- (1.) These two references are consolidated. They arise out of the same set of facts. Reference No. 7 of 1960 is under Section 66(1) while Reference No. 48 of 1960 is under Section 66(2) of the Income-tax Act. The questions referred to us are as follows: (1)(a) Was the Assessee's loss of Rs. 7,61,000 sustained in any business of his within the meaning of "business" under the Income-tax Act ? (b) Is such a finding by the Tribunal supported by any evidence or material on record ? (2) If the answer to question (1) be in the negative then whether the Tribunal was right in holding that the above loss was allowable in computing the total income of the Assessee ? (3) Whether on the facts and in the circumstances of the case, the loss resulting from the aforesaid solitary money lending transaction was allowable under the provisions of the Income-tax Act as a business loss ? It is to be noted that questions (1) and (2) arise out of reference No. 48 of 1960 while the last question arises out of Reference No. 7 of 1960.
(2.) The case relates to the assessment year 1953-54, corresponding to the accounting year ending on June 30, 1952. As the Tribunal adopted the facts of the case as recorded in the order of the Appellate Assistant Commissioner, it will be convenient to note the facts as therein stated, One Bhimsen Gupta was the managing director of Hind Machines Ltd., a private limited company. He held 1,60,000 ordinary shares out of total of 2,00,000 ordinary shares issued by the company. Being in need of Rs. 8,00,000 he entered into a contract with the Assessee on October 31, 1946 whereby the Assessee agreed to purchase 80,000 shares of Hind Machines Limited at Rs. 10 per share, i.e. at par value. There was a further agreement between the parties whereby the Assessee undertook to deliver back the said 80,000 shares at the agreed price of Rs. 11/4 per share on or before October 31, 1947. As security for the due performance of this contract Gupta deposited a second lot of 80,000 ordinary shares with the relevant transfer deeds duly signed by way of pledge. As the second lot of shares was only partly paid, a part of Rs. 8,00,000 was utilised for making them fully paid. The contract further provided that in the event of Gupta's failing to take back 80,000 shares at Rs. 11/4 per share, as already stated, the Assessee would be at liberty to sell the second lot of shares given by way of security to make up for any loss by reason of such failure. Gupta was unable to take back the shares by October 31, 1947, and by mutual consent the time for performance of the contract was extended till January 23, 1948. Negotiations went on even after that date but the parties did not come to any terms. In the meantime, two directors of the Assessee attended the meetings of Hind Machines Limited. At one such meeting there was a proposal to wind up the company on the ground of financial difficulties. On December 18, 1948, Gupta demanded return of 80,000 shares held as security on the ground that the market price of the shares as on January 23. 1948, was higher than Rs. 11/4 per share so that on the date of the breach of contract there was no loss to the Appellant. It is to be noted that during 1948 these shares were transferred and registered in the name of the Assessee by mutual consent. The Assessee did not return the shares and Gupta filed a suit in this Court against the Assessee on December 20, 1948. The Court found that the market price of the shares was much below Rs. 11/4 per share on January 23, 1948: the suit was dismissed on January 20, 1950. A cheque for Rs. 1,00,000 given by Gupta to the Assessee sometime in the year 1948, was dishonoured. The Court held that by reason of Gupta's breach of contract the Assessee had suffered a loss and was, therefore, entitled to retain the shares held as security and to dispose of the same to make good the loss. Thereafter, the Assessee tried to sell both lots of shares. Eventually, the two lots were sold for the total sum of Rs. 45,000 on May 10, 1951 and August 20, 1951. These dates are taken from the statement of facts which formed an annexure to the petition of the Commissioner of Income-tax under Section 66(1) of the Income-tax Act. The Appellate Assistant Commissioner, however, recorded that the shares were sold in 1952. Adding the transfer fees and stamps i.e. Rs. 6,000 for getting 80,000 shares mutated in the name of the Assessee to the amount of loan advanced i.e. Rs. 8,00,000 and deducting therefrom the sale proceeds of 1,60,000 shares amounting to Rs. 45,000 we get the figure Rs. 7,61,000 which was claimed by the Assessee as revenue loss.
(3.) The Assessee's argument before the Appellate Assistant Commissioner was that the loss had arisen on a transaction of purchase and resale of shares as had been held by this Court in the suit filed by Bhimsen Gupta and there was no justification in the finding by the Income-tax Officer in his assessment order that the transaction was entered into for the purpose of acquiring control over Hind Machines Limited.;