Sabyasachi Mukharji, J. - (1.) The assessee is a company. The proceedings out of which this reference arises relate to the assessment year 1961-62. The relevant previous year ended on March 31, 1961. During the previous year, the assessee sold 20,870 shares of Salimbong Tea Co. Ltd. to Seeyok Tea Co. Ltd. at a profit of Rs. 3,14,519. The assessee had held 20,870 shares out of 30,000 shares of the company and was the managing agent of the said company. There is no dispute that simultaneously with the sale of the shares, the assessee relinquished its managing agency of Salimbong Tea Co. Ltd. It appears from the further facts found by the Tribunal as well as the appropriate authorities that these shares were purchased by the assessee-company in the year 1937 and had been continuously held by the assessee-company, which will appear from para. 2 of the Tribunal's order at page 44 of the paper book. These shares, as we have mentioned before, were sold on February 20, 1961, which would appear from page 46 of the Tribunal's order. The managing agency was relinquished on March 31, 1961, and that also will appear from the order of the Tribunal. It would be relevant to refer to the fact that there was certain unexpired period of this managing agency. The contract in respect of this managing agency was fixed for a certain term but we do not get as to what the actual terms were on which the managing agency was subsisting. It was claimed before the ITO that the surplus realised was capital gains as distinct from revenue gains. The ITO was, however, unable to accept this position, because he was of the opinion that the particular block of shares were given because the block of shares carried with it the managing agency right. The ITO, in his order, at page 11 of the paper book, stated that the shares were included not in the trade investment but in the shares of the subsidiary companies and the explanation of the company was that the shares were acquired to obtain the managing agency of the company. In the earlier years losses on the sale of the shares and securities had always been claimed to be revenue losses but were treated as of capital nature. The particulars of losses disallowed in the past have been mentioned. The ITO had referred to the memorandum of association which permitted the assessee to carry on various businesses including the business of managing agency. The ITO was of the opinion that these entire shares were sold in one block by the assessee-company on relinquishing the managing agency although there was an unexpired period still to run. It was, however, held by the ITO that no compensation was received by the assessee for the loss of the managing agency. The ITO was of the view that the shares were sold at a value which was higher than the market price, there being really no market price, as these shares were valued much higher in the break-up of the shares. The ITO, in this background, was of the view that the assessee's case was not a simple one and he had acquired these shares to procure the managing agency and the assessee had, in fact, carried on multifarious activities in various lines including banking, financing of various companies as well as the managing agency. The ITO referred in this connection to the different clauses of the assessee-company's memorandum of association. In this background, the ITO held that the entire profit on the sale represented business profit and he proceeded on that basis.
(2.) There was an appeal before the AAC. The AAC agreed with the views of the ITO that a major portion of the sale proceeds was relatable to the assessee's right to the managing agency which passed along with the shares. In view of the principles enunciated in the case of the assessee itself, as reiterated by the Supreme Court in Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income-tax [1964] 53 ITR 283, the AAC held that the surplus of Rs. 3,14,519 made in the transaction involved the giving up of the managing agency and was, therefore, revenue income. The AAC, however, noted that in the previous year the shares sold by the assessee-com-pany including the shares of this very company itself were treated as of capital nature. The assessee had given before the ITO certain distinguishing features which distinguished the assessee's case from the other case referred to on behalf of the Revenue before the AAC. It was asserted by the assessee before the AAC that the shares were acquired by the assessee-company from the partnership concerns and had been held by the partnership since 1937. The shares were held by the assessee-company as capital investment in almost all wholly owned subsidiary companies of which the assessee was also the managing agent. The investment was clearly not, therefore, of a speculative nature. The assessee-company was also empowered to hold shares. But after considering all these contentions, the AAC stated that in view of the decision in the case of the assessee in and in view of the innumerable agencies, according to the AAC, which the assessee carried on, the transaction involving the giving up of the managing agency was of a revenue nature. In that view of the matter, he upheld the order of the ITO on this aspect of the matter.
(3.) The assessee thereafter preferred an appeal before the Appellate Tribunal. The Tribunal found, and it is important to refer to certain aspects of the findings of the Tribunal, that in this case, the assessee had parted with an asset of enduring nature.. This finding of the Tribunal appears at page 48 of the paper book. It also had parted with its investments, being the shares in question, which resulted ordinarily in capital gains. The Tribunal noted that the assessee-corapany, as reiterated by the Supreme Court in its decision, which we shall presently discuss, that the acquisition of shares in that case was in the normal course of its business and the amount received by the assessee for cancelling certain agency, therefore, represented income of revenue nature. The Tribunal further observed : "In this case before us and on the facts of it nothing has been received by the assessee-company as a price for its forgoing managing agency rights. What it has legally received is the value of the shares though it cannot be denied that it received a higher value because the shares carried with it the managing agency rights." There is a slight mistake in the cyclostyled paper book and we have taken the actual words used by the Tribunal in its order which was produced at the time of hearing of this case. In that view of the matter, the Tribunal was of the view that it was concerned with the true and legal realisation resulting from the transaction. The transaction, according to the Tribunal, appeared to be the sale of shares and the shares were not the assessee's stock-in-trade. The Tribunal, therefore, held that the surplus was liable to tax as capital gains and not as revenue gain. In that view of the matter, the Tribunal allowed the assessee's claim on this account.;