. The main objects of the company as described in paragraph 3, Clauses (b) and (1) of its memorandum of association, are as follows :

" (b) To acquire and hold and otherwise deal with shares, stocks, debentures, debenture-stocks, bonds, obligations, and securities issued or guaranteed by any company constituted or carrying on business in India, or in the United Kingdom, or in any colony, or dependency, or possession thereof or in any foreign country, and debentures, debenture-stocks, bonds, obligations and securities issued or guaranteed by any Government, sovereign, ruler, commissioners, public body, or authority, supreme, municipal, local or otherwise, whether in India or elsewhere.

(1) To carry on the business of banking in all its branches and departments, including the borrowing, raising or taking up money, the lending or advancing money on securities and property, the discounting, buying, selling and dealing in bills of exchange, promissory notes, coupons, drafts, bills of lading, warrants, debentures, certificates, scrips and other instruments and securities, whether transferable or negotiable or not, the granting and issuing of letters of credit and circular notes, the buying, selling and dealing with stocks, funds, shares, debentures, debenture-stocks, bonds, obligations and other securities. "

(3.)The reference arises out of a supplementary assessment for 1946-47 made under Section 34 of the Act. The original assessment for 1946-47 was made on the 19th April, 1949, without including the profits on purchases and sales of shares. The Income-tax Officer, who made the assessment for 1949-50 received the letter dated 26th October, 1949, from the assessee and it was on the basis of the information contained therein that he initiated the proceedings under Section 34, for making supplementary assessment for 1946-47, out of which the present reference arises. One of the objections taken by the company was that there was no fresh material in possession of the Income-tax Officer, in consequence of which he had reason to believe that profits chargeable to income-tax had escaped assessment. According to the Tribunal, the reason for the assessee saying this is that along with his return of income for the year 1946-47 submitted in October, 1946, the assessee had filed statements headed " Reconciliation of Investments at September, 1945, " and " Reconciliation of Capital Reserve Account",--the latter account showing the profit made on sale of Titagarh Paper and Kurnardhubi Engineering shares, less losses incurred on redemption of certain debentures. According to the Tribunal, although the words " profit " and " loss " are found in this Reconciliation Account, the heading being " Reconciliation of Capital Reserve Account", the Income-tax Officer was not necessarily put on notice that the profit and loss arose on what may be called trading transactions. There was, according to the Tribunal, no indication, however, on the record that the Income-tax Officer who made the original assessment considered this aspect of the matter. After the proceedings under Section 34 of the Act was started, the company in its letter dated 26th October, 1949, addressed to the Income-tax Officer (annexure " B") described itself as purely an investment company. It will appear from the statement of the case that this company is not one of those companies formed for the sole purpose of holding all or most of the shares of the other companies actively carrying on trades such as are referred to in Sub-section (2) of Section 2 of the Indian Companies Act, 1913, and section 132A(i), second proviso, of the same Act, distinguishing between a holding company and an investment company. In other words, the assessee does not fall within the category of purely holding companies. On an examination of the accounts of the assessee-company, the Tribunal came to the conclusion that the company did not carry on an active trade in buying and selling shares, having regard to the volume or magnitude and frequency of the transaction. The sale in each year is only to the tune of Rs. 1,00,000 to Rs. 4,00,000 or Rs. 5,00,000 out of the total holdings in the neighbourhood of RS. 40,00,000. Some of the shares were held by the assessee-company for quite a number of years. Therefore, the Tribunal concluded that the assessee-company was not a dealer in shares in the ordinary sense. The real question that the Tribunal had to decide was whether that being an investment-company, its holdings of stocks and shares partook of the nature of circulating capital with the result that any realisation of excess over cost on sales thereof was its business profit chargeable to tax.


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