- (1.) These two appeals are by certificate against the judgment of the High court of Bombay answering four out of the five questions referred to it in favour of the assessee and one question in favour of the revenue.
(2.) A partnership firm hereinafter referred to as the firm) comprising of some of the members of the Sassoon family was carrying on business under the name and style of E. 0. Sassoon and Co. for a number. of years prior to 1920 at Bombay, Calcutta, Karachi, Hongkong, Shanghai, London, Manchester, Basra and the Persian Gulf. The business which it was carrying on was that of the bankei's, commission agent, agents of joint stock companies, dealers in shares and securities, foreign exchange etc. In the accounting year 1919 the firm incurred net loss of Rs. 12,37,413-12-2 but in 1920 it seems to have made large profits mostly "in London Exchange Account". It however claimed depreciation in shares and securities amounting to Rs. 9,26,730-5-8 shown under the head depreciation in shares and securities. On 8/09/1920 and 4/12/1920 two companies were incorporated in Bombay the former was known as the Bombay Trust Corporation Ltd. and the latter as E. 0. Sassoon and Co. Ltd. (hereinafter called the 'company'). The Bombay Trust Corporation carried on business in Bombay which comprised mainly the business of dealers in shares, securities and foreign exchange. This company (B. T. C. ) had by the end of December 1920 investments in shares and securities to the extent of Rs. 3,23,78,494. 00. By the end of 1921 investments in shares and securities had risen to Rs. 4,31,32,212. 00 and by the end of December 1922 these investments had risen to Rs. 10. 00, 43,78,511. 00. Though these, facts have been given in the statement of the case, as we shall presently show, they are not germane for the determination of the questions before us.
(3.) The assessee-company was incorporated with several objects, one of which was: "To acquire and take over as a going concern the business now carried on at Bombay, Calcutta, Karachi, Hongkong, Shanghai, London, Manchester, Basra and Baghdad and all or any of the assets and liabilities of the proprietors of that business in connection therewith, and with a view thereto, enter into the Agreement referred to in Clause 4 of the Company's Articles of Association and to carry the same into effect with or without modification. "clause 4 of the articles of association of the company provided that the assessee company shall forthwith enter into the agreement mentioned in Clause 3 of the Memorandum of Association with such modifications, if any as the directors shall approve. On 30/06/1961, the agreement referred to was finally executed by the assessee-company. The said agreement provided inter alia for purchase of the business of the said firm and its assets including shares, debentures for valuable consideration therein set out at the market price prevailing on 31/12/1920, which purchase was to be completed on or before that date. It appears that pursuant to the said agreement the company took over the business of the said firm and also purchased shares and securities worth Rs. 1,93,79,521-3-1 at market-value as on 31/12/1920. It further purchased between 1/01/1921, to Jan 31/01/1921,from the market further shares and securities worth Rs. 4,28,05,627. 00 in the ordinary course of its business.;