- (1.) In proceedings for assessment to income-tax for the year 1946-47, the appellant firm was assessed to tax in respect of an amount of Rupees 3,99,587 received by it as profit on sale of shares. The plea of the firm that the amount was "capital gain" and was on that account not taxable was rejected. In the view of the Income-tax Officer the profit arose from "a well planned business activity in which the assessee had fully utilised its resources". The Appellate Assistant Commissioner affirmed the decision of the Income-tax Officer. The Income-tax Appellate Tribunal dismissed the appeal filed by the firm.
(2.) The Tribunal, amongst others, referred the following question to the High Court of Allahabad for opinion: "Whether the surplus realised by the sale of the shares of Aluminium Corporation of India Ltd., J. K. Investment Trust and Raymond Woollen Mills amounting in aggregate to Rs. 3,99,587 or any part thereof was the revenue income of the assessee liable to tax under the Income-tax Act, 1922 - The High Court answered the question in the affirmative. The firm has appealed to this Court with special leave.
(3.) In 1944 the firm purchased 50,000 ordinary shares of Raymond Woollen Mills Ltd. (hereinafter called "Raymond") for Rs. 69,75,255. The firm paid Rupees 7,00,000 on November 4, 1944 and the balance on December 6, 1944. The transaction was financed with the aid of a loan of Rs. 70 lakhs borrowed from the Hindustan Commercial Bank Ltd. The firm sold those shares through brokers between November 23, 1944 and April 2, 1946 and realised Rs. 72,42,200, the transaction resulting in a net profit of Rs. 2, 66,945. Between January 26, 1945 and April 5, 1946 the firm also purchased 67 debentures, 5,582 preference shares and 18,576 ordinary shares of the Aluminium Corporation Ltd. (hereinafter called "Aluminum") for Rs. 8,57,480. Except 2,118 preference shares, the entire lot of shares with the debentures was sold for Rs. 7,05,957 between February 1, 1945 and August 13, 1945. Adjusting the cost of shares left on hand the firm realised a net profit of Rs. 60,278 in that transaction. The firm also purchased 290 "A" Class shares of J. K. Investment Trust Ltd. (hereinafter called "J. K. Trust") on February 4, 1945 for Rs. 1,45,000 and sold the same on August 22, 1945 for Rupees 2,17,264, the transaction resulting in a net profit of Rs. 72,364.;