SAROJINI RAJAH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE matter relates to the assessment year 1953-54 and the material point turns on whether certain shares, which the assessee held in the Vanguard Fire and General Insurance Company Limited, were an investment or constituted her stock-in-trade. THE revenue as well as the Tribunal have considered that they were purchases by her as an investment. This controversy as to the character of her shareholding became relevant in the context of her claim for allowance of Rs. 42,534 as business loss incurred by her on the sale of the shares during the accounting year ended March 31, 1952. THE Income-tax Officer was of the opinion that, having regard to the circumstances, there was every possibility of the transaction being one to book a loss for the purpose of reducing the tax liability of the assessee and, apart from it, the transaction also should be regarded but as an investment. Out of the holding by one Udaya Limited, in which the assessee was a director and her husband was the managing director, she purchased on March 31, 1952, 32,850 shares at Rs. 3-13-0 each, and for a total consideration of Rs. 1,25,342-8-0. On January 13, 1953, she sold 20,000 out of them through a broker of Bombay by name Naraindas and Company at Rs. 2-8-0 per share. THE sale proceeds of Rs. 50,000 were received by her by cheque on January 15, 1953. She endorsed this cheque the next day in favour of Udaya Limited. We may mention that when she purchased the shares from Udaya and Company the latter had owed her Rs. 98,375. After giving credit for this amount towards her purchase of the shares, the balance of the price of 32,850 shares remained due from her to Udaya Limited. On March 10, 1953, she sold the remaining 12,000 shares at the same rate per share through another broker. THE shares would appear to have been delivered by her to the broker through the Indian Bank which realised Rs. 30,000, being the total sale price, to her credit two days later. That is how, according to the assessee, she incurred a loss in the transaction relating to the 32,850 shares of Vanguard. THE Tribunal has noted in its order that, as on March 31, 1953, the market value of the shares was Rs. 2-10-0, which was less than the cost to the assessee. THE Income-tax Officer determined the assessees total income for the year at Rs. 36,114 and charged the same to tax after declining to allow the loss in the share transaction. THE Appellate Assistant Commissioner agreed with him and found that the sales effected by her were not real sales. THE Tribunal confirmed the view of the revenue on both the aspects, viz., that the purchase by the assessee of 32,850 shares was but an investment and that the sales of those shares were not genuine. In support of its finding that the purchase was only an investment, the Tribunal said :

(2.) THE Tribunals conclusion that the sales were not genuine was rested primarily on the fact that eventually the assessees husband purchased 32,000 shares in January, 1953, through share-brokers and that the price realised by the assessee by sale of the shares went into the account with Udaya Limited, which was common to her and her husband. It was inclined to think that the sum of Rs. 98,000 to be credit of the assessee with Udaya Limited was a transfer apparently to her husbands account or payment by the company towards certain prior debts. It was also of the opinion that the names of the brokers had been interposed to make the sales appear real and they were in the course of dealing in shares. At the instance of the assessee the reference has been made to us under section 66(2) of the Indian Income-tax Act, 1922, of the following question :

(3.) WE do not desire to be understood that we accept these considerations as comprehensive or exhaustive. But they are, in our opinion, of considerable assistance in deciding the character of a transaction as of a commercial character.