SABYASACHI MUKHARJI, J. - (1.) THE assessment years involved in this reference are 1952-53, 1953-54 and 1955-56, corresponding accounting years being 17th July, 1950 to 29th Oct., 1951, 30th Oct., 1951 to 17th Oct., 1952 and 6th Nov., 1953 to 1st July, 1954, respectively.
(2.) THE members of the Kedia family held substantial interest both in the assessee- company and in M/s Anderson Wright Ltd. M/s Anderson Wright Ltd. were appointed managing agents of M/s Khardah Co. Ltd. from 1st July, 1948. THE total number of issued ordinary shares of M/s Khardah Co. Ltd. were 54,000 of the face value of Rs. 100 each. 32,680 of these shares were held by one Mrs. Flora Meyer either in her own name or in the names of her nominees. 9,637 shares were held by M/s Anderson Wright Ltd., and the balance by several other persons. Some time in April, 1950, M/s Anderson Wright Ltd. purchased all the shares of Mrs. Flora Meyer at a price of Rs. 300 per share. THE total price thus came to over a crore of rupees which M/s Anderson Wright Ltd. raised by borrowings from various parties including a sum of Rs. 27,54,000 from the assessee-company. THEre is a resolution by the board of directors of the assessee- company sanctioning loan dt. 15th Feb., 195l, and under this very resolution the directors of the assessee-company also authorised the assessee-cormpany to be a dealer in shares with retrospective effect from 17th July, 1950. Up to and including the asst. yr. 1951-52 the assessee had not been dealing in shares but held shares only as investment. THE memorandum of association of the assessee-company, however, authorised dealing in shares. THE amount of loan advanced by the assessee-company as mentioned hereinbefore to Anderson Wright Ltd. in purchasing shares of Khardah Co. Ltd. was repaid by Anderson Wright Ltd. THE major portion of the shares of Khardah Co. Ltd. came to be owned between Anderson Wright Ltd. and the assessee-company both of which were under the control of Kedia family. For the asst. yr. 1952-53 there was a profit of Rs. 4,495 on the sale of 335 shares of Khardah Co. Ltd. between 16th March, 1951 and 16th May, 1951. THE balance of the stock was valued at the market price at the close of the accounting year and on such valuation, after setting off the aforesaid profit of Rs. 4,495, the assessee suffered a loss of Rs. 9,29,485. In the accounting years relevant to the asst. yrs. 1953-54, 1954-55 and 1955-56 there were no sales of these shares but on the valuation of the closing stock at the prevailing market rates on the closing dates of the respective accounting years, the assessee again suffered a loss of Rs. 6,33,534 for 1953-54, earned a profit for the asst. yr. 1954-55 and again suffered a loss of Rs. 66,040 for the asst. yr. 1955-56. THE assessee claimed loss of Rs. 9,29,485 for the asst. yr. 1952-53, Rs. 6,33,534 for the asst. yr. 1953-54 and Rs. 66,040 for the asst. yr. 1955-56 in respect of its dealings in Khardah Co. Ltd. shares and also claimed transfer charges of Rs. 3,684 for the asst. yr. 1952-53, and Rs. 3,377 for the asst. yr. 1953-54 as the expenditure incurred for the purpose of its business. For the asst. yr. 1954-55, the assessee returned a profit from these shares. While assessing the profit disclosed in respect of the asst. yr. 1954-55, the ITO disallowed the claim for the losses in the asst. yrs. 1952-53, 1953-54 and 1955-56 as capital losses. THE ITO also disallowed the claim for deduction of share transfer expenditures on the ground that these were capital expenditures. THE ITO came to the conclusion that the shares were acquired by the assessee for helping Anderson Wright Ltd. to retain the managing agency of Khardah Co. Ltd. and for preserving the controlling interest of the Kedia family in these companies and that the purchase of these shares was merely an investment and was not intended to be a dealing in shares. THE ITO, in his order for the asst. yr. 1952-53, has set out the genealogical table of the Kedia family and the dates and particulars of purchase of these shares and the sale of these shares during the said assessment year. THE same appears at pages 12 and 13 of the paper book of this reference. It appears that a large block of these shares were purchased from concerns which have been described as sister concerns indicating thereby concerns in which the members of the Kedia family had substantial interest. It also appears from the said particulars that these shares were purchased in different quantities on diverse dates between 18th Sept., 1950, and May, 1951. THEy were purchased from several parties. Some were purchased at rates lower than the prevailing market rates on the relevant dates. Out of this purchase of 13,518 shares of Khardah Co. Ltd., 335 of these shares were sold during the relevant assessment year. Out of these sales about 20 shares were sold to Hindusthan General Produce Co. Ltd., which is also a concern in which the members of the Kedia family had substantial interest. THE ITO has dealt with how the money was obtained by Anderson Wright Ltd. for the purpose of acquiring these shares and how the assessee got this money for the purpose of acquisition of these shares. It appears that the said shares were acquired with borrowed money. THE ITO has also referred to the fact that Mrs. Meyer had substantial interest in the said company and she was unloading those shares and if those shares went out of the Kedia family, they apprehended losing control and as such those shares were acquired in this process for the purpose of continued retention of the control of Kedia family in the said company. THE ITO also referred to the subsequent resolution which authorised dealings of shares with retrospective effect. THE ITO has also referred in his order to the application of the assessee dated March, 1956, to the Central Board of Revenue regarding time for payment of tax. It appears that in that application the assessee had stated : "During the year 1950-51 your memorialist had earned substantial amount in jute and jute goods and had invested