Ashoka Viniyoga Ltd. v. Commissioner Of Income-Tax.

Matter No. 9 of 1963

Decided on June 1, 1967

The Judgment of the Court was delivered by

K.L Roy, J.:— This is a reference under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). The assessment year concerned is 1953-54 for which the relevant accounting period commenced on October 1, 1951, and ended on September 30, 1952. The original assessment for this year was completed by the Income-tax Officer on November 30, 1953. In making the assessment, the Income-tax Officer accepted the assessee's profit and loss account which showed a loss on sale of shares of Rs. 5,14,295. Subsequently, the Income-tax Officer had information that in consequence of an order under section 23A passed in respect of Messrs. Sahu Jain Ltd. of which the assessee was a shareholder, dividend deemed to have been distributed to the assessee had escaped assessment. The Income-tax Officer started reassessment proceedings under section 34(1)(b) of the Act on February 7, 1958, to assess this deemed dividend income. In the meantime, the Income-tax Officer had completed the assessee's assessment for the subsequent year 1954-55, and had disallowed the assessee's claim for loss of Rs. 9,93,686 on the sale of shares for that year. In the course of that assessment proceedings the Income-tax Officer found that, (i) the loss claimed arose from the sale of shares of companies which were under the control of the Sahu Jain group, and (ii) that the purchases and sales of shares by the assessee-company were a part of the general rearrangement and transfer of shares originally held by the companies and others of the Sahu Jain group to gain control over these companies, from one to another with a view to shift the losses due to depreciation. The Income-tax Officer scrutinised the purchases and sales of the shares by the assessee and found that the shares were purchased from various companies controlled by this group and also from members of the Dalmia or the Jain families and that the shares have ultimately been sold to other companies of the group or to other members of the two families though some of the transactions were effected through share brokers. He also found that the assessee-company commenced business in October, 1949, and closed its accounts for the first year on September 30, 1950. During that year the assessee dealt in cement and purchased shares worth Rs. 7,000 which was shown as investment in its balance-sheet as on September 30, 1950. The share capital of the company as on that date was Rs. 50,000. The share capital was raised to Rs. 5,00,000 in July, 1952. In the second year of business the assessee took a loan of rupees two crores from Messrs. Dalmia Cement and Paper Marketing Co. Ltd. and this loan was utilised by the assessee to advance a similar sum to another allied company, namely, Ashoka Marketing Co. Ltd. During the accounting year ended September 30, 1951, the assessee's total purchases of shares amounted to Rs. 43,97,932. There were no sales of shares in this year. During the accounting year ended September 30, 1952, that is the year under consideration, the purchases and sales of shares were over Rs. 46,00,000 and Rs. 40,00,000, respectively, while in the immediately succeeding year there were no purchases. The Income-tax Officer rejected the contention of the assessee that it was a dealer in shares. He referred to the resolutions of the board of directors of the assessee-company dated May 4, 1951, May 26, 1951 and June 13, 1951, respectively, which, while approving the purchases and sales of shares, described such purchases and sales as those of investment. He also referred to the resolution passed by the assessee's board of directors on August 27, 1952, the material portion of which is as follows:

“Item 4.—Noted purchase of 4,00,000 ordinary shares in Rohtas Industries Ltd. at the rate of Rs. 7 per share and 70,000 ordinary shares in Shree Krishna Gyanoday Sugar Mills Ltd. at the rate of Rs. 5 per share in pursuance of the directors' resolution dated 18th July, 1952. Resolved that these shares should be held as an investment as distinguished from the shares which till now had been acquired and held as stock-in-trade.

Item 5.—Considering the financial position of the company resolved that the funds invested in Punjab National Bank Ltd. shall be liquidated.”

2. The Income-tax Officer further found that the word “investment” had been struck off in the minutes of the earlier meetings though such striking out was not initialled by the chairman of the board of directors. The Income-tax Officer, accordingly, held that these shares were being held by the assessee-company as investment and the transactions amounted to transfer of these shares from one company to another under the control of the Sahu Jain group due to some reasons other than the motive of trade and the resulting loss was not a trading loss. The Income-tax Officer therefore disallowed the claim for loss for the assessment year 1954-55. In his order of reassessment under section 34 for the assessment year 1953-54, the Income-tax Officer examined some of the major transactions of purchases and sales of shares and found that both the ultimate sellers and purchasers of the shares were companies and persons over whom the Dalmia and the Sahu Jain groups had direct or indirect control. Following his reasons for disallowing the claim for loss on sale of shares for the assessment year 1954-55, the Income-tax Officer disallowed the claim for loss of Rs. 5,14,295 in this year and reduced the loss allowed in the original assessment to that extent.

