Sinha, C.J. - (1.) This is a Reference under Sec. 66(2) of the Indian Income -tax Act, Sec. 12 of the Excess Profit Tax Act and Sec. 19 of the Business Profit Tax Act. The Assessee in this case is Burrakur Coal Co. Ltd. (hereinafter referred to as the 'Assessee company'). The assessment year is 194748 corresponding to the previous year ending on June 30, 1946 and the chargeable accounting period for the E.P.T. and B.P.T. assessment are from July 15 1945 to March 31, 1946 and from April 1, 1946 to June 30, 1946 respectively. The Assessee company was carrying on coal mining business since a long time. Sometime in June, 1915, it promoted the Sijua (Jherria) Electric Supply Co. Ltd. along with several other promoters. The purpose of this promotion appears to be that these promoters required electric power supply in their collieries and they jointly subscribed to the shares of this company. By 1919 and 1922, the two other promoters, viz., Reliance Coal Co. Ltd. and Nowaghur Coal Co. Ltd were amalgamated with the Assessee company and the shares of the respective companies were taken over by the Assessee company. In the result, excepting three shares, all the shares, out of 2 lakhs shares issued and subscribed, were held by the Assessee company. Before 1915, the Assessee company was carrying on a fireclay concern, principally for its own consumption, but for the sake of proper management it converted the said fireclay concern into a company called the Kumardhubi Fireclay and Silica Works Ltd. Almost all the shares of this company were held by the Assessee company. Similarly a business of engineering was started by the Assessee company, principally for its colliery business. In July, 1915, this engineering concern was converted into a private company called the Kumardhubi Engineering Works Ltd. Here also, the shares were principally held by the Assessee company. In the accounting year ending July 30, 1946, relevant for the assessment year 1947 -48, the Assessee company sold 71,715 shares of the Sijua (Jherria) Electric Supply Co. Ltd. and in the same year, it purchased 49,350 shares of Budroochuck Coal Mining Co. Ltd., the total number of shares issued by the said company being 50,000. This purchase was made from the Standard Trusts Mining Co. Ltd. and as a result of such purchase, the said Budroochuck Goal Mining Co. Ltd., became a subsidiary to the Assessee company. In the year of account relevant for the assessment year 1947 -48, as a result of the sale of the shares of Sijua (Jherria) Electric Supply Co. Ltd., there was a profit of Rs. 7,67 357. The Assessee company also sold and redeemed securities which yielded a profit of Rs. 27,955.
(2.) The Income -tax Officer treated both these amounts as trading profits. The Income -tax Officer held that the sale of Sijua (Jherria) shares was authorised by the memorandum of association of the company and following the decision in Indra Singh and Sons Ltd. v/s. C.I.T. West Bengal : (1951) 19 I.T.R. 1 : (1953) 24 I.T.R. 415 the sale and purchase of these shares was held to be a normal step in carrying on the business of the Assessee company and/or an act done in what was truly the carrying on of such business. The Assessee contended that the purpose of the sale was to meet the expenses in constructing a ropeway for its collieries, the estimated expenses of which was about Rs. 60 lakhs. For financing the construction, some shares and securities were sold which brought in about 39 lakhs, in addition to which debentures had to be issued to the extent of Rs. 20 lakhs. Regarding the purchase of shares in the Budroochuck Coal Mining Co. Ltd., it was alleged that the Assessee had advanced a large amount of money to the aforesaid colliery company and as the financial condition of the said company was precarious, the Assessee thought it fit to acquire the shares of the said company to protect the advances made to it. Shortly after the said acquisition the Budroochuck Coal Mining Co. Ltd. was dissolved by the order of the Court and its assets were taken over by the Assessee company. It was held that all this was done under powers granted under Clause 3(12) of the memorandum of association, in the result, the Income -tax Officer held that the sale and purchase of the shares were done in the normal course of carrying on of the business of the Assessee company and were trading profits. On appeal, this view was upheld by the Appellate Assistant Commissioner. From this a further appeal was taken to the Appellate Tribunal. The Appellate Tribunal found that the Assessee company did construct a ropeway in the succeeding years and that the Budroochuck Coal Mining Co. Ltd. was dissolved by the High Court id its assets were incorporated with that of the Assessee company, 1 its opinion, the supply of electric power was a necessity for the business of the company. The Assessee company took advantage of Le co operation of the other two coal companies in constructing the electric supply concern and later on, as the two companies were amalgamated, the shares came into the possession of the Assessee company. The sale of the shares and securities was done in terms of the general special powers contained in the memorandum of association, but it for purposes of an expected trading profit. The acquisition of the shares of the Budroochuck Coal Mining Co. Ltd. was in the interest of the company and was not made with the idea of financing the said company. In the premises, the Appellate Tribunal held that the surplus arising out of the sale of the shares and securities was an accretion to the capital assets of the Assessee company and was not taxable under the Income -tax Act. Upon this, the following question of law was framed by the High Court: Whether in the facts and circumstances of the case, the surplus of Rs. 7,67,357 and Rs. 27,955 realised by the Assessee company on the sales of shares and securities were a taxable income arising out of its business.
(3.) The way that Mr. Pal, appearing on behalf of the Revenue, has framed his argument is as follows: He first of all refers to the clauses in the memorandum of association of the Assessee company, extracts from which have been set out in pp. 33 to 39 of the paper book. Clause (2) enables the Assessee company to carry on the trade or business of colliery proprietors etc. Clauses (11), (12) and (22) are important and are set out below: (11) To acquire and undertake the whole or any part of the business, property and liabilities of any person or company, carrying on any business which this company is authorised to carry on, or possessed of property suitable for the purposes of this company and to promote, subscribe to or assist any public or private work or undertaking facilities for or conducive in any way to the purposes or profit of the company and to hold shares or interest in any such company or partnership. (12) To enter into partnership or into any arrangement for sharing profits, union of interests, co -operation joint adventure, reciprocal concession or otherwise with any person or company carrying on or engaged in or about to carry on or engage in any business or transaction carried on or conducted or capable of being carried on or conducted so as directly or indirectly to affect this company and to lend money to, or guarantee the contracts of, or otherwise assist any such person or company and to take or otherwise acquire shares and securities of any such company and to hold, sell, or otherwise deal with the same (22) To manage, let, mortgage, sell, underlet, or otherwise turn to account, dispose of, or deal with all or any part of the property of the company, whenever and however acquired.;