this fund in shares and securities." THE ITO has also relied on the fact that all these 1,286 Khardah Co. Ltd. shares were really deposited and lay frozen because they were with the bank for the purpose of overdraft facilities. THE ITO has referred to the fact that, even when market prices were high, the assessee did not sell all these shares but retained a part of it. In respect of the asst. yrs. 1953-54 and 1955-56 he followed his findings in respect of the asst. yr. 1952-53 and disallowed the claim on the said basis. There was an appeal before the AAC. The AAC, who first heard the appeal being AAC, Range-II, was of the opinion that the ITO had not given certain facts and he directed a report to be made by the ITO. The ITO submitted his report on 7th March, 1962. A portion of the said report has been set out at page 32 of the paper book in the present reference. The appeal ultimately came up for hearing before the AAC, Range-I. The AAC in his order referred to the fact that in respect of other shares in the earlier years, though there was no share dealing, the ITO had accepted the fact that the assessee-company had started dealing in shares from the beginning of the asst. yr. 1952-53. It also appears that in the appeal of Anderson Wright Ltd., against the assessment of profits realised on sale of shares of Khardah Co. Ltd. of which M/s Anderson Wright Ltd. were the managing agents, the AAC accepted the contention of Anderson Wright Ltd. and ordered deletion of the profits on sale of shares of Khardah Co. Ltd. The Tribunal in that appeal did not agree with the finding of the AAC and held that acquisition of shares was not with a view to safeguard the managing agency of Khardah Co. Ltd. but was with a view to earn profits by dealing in shares. So it appears that the acquisition of these shares by Anderson Wright Ltd. was held to be for dealing in shares. It was argued that when the managing agents of Khardah Co. Ltd. had not been held as investors in shares of that company but as dealers in shares of Khardah Co. Ltd., it would be meaningless to imagine that the assessee-company who had some interest in the managing agency company had acquired the shares of Khardah Co. Ltd. with a view to acquire controlling interest in the Khardah Co. Ltd. while the acquisition by the managing agents themselves have been held to be dealing in shares. The AAC accepted the said argument. The AAC, in those circumstances, allowed the claim for losses in respect of those share dealings for the said years.
(3.) THERE was a further appeal before the Tribunal. The Tribunal, after setting out the facts in its order, has referred to the contentions made by the Revenue as well as the main reasons in the order of the ITO and these are : "(a) Until immediately before the start of the accounting year relevant for the asst. yr. 1952-53 the assessee was not a dealer in shares but only an investor therein. (b) Although the assessee claimed to have become a dealer in shares on and from the 17th July, 1950, the resolution authorising the assessee to do so was passed by its board of directors much later, on the 10th Feb., 1951. (c) These shares were acquired to help the Kedia family to stabilize its control over Khardah Co. Ltd." The Tribunal has discussed the facts and circumstances leading up to the acquisition of these shares, the manner in which the shares were purchased and the argument that the shares were not immediately sold though, at points of time, the market prices were higher than the purchase prices. The Tribunal observed that in deciding a question of this nature the problem has to be considered in the light of the assessee's intention in acquiring the shares and that intention has to be judged by the conduct of the assessee. The Tribunal has analysed and discussed the conduct of the assessee and the relevant circumstances. It appears that the main argument was that these shares were acquired for the purpose of retention of these shares by members of Kedia family inasmuch as the Kedia family was interested in having control over the Khardah Co. Ltd. But this had already been achieved through the purchases made by Anderson Wright Ltd. itself. It appears that the total number of issued ordinary shares of Khardah Co. Ltd. was Rs. 54,000. In order therefore to have an absolute controlling interest, 27,000 shares were required. Now Anderson Wright Ltd., even after having sold part of its acquisition of Khardah Co. Ltd. shares, held directly and through persons having interest in it for all these years much more shares than the said requisite number. THEREfore, for the purpose of retention or acquisition of the control over Khardah Co. Ltd., there was no reason for the assessee to acquire those shares. Another aspect of the matter is that bulk of these shares were acquired from sister concerns, that is to say, concerns where members of Kedia family were interested. These shares therefore were already in the family. THEREfore retention or acquisition of control of Khardah Co. Ltd. by members of Kedia family could not have been the purpose for acquisition of these shares. The Tribunal has also referred to the manner in which these shares were acquired, that is to say, in different quantities. The Tribunal has also referred to the fact that these were acquired with the borrowed money. The Tribunal therefore dismissed the appeals. The Tribunal has referred to this Court the following questions under s. 66(1) of the Indian IT Act, 1922 : "(1) Whether, on the facts and in the circumstances of the case, the assessee had been rightly held to be a dealer in respect of the shares of M/s Khardah and Co. Ltd. and the assessee's claim for the losses of Rs. 9,29,485 and Rs. 66,040 had been rightly allowed for the asst. yrs. 1952-53 to 1955-56 ? (2) Whether, on the facts and in the circumstances of the case, transfer charges of Rs. 3,684 and Rs. 3,387 incurred for acquiring the shares of Khardah Co. Ltd. were properly allowed as revenue expenditure for the asst. yrs. 1952-53 and 1953-54, respectively ? " ;