3. On appeal from the order of assessment, the Appellate Assistant Commissioner repelled the assessee's contention that in a proceeding for reassessment the Income-tax Officer could not include any other item of escaped income except such income in respect of which the section 34 notice had been issued. He relied on the decision of the Punjab High Court in Commissioner of Income-tax v. Jagan Nath Maheshwary [1957] 32 I.T.R 418.. The Appellate Assistant Commissioner also negatived the assessee's contention that as its account showing the purchases and sales of these shares and all other relevant data were produced before the Income-tax Officer at the time of the original assessment, the Income-tax Officer making the reassessment was not entitled to sit in judgment over the decision of his predecessor and hold that the loss was not a trading loss. The Appellate Assistant Commissioner found that certain facts were not brought to the notice of the Income-tax Officer at the time of the original assessment which only came to light at the time of the assessment for the subsequent year. He mentioned that the various resolutions of the board of directors of the assessee-company showing these shares as investments, the sale vouchers of the assessee showing the sales of these shares as those of investments and the fact that the shares had been shown as investment and not as stock-in-trade in the balance-sheet of the earlier years were not brought to the notice of the Income-tax Officer at the time of the original assessment. The Appellate Assistant Commissioner also rejected the further contention of the assessee that it was a dealer in shares. The Appellate Assistant Commissioner further found that at the time the resolution of August 27, 1952, was passed, the assessee had already incurred large losses on the sale of these shares. Accordingly, the Appellate Assistant Commissioner dismissed the assessee's appeal.

4. On further appeal by the assessee to the Tribunal it was contended, inter alia, (i) that action under section 34 having been taken to assess the deemed dividend from Messrs. Sahu Jain Ltd. it was not open to the income-tax Officer to consider afresh the claim for losses on share dealing and to disallow the same; (ii) that a successor Income-tax Officer could not sit in judgment on his predecessor's order. On the merits it was contended that the frequency of the transactions and the financing of transactions by resort to borrowing would clearly indicate that the transactions were, in fact, dealings in shares. Further, the assessee's articles of association permitted the assessee to deal in shares. It was further contended that the word “investment”. was inadvertently used in the earlier resolutions of the board of directors and that the resolution of August 27, 1952, correctly showed the position that the shares were held as stock-in-trade. It was further submitted that the magnitude and the volume of the transactions and the close intervals at which the purchases and sales were made clearly showed that these were trading transactions. The Tribunal negatived all the aforesaid contentions of the assessee. It held that as proceedings under section 34 had been validly initiated in this case to reassess the dividend income deemed to have been distributed by virtue of the order under section 23A, the Income-tax Officer was competent to include items other than those in respect of which notice had been issued and for this proposition it relied on the decision of the Punjab High Court in Jagan Nath's case, referred to by the Appellate Assistant Commissioner. The Tribunal further observed that neither the order sheet nor the records of the original assessment showed that the minutes book or the sale vouchers were produced before the Income-tax Officer at the time of the original assessment. The Income-tax Officer had merely accepted the loss as per the assessee's profit and loss account without making any investigation whatsoever. All that section 34(1)(b) required was that the Income-tax Officer must have in his possession information and in consequence of such information he would have reason to believe that income had escaped tax. Both these requirements had been satisfied in this case. The additional information which came into the Income-tax Officer's possession in course of the assessment for the subsequent year had led him to believe that income had escaped assessment. The Tribunal accordingly held that the proceedings under section 34(1)(b) initiated by the Income-tax Officer resulting in the assessment was legal and valid.

