HOLCK LARSEN H Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, H. Holck Larsen, was a partner in the firm of Messrs. Larsen & Toubro, which, on the 7th of February, 1946, was converted into a private limited company. On such conversion the assessee was allotted 53,486 equity shares of Rs. 10 each, against his interest in the partnership firms. He purchased, in addition, 1,875 equity shares for cash consideration. In 1950, so we are informed, the company was converted into a public limited company and in course of time the assessee became the chairman of its board of directors.

(2.) FROM the 1st of April, 1947, to the end of March, 1954, the assessee acquired 1,994 shares of the company, all the which were offered by the company as right shares. During this period, the assessee sold 1,550 shares from his total holding. He was assessed for these years as an investor. He acquired further right shares and sold shares from his holding in the subsequent years ending 31st of March, 1958, and he was assessed for these years also as an investor. We understand that the Income-tax Officer has re-opened the assessments of 1957-58 and 1958-59 but with that we are not concerned here.

(3.) ON the other hand, Mr. Hajarnavis, who contends for the opposite view, says that though the assessee was originally an investor, he acquired the right shares for the purpose of trading in them, that these acquisitions were not mere accretions to the original holding but were made by the assessee for the purpose of making a profit by selling the right shares and by renouncing the right and that the dominant motive behind the post-1954 transactions was to make a profit by dealing in shares. Counsel says that the pattern of these transactions, their frequency and the fact that the acquisitions were made with the help of borrowed moneys show that the assessee had converted his investment shares into stock-in-trade. The character of the pre-1954 transactions cannot colour the option nor, says the learned counsel, would a trading transaction in the hope that thereby he will prevent a depreciation in the value of his original holding.