- (1.) This is an appeal by certificate from a judgment of the Calcutta High Court answering the following question referred to it in the negative and against the assessee: "Whether on the facts and in the circumstances of the case, the loss of Rupees 1,11,816 suffered by the assessee on the sale of shares of Fort William Jute Company Limited was a loss that arose in the share dealing business." The assessee is a public limited company. It carries on, inter alia, business of dealing in shares and securities. The profits and losses arising from transactions in shares in the ordinary course of the assessee's business have always been treated as profits or losses of the share dealing business. During the assessment year 1954-55, relevant accounting period being the financial year 1953-54 the assessee suffered a loss of Rs. 1,11,816 on the sale of 1575 preference shares of Fort William Jute Company Ltd. These shares were purchased on May 22, 1952 at the rate of Rs. 186 per share from Mugneeram Bangur and Co. and were sold on December 23, 1953 at the rate of Rs. 115 per share to the same company.
(2.) The background in which these transactions took place may be noticed. Kettlewell Bullen and Co., were the managing agents of Fort William Jute Co. Ltd. On May 21, 1952 an agreement was entered into between Kettlewell Bullen and Co. and Mugneeram Bangur and Co. according to which the entire holdings of Kettlewell Bullen and Co. in the managed company (Fort William Jute Co. Ltd.) consisting of 6920 tax-free cumulative preference shares and 600 ordinary shares were to be sold to Mugneeram Bangur and Co. or their nominees at the agreed price of Rs. 185 per preference share and Rs. 400 per ordinary share. Pursuant to this agreement Kettlewell Bullen and Co. issued a circular letter to all shareholders of Fort William Jute Co. Ltd. informing them of the terms of the agreement and pointing out that Kettlewell Bullen and Co. would tender resignation from the office of the managing agents with effect from July 1, 1952. It was stated in this letter "the purchase price of each ordinary shares was Rs. 400 and of each preference share Rs. 185. It was further condition of the agreement that M/s. Mugneeram Bangur and Co. would offer to all shareholders of the company (ordinary and preference) to purchase their shares at the same price on the terms hereinafter referred to". It was intended that M/s. Bangur Brothers Ltd. would be appointed managing agents.
(3.) At the time of the agreement namely, May 21, the market price of the preference shares ranged between Rs. 199 and Rs. 122 per shares but the shares were purchased by the assessee on May 22, 1952 at the rate of Rs. 186 per share. A large part of the preference shares of Fort William Jute Co. Ltd. were transferred to three Companies by Mugneeram Bangur and Co., who had to take over 8617 preference shares in terms of the agreement. The Companies to which these shares were transferred were (1) Marwar Textile Agency Ltd; (2) Union Co. Ltd.; and (3) Star Co. Ltd. - the assessee, M/s. Bangur Bros., were appointed as the managing agents of Fort William Jute Company for a period of ten years with effect from July 1, 1952. The total number of preference shares of Fort William Jute Company Ltd., which were acquired by the assessee from Mugneeram Bangur and Co. was 1670. One lot of 1620 shares was purchased on May 22, 1952 at Rs. 186 per share and the second lot of 50 shares was purchased at Rs. 184 on May 27, 1952. For the acquisition of these shares the assessee had to overdraw on its Bank account. On December 23, 1953, 1575 shares were sold to Mugneeram Bangur and Co., at Rs. 115 per share resulting in a loss of Rs. 1,11,816 which was included in the loss of Rupees 1,30,152 debited to the profit and loss account under the head "loss on sale of investment". The assessee claimed this as a loss arising in the ordinary course of its business.;