5. The Tribunal examined the minutes book of the meetings of the board of directors of the assessee-company and found that the resolutions dated May 26, 1952, and June 13, 1952, approved the purchases and sales of investments as detailed thereunder. The Tribunal further found that the words “of investment” had been struck out in the minutes book without anybody initialling the cutting. The Tribunal also examined the internal vouchers of the assessee-company for the sale of shares and found that in these vouchers the sales were described as those of investment. The Tribunal observed that in the past years the shares held by the assessee had been shown under the head “investment” in the respective balance-sheets. It was only in the balance-sheet for the year ending September 30, 1952, that the assessee had shown investments under two parts, namely, (i) investments held as stock-in-trade and, (ii) investments held as investments, and the Tribunal referred to the resolution of the board of directors dated August 27, 1952, and observed that it was only under that resolution and in pursuance thereof that the assessee had shown part of its investment in shares as its stock-in-trade. The Tribunal remarked that the loss claimed arose on the sale of shares purchased before August 27, 1952, and that the resolution approving these purchases specifically spoke of the purchases as on account of investment. The Tribunal further found that negotiations for the sale of the shares had been finalised on June 12, 1952, when the assessee was aware of its position regarding loss on the sale of these shares. The resolution of August 27, 1952, describing the shares, which had been acquired till then, as stock-in-trade was deliberately passed in order to prepare a case for the claim for the loss. The Tribunal agreed with the Appellate Assistant Commissioner that the purchase of the shares, on the sale of which the loss occurred, had been originally made as capital investment and it was only at the end of August, 1952, when the assessee had already incurred huge losses on the sale of these shares, that the assessee thought of recording the resolution treating those shares as stock-in-trade. The Tribunal was not impressed with the assessee's contention that the magnitude and frequency of the purchases and sales as also the short interval between transactions indicated that the purchases and sales were made under a scheme of profit-making. The Tribunal ultimately held that there was ample evidence on record to establish that the shares which were disposed of during the accounting period were acquired earlier as a measure of investment and that they were not purchased in the course of the assessee's business as a dealer in shares. The Tribunal accordingly upheld the disallowance of the claim for loss by the authorities below.

6. At the instance of the assessee the Tribunal referred the following two questions of law to this court;

“(1) Whether, on the facts and in the circumstances of the case, the proceedings under section 34(1)(b) of the Indian Income-tax Act, 1922, were validly initiated and the assessment made pursuant to the said proceedings was legal and valid?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss of Rs. 5,14,295, on the sale of shares did not arise to the assessee from a share dealing business but was a loss on realisation of investment?”

7. Mr. D. Pal, learned counsel appearing for the assessee, drew our attention to the provisions of section 34(1)(b) as it stood at the relevant time and argued that the words “may proceed to assess or reassess such income” referred to the income which the Income-tax Officer had reason to believe to have escaped assessment. He did not dispute that the assessment was validly reopened under section 34(1)(b) in order to assess the deemed dividend income of the assessee consequent on the order under section 23A. His submission was that in such a proceeding for reassessment, the Income-tax Officer could not consider other items of income which had also, in his opinion, escaped assessment. If the Income-tax Officer had reason to believe that other items of income had also escaped assessment, he should have taken separate proceedings under section 34 to reassess such income. Mr. Pal argued that if a notice was issued under section 34(1)(a) in respect of an escapement of income due to the omission or failure of the assessee to disclose such income and if in the course of the reassessment proceeding the Income-tax Officer came across other items which he considered had escaped assessment, though there had been no omission or failure on the part of the assessee to disclose such income, the Income-tax Officer would have no jurisdiction to reassess such income in the same proceedings. It was further argued that reassessment proceedings under section 34 had to be initiated within a certain time-limit and, if the Income-tax Officer proceeds to consider other items of escaped income for which he could not have initiated separate proceedings under section 34, the assessee's substantial rights would be affected. He also submitted that the Punjab High Court in Jagan Nath Maheshwary's case, which had been relied on by the Tribunal, had not considered these aspects and the decision required reconsideration.

8. It was next contended by Mr. Pal that, even if it be held that the proceeding under section 34(1)(b) was rightly initiated, there was no fresh information in the possession of the Income-tax Officer in consequence of which he could have any reason to believe that any income chargeable to tax had escaped assessment. At the time of the original assessment the assessee had produced its books of account before the Income-tax Officer and had furnished all information called for and on the scrutiny of such accounts and consideration of the information supplied, the Income-tax Officer had accepted the assessee's claim for loss on the sale of the shares as a trading loss. The successor Income-tax Officer had taken a different view in his assessment order for the subsequent year 1954-55 and following that view had disallowed the loss as not being a trading loss in the reassessment proceedings for this year. A mere change of opinion on the part of the Income-tax Officer could not be said to be information received by him. Such information must come from an external source. He referred us to the decision of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax [1959] 35 I.T.R 1; [1959] Supp. 1 S.C.R 10. and submitted that “information” in section 34(1)(b) would include factual information or information as to the true and correct state of the law. Mr. Pal submitted that in this case the Income-tax Officer had no subsequent information either as to any new facts or any decision of an appellate authority or an appellate court, and his own opinion in the assessment proceedings for a subsequent year could not constitute such information. Mr. Pal referred to the decision of the Madhya Pradesh High Court in Ram Kishan Oil Mills v. Commissioner Of Income-Tax, U.P where it has been observed that if the predecessor of the Income-tax Officer did not apply his mind to a question and his successor did, that did not mean that the successor Income-tax Officer came into possession of information justifying the reopening of an assessment under section 34(1)(b). It was therefore submitted that the disallowance of the claim for loss in the reassessment proceeding was neither legal nor valid and the first question should be answered in favour of the assessee.

