Ramaswami, J. - (1.) These appeals are brought by certificate from the judgment of the Bombay High Court dated March 2, 1966 in Income-tax Reference No. 73 of 1962.
(2.) The appellant company, hereinafter called the assessee company was incorporated on July 29, 1924, as an investment company, the objects of which are set out in clause III of the memorandum of association and more particularly in sub-cls. (1), (2), (15) and (16) of that clause. The assessment years in question are 1943-44 to 1948-49, excepting the year 1947-48, According to its petition made in the High Court, the assessee company dealt with its assets as follows: "The petitioner company purchased during the period lst July, 1925, to 30th June, 1928, shares of the value of Rs. 1,86,47,789 major portion of which was comprised of shares in the Sassoon Group of Mills. During the year ended 30th June, 1929, the petitioner company promoted two companies known as Loyal Mills Ltd., and Hamilton Studios Ltd., and took over all their shares of the value of Rs. 10 1/2 lacs. In the year 1930, the petitioner company purchased shares of Rs. 1,33,930. During the period of 9 years from 1st July, 1930, to 30th July, 1939, no purchases were made with the exception of a few shares of Loyal Millls Ltd., taken over from the staff of B. D. Sassoon and Co., Ltd., who retired from service. In the year ended 30th June, 1940, reconstruction scheme of the Appollo Mills Ltd., took place under which debentures held by the petitioner company in the Appollo Mills Ltd., were redeemed and the proceeds were reinvested in the new issue of shares made by the Appollo Mills Ltd. Out of the purchases of the value of Rs. 2,794 made by the petitioner company during the year ended 30th June, 1941, Rs. 2,000 was the value of shares of the Loyal Mills Ltd., taken over from the retiring staff. In the year ended 30th June, 1943, the petitioner company took over from the David Mills Co., Ltd., shares of the Associated Building Co., of the value of Rs. 56,700. After this there were no purchases at all to this date excepting purchases of the value of Rs. 34,954 during the year ended 30th June, 1946." The sales are contained in paragraph 3 (b) which states: "In relation to the purchases made by the petitioner company as stated above no appreciable sales of shares were made during the period 29th July, 1924, to 30th June, 1942, the sales made in the year ended 30th June, 1929, of the value of Rs. 1, 29,333 included shares of the value of Rs. 45,000 in the Loyal Mills Ltd., sold to the members of the staff and shares of the value of Rs. 83,833 representing sterling investments handed over to the creditors of the petitioner company in part repayment of the loan taken from them in the year ended 30th June, 1931, shares of the value of Rs. 7,48,356 were handed over to the creditors in payment of the loan granted by them. From the year ended 30th June,1943, E. D. Sassoon and Co., Ltd., started relinquishing the managing agencies of the various mills under their agency and the shares held by the petitioner company in the Sassoon Group of Mills were handed over to the respective purchasers of the mills agencies.
(3.) Prior to 1940 the assessee company made a claim every year for being treated as a dealer in investments and properties but this contention was repelled by the Income-tax Authorities and upto the assessment year 1939-40 the assessee company was assessed on the basis of being an investor but it appears that for the assessment years 1940-41, 1941-42 and 194243 the Income-tax Department accepted the plea of the assessee company and treated it as a dealer in shares, securities and immovable properties and assessed it on that basis. For these years and for the assessment year 1943-44 the assessee company made its return on that basis. But after the return had been filed for the year 1943-44, the assessee company withdrew its return and filed a revised return on March 7, 1944, contending that it was not a dealer but merely an investor. Along with the return it filed a letter dated March 6, 1944 in which it stated: "The return of Total Income which was submitted with the Company's letter of 25th May, 1943, was prepared in conformity with the ruling of the Income-tax Officer in the 1940-41 assessment that the company was to be assessed as a dealer in Investments. Since that return was submitted the Central Board of Revenue has decided that the Company is an Investment Holding Company, and accordingly an amended Return of Total Income under Section 22 (1) of the Indian Income Tax Act is submitted herewith on which the asssessment for 1943-44 may be based, as on this particular question the company obviously cannot have one status for Excess Profits Tax and another for Income-tax." It was contended by the assessee company that it never carried on any business in the purchase or sale of shares, securities or properties. In support of this contention the assess company relied on the order of the Central Board of Revenue dated August 18, 1943 passed under Section 26 (1) of the Excess Profits Tax Act. The Income-tax Officer rejected the plea and held that the investments were held by the assessee company as the stock-in-trade of its business which it carried on during the previous year and also in the preceding years. The assessee company took the matter in appeal to the Appellate Assistant Commissioner who dismissed the appeal and upheld the order of the Income-tax Officer. The assesse thereafter appealed to the Income-tax Appellate Tribunal and the same contentions were urged on behalf of the assess company. The Appellate Tribunal rejected the assessee's claim that it was showing itself as a dealer in shares, securities and immovable properties under a misapprehension and without appreciation of the correct facts. The Appellate Tribunal held that in the case of the assess company not only the Memorandum of Association gave the power to the company to deal in investments but the case of the company all along in the past was that it was a dealer in investments and properties. Consequently, the Tribunal held that the assess company was a dealer in shares, securities and properties and dismissed the appeals. Thus the grounds on which the case was decided against the assessee company were (1) that the assessee claimed to be a dealer or an investor according as it incurred losses or made profits and (2) that because of the objects contained in the memorandum of association and because of its assertion made in the past as being a dealer the assessee company could not be held to be an investor. The assessee company then applied to the Appellate Tribunal under Sec. 66 (1) of the Income Tax Act, 1922, hereinafter called the 'Act' for a reference of the following question of law for the opinion of the High Court: "(i) Whether on the facts and in the circumstances of the case the assessee company can rightly be treated as a dealer in investments and properties; and (ii) Whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits." The application was rejected by the Appellate Tribunal on the ground that no question of law arose out of its order. The assessee company then made an application under Section 66 (2) of the Act to the Bombay High Court which dismissed the application by its order dated June 15, 1952. The assessee company thereupon obtained special leave to appeal to this Court. The appeal was allowed by this Court by its judgment dated May 22, 1957 and the order of the Bombay High Court dated June 15, 1952 was set aside. It was pointed our by this Court that the Appellate Tribunal in arriving at its finding that the assessee was a dealer and not an investor had relied on two basic facts, viz., the objects set out in the Memorandum of Association and the previous assertion made by the assessee-company that it was a dealer in investments and properties and not merely an investor. It was observed that merely because the company had within its objects the dealings in investments, shares and properties the circumstance did not give it the characteristics of a dealer in shares. The circumstance, though relevant, was not conclusive. It was pointed out in the judgment of this Court that the question as to what were the characteristics of the business of dealing in shares or that of an investor was a mixed question of fact and law and what was the legal effect of the facts found by the Appellate Tribunal and whether as a result thereof the assessee could be termed a dealer or an investor was itself a question of law. Accordingly the Court formulated the following two questions of law as arising out of the order of the Tribunal: "(1) Whether there are any materials on the record to support the finding of the Income-tax Officer that the assessee company was a dealer in shares, securities and immovable property during the assessment year in question (2) Whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits - The case was therefore remanded to the High Court for directing the Appellate Tribunal to state a case on the aforesaid questions of law under Section 66 (2) of the Act. In accordance with the direction of this Court the Appellate Tribunal made a statement of the case on June 12/13, 1962. The reference being Income-tax Reference No. 73 of 1962 was heard by the High Court which by its judgment dated March 2, 1966 answered both the questions against the assessee-company and in favour of the Commissioner of Income-tax. ;