COMMISSIONER OF INCOME TAX Vs. RAMNARAIN SONS LIMITED

JUDGEMENT

(1.) On the 1st of October, 1946, the assessee company acquired the managing agency of the Dawn Mills Co., Ltd. Prior to this, Messrs. Sassoon J. David and Co. Ltd. were the managing agents. Part of the agreement to transfer the managing agency was that the assessee company had to purchase from Messrs. Sassoon J. David and Co. Ltd., 2,507 shares of the mills for a total consideration of Rs. 50,00,000. The market price of these shares at the relevant date was Rs. 1,610 per share. Fifteen hundred and seven of these shares were transferred to the company at the price of Rs. 2,321 -8 -0 and the balance of 1,000 were transferred to the directors at Rs. 1,500 per share. Two months after this transaction, the assessee company sold 400 shares, and the result of this transaction was that they suffered a loss of Rs. 1,78,438. This loss was claimed by the company as a revenue loss and this claim was allowed by the Tribunal and the Commissioner has come on this reference.

(2.) NOW , in the first place, let us recite the facts which are either admitted or have been found by the Tribunal. The assessee company was a dealer in shares and also did the business of acquiring managing agencies. As a matter of fact, it had already acquired two managing agencies one of Bradbury Mills on the 7th of April, 1934, and of the Phoenix Mills was to acquire the managing agency and, to use the language of the Income -tax Officer which the Tribunal has adopted in the statement of the case, 'the purchase of the shares was a part and parcel of the taking over of the managing agency.' The Tribunal has also found as a fact that the shares which were purchased by the assessee company, although it was a dealer in shares, did not become its stock -in -trade. On these facts the question arises as to whether the loss caused to the assessee company on the sale of these shares constituted a revenue or a capital loss. Now, the view taken by the Tribunal is that the acquisition of the managing agency was in the nature of a business carried on by the assessee company. That undoubtedly is true. It may be conceded that the assessee company did not acquire this managing agency as a hobby or a pastime. It had acquired it because it was its business to be managing agents of different mills and it was in the course of its business that this managing agency was acquired. But it is difficult to understand how from this fact it was competent, with respect to the Tribunal, to draw the inference that the shares which were purchased and which were purchased for the purpose of acquiring this managing agency and which were not the stock -in -trade of the assessee company could be debited to the revenue account. Surely, even in the course of a business, a capital asset may be acquired, and the acquisition of the managing agency, merely because it was in the course of business, does not necessarily lead to the inference that the managing agency could not be a capital asset. Whether the managing agency was a capital asset or not must be decided independently of the question as to whether it was acquired in the course of the business. If the managing agency was an asset of an enduring character, then it would be a capital asset and if it was a capital asset, then if the shares were purchased for the purpose of acquiring the capital asset, then the shares also would form part of the capital of the company and any loss in these shares would be debited to the capital account and not to the revenue account. That the managing agency is an asset of an enduring character is beyond dispute, and the Supreme Court in a recent judgment in Kishan Prasad and Co. Ltd. v. Commissioner of Income -tax, Punjab, dealing with the transaction of an acquisition of the managing agency says : 'It seems that the object of the assessee company in buying shares was purely to obtain the managing agency of the third mill which no doubt would have been an asset of an enduring nature and would have brought them profits but there was from the inception no intention whatever on the part of the assessee company to re -sell the shares either at a profit or otherwise deal in them.'

(3.) NOW , the whole attempt of Mr. Palkhivala in this reference has been to persuade us that this finding of fact was arrived at without any evidence or without any materials and that the assessees have taken out a notice of motion to ask us to direct the Tribunal to refer the question as to whether the Tribunal acted without any evidence or misdirected itself in law in rejecting the assessees' contention that the shares of the Dawn Mills Co. Ltd. constituted stock -in -trade and whether the Tribunal's finding that they did not was contrary to all evidence on the record. Mr. Palkhivala has relied on various circumstances which, according to him, clearly go to show that the assessee company treated these shares as stock -in -trade. In the first place, he says that 400 shares of the 1,500 shares were sold within two months of their acquisition. He then points out that the shares were purchased by borrowing money, and, according to him, it is difficult to believe that the assessees would invest monies in shares by borrowing money on interest. It is also pointed out that at the end of the year the assessees valued these shares on the basis of the shares being stock -in -trade, because the valuation was on the well known principle of market or cost price whichever is lower. Further, attention is drawn to the fact that in the subsequent years these shares were sold from time to time. Now, if the finding that the shares did not constitute the stock -in -trade of the assessee company is a finding of fact, then clearly it is not for us to reappreciate the evidence. Even assuming that the circumstances to which Mr. Palkhivala has drawn attention are strong circumstances in favour of his clients, the only question that we have to consider is whether there was evidence or materials to justify the finding of the Tribunal. We have laid down in a very recent decision reported in Rajputana Textile (Agencies) Ltd. v. Commissioner of Income -tax, Bombay City as follows : 'The question whether a transaction is an adventure in the nature of trade is essentially a question of fact and that fact has to be ascertained from all the circumstances in the case. The question of law that can only arise when a Tribunal has ascertained the fact is whether there was evidence to justify the finding of fact. If there was evidence, no question of law arises, but if the Court can be satisfied that the Tribunal came to that conclusion of fact on no evidence or on inferences which are entirely unreasonable, then the Court would interfere and the interference would be limited to this that the evidence disclosed in the record was not such as could possible warrant the inference drawn by the Tribunal. The High Court is not concerned with the quality or the adequacy of the evidence led before the Tribunal. Whether the evidence was sufficient or not is again for the Tribunal to decide.'