9. Mr. Gouri Mitter, learned counsel appearing for the Commissioner, submitted that, apart from the Punjab High Court decision relied on by the Tribunal, there are two decisions of the Madras High Court which have held that once an assessment is reopened, any other item of income which had escaped could be brought to tax. He argued that the interpretation of the relevant words of section 34(1)(b) by the Punjab High Court was the only logical and grammatical construction that could be put on the words “such income”. In Jagan Nath Maheshwary's case the Punjab High Court had observed that the word “such” occurring in section 34 had to be attributed to the last antecedent, namely, the escaped or the under-assessed income, profits and gains without in any way further linking it with any particular escapement that was discovered in consequence of definite information. In Modern Theatres Ltd. v. Commissioner Of Income-Tax, Madras. [1965] 55 I.T.R 683. the Madras High Court at page 686 observed as follows:

“In any event, it seems to us that when the assessment of an assessee is reopened under section 34(1)(a), the Income-tax Officer is not limited to any specific allegations of suppression mentioned in the notice. The entire assessment is liable to be reopened, and if on such re-examination it is seen that, by reason of the failure of the assessee to disclose fully and truly all material facts, any other sums had also escaped assessment, it is within the jurisdiction of the Income-tax Officer to include them as well.”

10. Mr. Mitter further submitted that it was not correct to say that the Income-tax Officer's finding that the assessee's dealings in shares during the accounting year did not amount to normal trading activities was a mere change of opinion. The following facts which came to the knowledge of the Income-tax Officer during the assessment proceedings for 1954-55, were not disclosed at the time of the original assessment for 1953-54, namely,

(1) that according to the minutes of the meetings of the board of directors, the shares were purchased as investments;

(2) that the shares were shown as investments in the balance-sheet of the earlier years;

(3) that the shares were purchased with money borrowed from an allied concern and not from banks;

(4) that the sale vouchers of the assessee showed the sales as sales of investments;

(5) that the shares were acquired from and ultimately went back to the members of the Dalmia or Jain families or to companies associated with them.

11. The Tribunal, in this case, has observed that the additional information came into the Income-tax Officer's possession in the course of the assessment for the subsequent year which led him to believe that income had escaped assessment. Mr. Mitter referred us to the following observations of the Madras High Court in Family of V.A.M Sankaralinga Nadar v. Commissioner of Income-tax :

“It is now well settled that an action under section 34 of the Act cannot be justified on the ground of a mere change of opinion regarding chargeability of income on the part of the reassessing officer different from his own previous opinion or from that of his predecessor in office. There can be no doubt of the soundness of this principle of law as otherwise the assessee might become the victim of the freaks of changes of opinions of the officers from time to time. But income which escapes assessment as a result of the lack of vigilance of the Income-tax Officer or due to inadvertance or negligence or the perfunctory performance of his duties without due care and caution, can well be within the ambit of section 34(1)(b) provided the requirements of that section are satisfied………The assessment proceedings of the year 1951-52 relating to Muthumaniratnam gave sufficient information to the officer to engender the belief that the business income of the family, of the year 1950-51, had escaped assessment. In our opinion, section 34 of the Act was rightly invoked by the Income-tax Officer and the proceedings cannot be challenged as being in excess of his jurisdiction.”

12. Mr. Mitter pointed out that in the above case, the assessment proceedings of the subsequent year were held to have given sufficient information to the Income-tax Officer for his action under section 34. Mr. Mitter submitted that both the contentions of Mr. Pal must fail and the first question must be answered against the assessee.

