SINHA,J. - (1.) THIS is a reference under s. 66(1) of the IT Act. The assessee is M/s Chrestian Mining Co. Ltd. (now in liquidation), and the assessment years are 1948-49, 1949-50, 1950-51 and 1951-52. The facts are as follows : The assessee, prior to 1946, carried on business of mica mining. By an agreement dt. 17th July, 1946, it agreed to sell its mining and surface rights and mines in the district of Hazaribagh and Monghyr, Bihar, including the development and ore reserves, with all plant, machinery, factory and other buildings, stores, stock- in-trade, etc., and all tenancies and right, title and interest in immovable properties, at a price of Rs. 46,92,138 to a newly formed limited company named Chrestian Mica Industries Ltd., which was incorporated on the 13th May, 1946, and commenced business on 4th July, 1946. As a part of consideration money, the assessee company obtained a number of shares in the newly formed company. It must be noted here that a major part of the shares of the assessee company was held by M/s R.K. Agarwalla and Bros., a partnership firm, and also a major part of the shares of the transferee company was held by the same firm. This firm came to owe large sums of money to the assessee. After the transfer, the same firm, namely, M/s R.K. Agarwalla and Bros., transferred various shares held by them to the assessee company. But certain peculiarities of these transfers have to be noted. I have already stated that these shares were owned by M/s R.K. Agarwalla and Bros., and the price at which they were purported to be transferred to the assessee company was not the market price, but the price at which M/s R.K. Agarwalla and Bros. acquired them. It has been also stated in the statement of case that at the time of the transfer, these shares were not quoted in the market. A list of these shares is set out, under 17th heading in paragraph 4 of the statement of case, relating to 7 kind of shares, of the total cost price of Rs. 21,25,879-12-0. What happened thereafter must be closely followed. In the calendar year 1947, relevant to the asst. yr. 1948-49, some of the shares were sold, but they were sold to a concern in which M/s R.K. Agarwalla and Bros. were largely interested. This sale resulted in a loss of Rs. 4,09,192. In the calendar year 1948, there was no sale of shares and no loss is claimed. In the calendar year 1949 there was no sale of shares, but it is claimed that there was a loss of Rs. 2,38,500 upon revaluation. In the calendar year 1950, a loss of Rs. 1,19,250 was claimed upon revaluation. In the calendar year 1951, a loss amounting to Rs. 33,750 was claimed upon revaluation. No revaluation loss was claimed for the two calendar years 1952 and 1953. It will, therefore, be seen that during all these years there was really one actual sale and this again to a concern in which M/s R.K. Agarwalla and Bros. were largely interested. Subsequently, in 1955, the assessee company went into voluntary liquidation. What has happened is that the assessee company claims to have been carrying on business in the dealing of shares during the assessment years and is claiming these losses as business losses. The IT authorities have disallowed it. They have come to the conclusion that the assessee company, after having sold its mines and mining rights was not carrying on business as dealers in shares, but were only adjusting their rights and liabilities with the transferees and/or M/s R.K. Agarwalla and Bros., whose connection with the two companies has been mentioned above. Indeed, the IT authorities have gone further and have held that the assessee company was not authorised under its memorandum to carry on business as dealers in shares. This was also the finding of the Tribunal. A question has been referred to us as follows : "Whether, on the facts and in the circumstances of the case, the assessee company was carrying on a business in share dealing and the losses claimed by it in the several years could be set off against the dividend income of the assessee ?"
(2.) THE first question that has been raised is as to whether the Tribunal could at all consider these several years together. Unfortunately, this point was never raised before the Tribunal nor has any such question been referred to us. However, I do not think there is any substance in the point, because in order to answer a question of this description, namely, whether the assessee was carrying on a business of a particular description or not, it is not at all unusual to look into a number of years in order to come to a conclusion as to whether the particular activity or activities that were carried on amounted to the carrying on of a trade or business. In many cases it would be impossible to decide it without such consideration. For example, this was precisely the procedure that was followed by the Supreme Court in Raja Bahadur Visheshwar Singh vs. CIT (1961) 41 ITR 685 (SC) : TC12R.824. What happened in that case was that the assessments were separate, but when it came to the appellate stage, the appeals were consolidated for the sake of convenience, because common questions of law and fact arose. Coming now to the point that has to be decided, it is obvious that in order to come to a decision as to whether the company was carrying on a business in share dealing, we have to look at the whole picture. I have already stated the nature of the transactions from which it is claimed that the company was carrying on a business in the dealing of shares. I think, however, that it would be better to deal with the question of the memorandum of association first. It is well known that a corporation is a creature of statute and the most important thing is to look into the constitution of its incorporation to find out whether it is able or not to carry on a particular kind of activity. Before the Tribunal, their attention was drawn to cls. (4), (15) and (16) of the memorandum of association, and these are set out in the order of the AAC at pages 16, 17 and 18 of the paper- book. Clause (4) enables the company to purchase shares or debentures of other companies authorised to carry on the same or any similar business which the company is authorised to carry on. Clause (15) enables the company to sell the undertaking, property and assets of the company or any part thereof, in particular for shares, debentures, etc., of any other company having objects similar to those of the assessee company, or to promote any other company for purposes which were calculated to benefit the company, and cl. (16) is the investment clause which enables the company to invest and deal with the moneys of the company not immediately required. I do not see how any of these clauses enable the company to carry on business as dealers in shares. The expression "dealer in shares" is well understood. It means that the company should habitually buy and sell shares and securities as an integral part of its business. We agree with the finding of the Tribunal that none of these clauses enable the company to act as dealers in shares. Mr. Banerjee has argued that even if the other clauses do not authorise it, the investment clause (cl. 16) is quite sufficient for his purpose and we must come to the conclusion that dealing in shares was authorised by the memorandum of association. In support of his contention he cited a decision of a single judge of the Patna High Court in Dalmia Cement Ltd. vs. CIT (1944) 12 ITR 50 (Pat) : TC12R.1139. In that case, the assessee company was a cement company and had amongst its objects set out in the memorandum, the acquisition and dealing in shares which must promote the interests of the company. Also there was a clause for investment of the moneys of the company. What happened was that during the period before the company could actually carry on its main business, it dealt with in certain shares. The question was whether this was a business transaction. Obviously, it was authorised by a specific clause in the memorandum, since the company was entitled to carry on business in dealing in shares. Incidentally, however, Manohar Lall J. held that even the clause with regard to the investment of moneys could authorise such dealings. This case was considered by a Division Bench of this High Court in Indra Singh and Sons Ltd. vs. CIT MPLJ 594 : TC12R.839. Harries C.J., however, pointed out that although the conclusions of Lall J. were correct on the facts of the case, all the reasons given by him were not sound. With great respect I am unable to agree that a mere clause for investment of moneys authorises a dealing in shares on the part of a company, where there is no such authority given in the memorandum.
(3.) IN my opinion, however, it is not necessary to base our decision on this aspect of the matter. The real question is as to whether upon all the facts and circumstances of this case it could be said at all that the company was dealing in shares, that is to say, carrying on business as dealers in shares. The Tribunal has found upon the facts that there was no dealing in shares in fact. There was only one single sale, and that also was in adjustment of the dues of the transferees, and to a concern in which M/s R.K. Agarwalla & Bros. were largely interested. It has not been shown as a fact that this was an independent transaction, that is to say, a transaction merely had for the purpose of earning profit or loss. The others are merely book revaluations. That being so, the Tribunal rightly came to the conclusion that upon a consideration of the particular facts and circumstances of this case it could not be said that the assessee company was in fact carrying on business as dealers in shares.;