Shah, J. -
(1.)The High Court of Judicature at Bombay answered the following two questions referred by the Income-tax Appellate Tribunal, Bench "B", Bombay, under S. 66(1) of the Indian Income-tax Act, 1922:
1. Whether the acquisition of the managing agency of the Dawn Mills Co., Ltd., was in the nature of a "business" carried on by the assessee company
2. If the answer to the first question is in the affirmative, whether the loss suffered by the assessee company of Rs. 1,78,438/- on purchase and sale of 400 shares of the Dawn Mill Co., Ltd., being incidental to its business of acquiring the managing agency, was a loss of a revenue nature , as follows:
1. Acquisition of the managing agency was an acquisition of a capital asset;
2. The loss in respect of the 400 shares was of a capital nature. Against the order of the High Court, this appeal is preferred with special leave.
(2.)The appellants are a private limited company registered under the Indian Companies Act, 1913, and carry on business as brokers, managing agents and dealers in shares and securities. One of the objects for which the appellants were incorporated was to acquire managing agencies. The appellants also carried on business in shares of different companies, and were assessed to income-tax as dealers in shares and securities.
(3.)M/s. Sassoon, J. David and Co., Ltd., were the managing agents of the Dawn Mills Ltd. - a public limited company - and they held 2,507 out of a total issue of 3,200 shares,. On September 28, 1946, the appellants purchased form M/s. Sassoon, J. David and Co., Ltd., 1,507 shares of the Dawn Mills at the rate of Rs. 2,321-8-0 per share and having obtained a controlling voting right, acquired the managing agency rights of the Mills. The remaining one thousand shares were acquired from M/s. Sassoon, J. David and Co., Ltd., by the Directors of the appellants at the rate of Rs. 1,500/-. At the material time, the ruling market price of the shares of the Dawn Mills was Rs. 1,610/-. In December, 1946, the appellants sold 400 out of the shares purchased by them, and thereby suffered a loss of Rs. 1,78,438/-. The loss suffered by the appellant's in the year of account January 1, 1946, to December 31, 1946, by sale of shares including 400 shares of the Dawn Mills was Rs. 1,92,834/-. Crediting Rs. 1,05,907/- earned as profit in certain other share transactions, the net loss suffered in the share transactions in the year of account amounted to Rs. 86,927/-. The appellants valued their shares at the end of the year of account at cost or market price whichever was lower. By this method of valuation, the books of account of the appellants showed a loss of Rs. 7,97,792/- which included a loss of Rs. 7,04,000/- on the valuation of the Dawn Mills shares held by the appellants at the end of the year of account.