13. The relevant provisions of section 34 as applicable to the assessment year under consideration are as follows:

“34. (1) If—

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been underassessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,

he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.”

14. An argument, similar to the one made before us by Mr. Pal, was also advanced before the Punjab High Court in Jagan Nath Maheshwary's case , namely, that “such income” referred not to the earlier escaped income but to that part of it only with respect to which the Income-tax Officer had definite information in consequence of which he had discovered the escapement. That High Court had no difficulty in repelling the argument. It held that either on the basis of grammar, logic or natural and reasonable construction, the word “such”, as used in that context qualified “income, profits or gains” which had escaped assessment; it did not proceed further to qualify or particularise any portion of the escaped income, or extent of its discovery, or the exact nature of the information. We are in complete agreement with the view expressed by the learned judges of the Punjab High Court, particularly, with their observation at page 431 that:

“In its grammatical usage, and in its natural and ordinary sense, the word ‘such’ is understood to refer to the last antecedent, unless the meaning of the sentence thereby be impaired…. The word ‘such’ indicates something just before specified, or spoken of, that is proximately, and not merely previously. It particularises the immediately preceding antecedent, and not everything that has gone before.”

15. Nothing that has been said by Mr. Pal has persuaded us to accept the construction of the words “such income, profits or gains or recompute the loss or depreciation allowance” in section 34 contrary to what is warranted by the rules of English grammar.

16. We also agree with the Tribunal that additional information came into the possession of the Income-tax Officer in the course of the assessment for the subsequent year which led him to believe that excessive loss had been allowed in the original assessment. What these additional facts were had been enumerated by Mr. Mitter in his argument. The Tribunal specifically pointed out that the resolutions of the board of directors approving the purchase of shares as investment and the relative sale vouchers showing the sales as sales of investment were not disclosed to the Income-tax Officer at the time of the original assessment. Even if such information came to the Income-tax Officer in the course of the assessment of a subsequent year, it would constitute information to justify the Income-tax Officer's belief that income had escaped assessment or that excessive loss had been computed. The observations of the Madras High Court in Family of V.A.M Sankaralinga Nadar quoted above supports this view. A recent decision of the Gujarat High Court in Kanji Ranchhod v. Commissioner of Income-tax was brought to our notice. In that case, the Income-tax Officer had initiated reassessment proceedings under section 34(1)(a) to assess a credit entry of Rs. 21,352 which the asseesee had failed to disclose. During the course of reassessment proceedings, the Income-tax Officer found that the entry did not relate to a credit for the year of account and was not taxable in that year. He, however, found another cash credit of Rs. 13,300 which had also not been disclosed and included this amount in the reassessment. The Gujarat High Court held that, as the belief of the Income-tax Officer that income had escaped assessment was based on a particular non-disclosure and as it was subsequently found that no income had escaped assessment for such non-disclosure, the belief of the Income-tax Officer was based on no material and the entire proceedings under section 34 including the reassessment of Rs. 13,300 was invalid. As in the case before us there is no dispute that the reassessment proceedings were validly initiated under section 34(1)(b) to reassess the dividend deemed to have been distributed to the assessee in consequence of an order under section 23A, the ratio of the aforesaid decision is not applicable and we need not consider it further. Thus both the contentions of Mr. Pal fail and the first question must be answered against the assessee.

17. Mr. Pal next argued that the Tribunal was not justified in holding that the loss arising from the sale of shares was not a trading loss but was a loss on realisation of investment. He submitted that as this was a mixed question of fact and law, this court could go into the merits of the Tribunal's findings. Reference was made to the observation of the Supreme Court in G. Venkataswami Naidu & Co. v. Commissioner of Income-tax as appearing in the head notes of the report, to the following effect:

“If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in the case, its correctness or validity is open to challenge in reference proceedings within narrow limits…………….It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence; or that the impugned conclusion drawn from the relevant facts is not rationally possible; and if such a plea is established, the court may consider whether the conclusion is not perverse and should not, therefore, be set aside………… Such conclusions can never be challenged on the ground that they are based on misappreciation of evidence.”

