Sabyasachi Mukharji, J. - (1.) In this reference under Section 66(2) of the Indian I.T. Act, 1922, as directed by this court, the Tribunal has referred the following questions to this court : 1957-58 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of rupees one lakh thirty thousand and five hundred was not a capital loss." 1958-59 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 4,04,360 was not a capital loss." 1959-60 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,34,680 was not a capital loss." 1960-61 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assesses was entitled to the carry forward of losses of the assessment years 1957-58 to 1959-60.", 1961-62 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to the carry forward of losses of the assessment years 1957-58 to 1959-60."
(2.) This reference relates to the assessment years 1957-58 to 1961-62. The corresponding previous years were the years ending on the 30th April, 1956, 1957, 1958, 1959 and 1960 respectively. The assessee is Bharat Luxmi Company Ltd. It is a company which is a dealer in shares. This finding of fact has not been challenged. For the assessment year 1957-58 the assessee claimed to have incurred a loss of Rs. 2,67,727 in share dealings. This amount included a loss of Rs. 1,30,500 resulting from the revaluation of the shares of the India Jute Company Ltd. (hereinafter referred to as "the India Jute Mills"), as on the close of the accounting year. The ITO originally completed the assessment for the year accepting the assessee's claim of the loss. Subsequently in the course of the assessment proceedings for the year 1958-59 the ITO came into possession of a letter dated the 24th April, 1956, written by Shri C. L. Bajoria (hereinafter referred to as "Bajoria") to Mackinnon Mackenzie & Co. Ltd. Bajoria is the brother-in-law of one S. L. Kanoria, a director of the assessee-company, who along with his son, S. K. Kanoria, held 22,000 out of 25,200 shares in the assessee-company. Mackinnon Mackenzie & Co. Ltd. were the managing agents of India Jute Mills on the 1st April, 1956. The aforesaid letter dated the 24th April, 1956, placed on record an agreement which was to take effect from the 1st of April, 1956, and the following was an extract of the relevant portion from the letter : "I refer you to the correspondence ending with my letter dated the 11th March, 1955, in relation to the above mill and to my discussions with Lord Inchcape and Mr. Muir and write to place on record the following agreement that was then arrived at. (1) Mackinnon Mackenzie & Co. Ltd. will tender their resignation as managing agents of the India Jute Mills Co. Ltd. and Megna Mills Co. Ltd. as on the 31st March, 1956. (2) The head office.,....staff, presently employed by Mackinnon Mackenzie Ltd. will be offered employment by the mills......on exactly the same terms. (3) On the same being tendered to me on any date subsequent to the 31st March, 1956, I will purchase 13,244 ordinary shares and 30,000 deferred shares in the India Jute Co. Ltd. presently owned by Mackinnon Mackenzie & Co. Ltd., the price, as then agreed, being Rs. 225 per ordinary share and dividend for the half year ending the 31st March, 1956. Without in any way derogating from any liability for payment of such shares against delivery of scrip, I shall be entitled to make arrangements for any portion of such shares to be purchased by business friends....... (5) It was also agreed......that in the event of Mackinnon Mackenzie & Co. Ltd. deciding to sell the balance of its 4,106 shares outside his own group they would be offered to and purchased by me at Rs. 230 per share."
(3.) It was mentioned that the issued and fully paid up shares of the India Jute Mills consisted of 69,000 shares of Rs. 125 each and 30,000 deferred shares of rupee 1 each. On the 1st April, 1956, Mackinnon Mackenzie & Co. Ltd. ceased to be the managing agents of the India Jute Mills which became a director-controlled company. The assessee had decided to purchase 6,000 shares of the India Jute Mills and requested Bajoria to secure these shares for it. By a letter dated the 12th March, 1955, the assessee confirmed the purchase and the terms of delivery. The assessee relied on a letter of C. L. Bajoria to S. L. Kanoria on the 11th March, 1955, which contained the following I "With reference to our discussion and as desired by you, I am glad to inform you that in my negotiations with Lord Inchcape, I have been able to secure for your company 5,744 ordinary shares in India Jute Co. Ltd. @ Rs. 225. Delivery of all these shares will be effected after 31st March, 1956. Please let me have your confirmation of the said transaction.";