COMMISSIONER OF INCOME TAX Vs. PRODUCE EXCHANGE CORPORATION LTD

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the IT Act. The facts are as follows: The assessee are a public company and its managing agents is M/s Karam Chand Thapar and Bros. Ltd. The said managing agents are also the managing agents of two other companies, namely, the Standard Refinery and Distillery Ltd. and Karam Chand Thapar and Sons Ltd. The Standard Refinery and Distillery Ltd. is a company carrying on the business of sugar refinery and distillery and also sugar manufacturing. Karam Chand Thapar and Sons Ltd. is an investment company. The assessee-company was carrying on business in various lines. As I will presently mention, it has been found as a fact that one of the objects of its incorporation was dealing in shares. The Standard Refinery and Distillery Ltd., purchased 41,300 shares of the New Savan Sugar and Gur Refinery Co. Ltd. at a price of Rs. 12,17,006 during the period between January and April, 1946. In April, 1947, the entire block of shares was sold to the assessee-company at Rs. 8,46,750. On 28th June, 1948, the assessee- company sold these shares to Karam Chand Thapar and Sons Ltd. at Rs. 4,74,950 resulting in a loss of Rs. 3,71,300. About one year after the transaction took place, M/s Karam Chand Thapar and Sons Ltd. were appointed as the secretary of the New Savan Sugar and Gur Refinery Co. Ltd. In respect of the assessment of the assessee firm, namely, the Produce Exchange Corporation Ltd., Calcutta, for the year 1949-50 the question arose as to how to treat this loss of Rs. 3,71,300. The ITO held that the transaction was in the nature of an investment and, therefore, he disallowed the loss. The AAC upon appeal held that the assessee was a dealer in shares and this was a trade loss and it should be allowed. This view was upheld by the Tribunal. Upon that, a question has been referred to us as follows:

(2.) THIS naturally brings us to a consideration of the order of the Appellate Tribunal which is to be found at pages 29 to 31 of the paper-book. The Tribunal, after stating the salient facts already mentioned above, recorded that four facts had been established, and they were as follows:

(3.) MR . Pal has referred us to a decision of the Supreme Court in CIT vs. National Finance Ltd. (1962) 44 ITR 788 (SC) : TC14R.354 The facts in that case were as follows: Six companies were brought into a group, with a single individual as the person who had the controlling voice. As a result of the manipulation of this person, certain shares in a company were bought within this group at higher than market prices and subsequently the managing agency of this new company was acquired. Not only was it acquired, but there was a profit. It was found that in order to wipe out this profit, another transaction of sale at fictitious prices was staged and the profit was wiped out by an alleged loss. On the facts and circumstances of the case, the Supreme Court held that this was not a genuine business transaction and could not be considered as an allowable loss. I do not see how this case can be of assistance, because it depended on its own facts. The facts in the present case are quite distinguishable. In the present case, the shares were dealt with at the market price and no foundation was laid for showing that the transactions were not genuine transactions. Simply because a year after the transaction the purchaser acquired the secretaryship of a company cannot be decisive of the question as to whether the transaction was an investment or a dealing in shares. In our opinion, on the facts found, the Tribunal was entitled to come to the conclusion that the transactions were in the usual course of business and not by way of investment and that the disputed amount should be allowed as a trade loss.