18. Mr. Pal submitted that during the accounting year, the assessee dealt in the shares of 8 companies. He referred to the transactions in respect of the shares of Messrs. Rohtas Industries Ltd. and pointed out that more than 1,76,000 such shares were purchased during the period 18th February, 1952, to 10th June, 1952, and that the entire lot were sold between the 28th June, 1952, and 30th September, 1952, resulting in a loss of Rs. 50,354 and submitted that the magnitude and frequency of the purchases and sales would show that the assessee was dealing in shares. All the shares were purchased and sold at the prevailing market rates and were effected through recognised share brokers. The fact that the assessee had to borrow a large sum of money to purchase the shares would be further evidence that the assessee was dealing in shares. These facts together with the further fact that the assessee was permitted by its articles of association to deal in shares would, in the submission of the learned counsel, lead to the conclusion that the assessee was a dealer in shares. Mr. Pal referred us to the decision of the Supreme Court in Raja Bahadur Viskeshwara Singh v. Commissioner of Income-tax, where it has been held that if, on the evidence which was before the Tribunal, i.e, the substantial nature of the transactions, the manner in which the books had been maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holdings, the Tribunal came to the conclusion that there was material to support the finding that the assessee was dealing in shares as a business, it could not be interfered with by the High Court. A similar view had been taken by this court in Commissioner of Income-tax v. Produce Exchange Corporation Ltd. In Raja Bahadur Kamakhya Narain Singh of Ramgarh v. Commissioner of Income-tax, the Tribunal took into account:

(i) the frequency with which the assessee purchased and sold shares;

(ii) the shortness of the interval between the purchase and the sale in several cases;

(iii) the largeness of the amount of money being reserved by the assessee for this activity; and

(iv) the borrowing by the assessee of nearly five lakhs of rupees for purchase of shares, and held that the assessee was a dealer in shares.

19. On a reference, the Patna High Court held that the Tribunal had material for coming to the conclusion that the assessee was a dealer in shares. It was contended by Mr. Pal that the Tribunal had laid undue stress on the earlier resolution of the assessee's board of directors which described the purchases and sales as those of investments. The earlier misdescription was rectified by the resolution of the 27th August, 1952, which showed that 4,00,000 ordinary shares in Rohtas Industries Ltd. and 70,000 ordinary shares of Sree Krishna Gyanoday Sugar Ltd. purchased were to be held as investment as distinguished from the shares purchased earlier which were held as stock-in-trade. The assessee's balance-sheet as on 30th September, 1952, correctly showed shares worth Rs. 46,44,114 held as stock-in-trade while shares worth Rs. 31,50,000 were shown as held for investment. It was further submitted that from the mere fact that the assessee's board of directors had described these shares as investment, it would not necessarily follow that the shares constituted the assessee's investment. The true nature of the transaction could not be changed by a mere description. It was the substance and not the form of the transactions that had to be considered. For this proposition several decisions including that of the Supreme Court in Delhi Stock Exchange Association Ltd. v. Commissioner of Income-tax, was relied upon. Mr. Pal, however, wanted to argue in the alternative that, assuming that these shares were acquired as investment, the loss arising from the sale of such shares would still be a revenue loss. But it is not permissible for Mr. Pal to advance this argument as it does not arise out of the questions referred to this court.

20. Mr. Gouri Mitter submitted that the assessee was incorporated in 1949 with a share capital of Rs. 50,000. In the next year a substantial sum was borrowed from an allied company and shares were purchased and held as investment. In the year under reference also substantial purchases were made out of the original borrowing and the purchases were, according to the relevant resolutions of the board of directors of the assessee-company, shown as investment. When the time came for setting off the profits earned by the assessee, the resolution of the 27th August, 1952, was passed. As this resolution was contradictory to the previous resolutions, the word “investments” was deleted. Even more important was the fact that when these shares were sold, in the internal sale vouchers of the assessee-company the sales were shown as sales of investments. Mr. Mitter referred us to the order of the Tribunal and pointed out that the Tribunal not only relied on the earlier resolutions of the board of directors but also on the sale vouchers and the further fact that the shares had been shown as investment in the balance-sheets in the earlier years. He also referred to the finding of the Tribunal that the shares in respect of which the loss was claimed had all been purchased prior to the 27th August, 1952, and that the negotiations for the sale of these shares had been finalised on 12th June, 1952, when the assessee was fully aware of its position regarding the loss on the sale of these shares Mr. Mitter submitted that on these facts the Tribunal was justified in holding that the purchase of the shares, on the sale of which the loss occurred, had been originally made as capital investment and that it was only at the end of August, 1952, when the assessee had incurred huge losses, that the assessee's board of directors changed the designation of these shares. The Tribunal had also considered the facts on which Mr. Pal had relied, namely, the magnitude and frequency of these transactions, the short interval between the purchases and sales, the borrowing of funds for the purchase of shares, etc., and came to the conclusion that the loss claimed was not a loss arising from the assessee's business as a dealer in shares. Such a finding could not be challenged as not being justified. Normally, the facts relied on by Mr. Pal, namely:

(1) the volume and frequency of the purchases and sales,

(2) that the shares were purchased and sold at market rates and through recognised share dealers,

(3) borrowing of funds for financing the purchases, and

(4) that the assessee was authorised by its articles of association to deal in shares,

would be relevant material for determining whether an assessee was dealing in shares.

21. If on these materials the Tribunal had come to the conclusion that in this case the loss suffered by the assessee was a trading loss, possibly this court could not interfere with such a finding. But none of these circumstances either singly or collectively are conclusive. The Supreme Court, in Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income-tax, had observed that neither the circumstances that the appellant-company borrowed money at interest to purchase the shares nor the fact that it was a dealer in shares and was authorised by its memorandum of association to deal in shares, was of any effect. Nor could the appellant-company by entering the shares of the mills in its statement of shares in which trading transactions were carried on alter the real character of the acquisition. On a consideration of the various resolutions of the assessee's board of directors approving the purchases of these shares, the treatment of the shares as investment in earlier years, and the relevant sale vouchers, the Tribunal has held that the shares were acquired as investment and were not purchased in the course of the assessee's business as a dealer in shares. The Tribunal had rejected the assessee's contention that the shares constituted its stock-in-trade as shown in the balance-sheet for the relevant accounting year and which was in accordance with the resolution of its board of directors dated the 25th August, 1952, as it was of the opinion that the resolution of the 27th August, 1952, was deliberately passed to convert a capital loss into a trading loss. The Tribunal refused to accept the assessee's explanation that the description of the shares as investments in the earlier resolutions was due to misapprehension which was rectified by the later resolution. The Tribunal has pointed out that even in the assessee's own sale vouchers these shares had been shown as investments and no attempt has been made to rectify these vouchers. Even if the finding of the Tribunal is an inference drawn from primary facts found in this case, and this court is entitled to consider whether such a conclusion was not perverse and should, therefore, be set aside, could it be said that the conclusion arrived at by the Tribunal was not supported by any legal evidence or that such a conclusion was not rationally possible? Mr. Pal objected to the finding of the Income-tax Officer and of the Appellate Assistant Commissioner that the shares purchased were the shares of companies under the control of the Sahu Jain group and that ultimately the vendors and the purchasers were either the members of the Dalmia and Jain families or companies controlled by them. It was pointed out that the Punjab National Bank shares were purchased from Express Newspapers Private Ltd. which had no connection with either the Dalmias or the Jains. Similarly, 10,000 of these shares were sold to Bharatiya Gyanapith which was a public charitable institution. Mr. Pal may very well be right in his contention but the Tribunal has not based its conclusion on the fact that the shares were the shares of controlled companies and that the ultimate vendors and purchasers were the members of the two families or the allied companies. The Tribunal has found the following facts for drawing its conclusion, namely:

(1) that the assessee had treated the shares as its investment in earlier years;

(2) that even in the year of account, the resolutions of the assessee's board of directors approved the purchases of the shares, on the sale of which the loss arose, as investments;

(3) that the sale vouchers showed the sales as sales of investment; and

(4) that the negotiations for the sale of these shares were completed in June and the assessee was aware of the loss arising from such sales and that the resolution of the 27th August, 1952, was an attempt by the assessee to convert a capital loss into a trading loss.

22. On these facts and in the circumstances, we are unable to say that the conclusion arrived at by the Tribunal was perverse in the sense that the conclusion has been arrived at on a view of the facts which could not reasonably be entertained. As the Supreme Court has pointed out in G. Venkataswami Naidu's case such conclusion could never be challenged on the ground that they were based on misappreciation of evidence. In our opinion, therefore, the Tribunal was justified in holding that the loss of Rs. 5,14,295 on the sale of shares was a loss on realisation of investments. The second question also must be answered against the assessee.

23. In the result, both the questions referred are answered in the affirmative. The assessee is to pay the costs of the reference to the Commissioner.

Banerjee, J.:— I agree.

24. Questions answered in the affirmative.