The Judgment of the Court was delivered by

Vaidialingam, J.:— In pursuance of the directions contained in the order dated 17th March, 1953, of the Travancore-Cochin High Court in Income-Tax Reference No. 1 of 1125, the Income-Tax Appellate Tribunal, Madras Bench ‘A’, has referred the following two questions for decision by this court:

“(1) What is the legal implication of the term ‘obsolescence’? Whether the term when applied to machinery will also include all cases of unfitness arising from whatever cause whether it is due to total destruction or supersession by new invention?

(2) Whether the transaction relating to the sale of shares is one involving revenue profit or capital appreciation, especially in the absence of a provision in the memorandum of association of the applicant to carry on trading in buying and selling of shares?”

2. The assessee, the Indian Nut Co. Ltd., Quilon (in liquidation), was a public limited company incorporated in 1937, for carrying on business in cashew-nuts and extraction of oil from cashew-nut and cashew shell. In 1942, the company installed a machinery for the extraction of cashew shell oil at a cost of about Rs. 6,860-4-0. On December 31, 1943, the whole of the said outlay of Rs. 6,860-4-0-was written off as old machinery discarded as obsolete. In its return for the assessment year 1120, for which the “previous year” was the year ended December 31, 1943, the company claimed the whole amount of Rs. 6,860-4-0 as loss from obsolescence. The Deputy Commissioner of Income-Tax, the assessing officer, rejected the claim by his order dated 22-4-1121. According to the Deputy Commissioner, this claim for allowance under section 8(2)(vii) of the Travancore Income-Tax Regulation (Regulation VIII of 1096) was not permissible. The company had erected the plant as an experiment and a new type of machinery, more economical and cheaper than the old one, was constructed andinstalled in 1943. It was in consequence of this that the plant was discarded and that will not be allowable as a claim based on obsolescence. The appeal to the Appellate Assistant Commissioner by the assessee was also without any success. A further appeal to the Tribunal was not also accepted.

3. Similarly, the assessee company purchased 11,991 shares of Rajagiri Rubber Company Ltd., between 1941 and February 1942, at a cost of Rs. 1,07,314-8-0. The company also purchased during the year ended December 31, 1943, 20,000 tea shares in Neela Malai for Rs. 1,00,000 and 1,000 tea shares in Thomcos for Rs. 5,000. Out of the shares of Rajagiri Rubber Co. Ltd., 7,400 shares were sold during the year ended December 31, 1943, for Rs. 1,40,939-7-0, The Deputy Commissioner of Income-Tax, the assessing officer, computed the profit on the said sale of 7,400 Rajagiri shares at Rs. 1,00,340-15-0 and assessed it to tax in the assessment year 1120, for which the “previous year” is the calendar year 1943.

4. On appeal by the assessee, the Appellate Assistant Commissioner rejected the claim of the assessee that the profit from the sale of the aforesaid shares was capital in nature and that the said sales represented only stray transactions, the profit from which was not taxable. The Appellate Assistant Commissioner agreed with the assessing officer and held that the sale was in pursuance of a profit-making scheme of the company. As there were some mistakes committed by the assessing officer in calculating the actual profit from the shares, the Appellate Assistant Commissioner fixed the profits at Rs. 75,176.

5. The assessee appealed to the Tribunal against the orders of the two officers holding this amount taxable as a revenue receipt. The Tribunal negatived the assessee's contention, and confirmed the orders of the Appellate Assistant Commissioner and the Deputy Commissioner of Income-Tax.

6. As the Tribunal rejected the application of the assessee to refer questions of law to this court on these and other matters, the assessee invoked the jurisdiction of the Travancore-Cochin High Court. The learned judges, who heard the application, were of the view that only the questions relating to the claim in respect of the machinery and the liability for tax on the profits made by the sale of shares need be referred to this court. It is in pursuance of this order that the two questions stated above have been referred to this court.

7. The first question that is referred is:

“What is the legal implication of the term obsolescence whether the term when applied to machinery will also include all cases of unfitness arising from whatever cause whether it is due to total destruction or supersession by new invention?”

8. It will be seen from the facts mentioned earlier, that for the assessment year 1120 (accounting period 1943), the company wrote off under the head “machinery” a sum of Rs. 6,860-4-0 as the value of the machinery discarded on its having become obsolete. In the year 1942, the company constructed a plant for the extraction of cashew shell oil, but it was found that a new type of machinery, if constructed, would be very economical and cheaper than the existing plant and accordingly, in the year 1943, a new type of plant was constructed and the old plant was discarded. According to the company, they were entitled to claim allowance for this sum under section 8(2)(vii) of the Travancore Income-Tax Regulation (Regulation VIII of 1096). Section 8, sub-section (1) and sub-section (2) clause (vii) omitting the other clauses, runs as follows:

“8.(1) The tax shall be payable by an assessee under the head ‘Business’ in respect of the profits (or gains) of any business carried on by him.

(2) Such profits (or gains) shall be computed after making the following allowances, namely:

(vii) in respect of any machinery, plant (or furniture) which has been sold or discarded (in consequence of its having become obsolete), the difference between original cost to the assessee of the machinery or plant as reduced by the aggregate of the allowances made in respect of depreciation under clause (vi), and the amount for which the machinery or plant is actually sold, or its scrap value.”

9. The question is whether the company is entitled to claim allowance for the old machinery discarded in 1943, when the new plant was installed.

10. According to the Deputy Commissioner, the assessing officer, the company is not entitled to claim under the head of “obsolescence”. It is also stated by the assessing officer that by his letter dated 25-7-1120, the auditors, who represented the company in the income-tax proceedings, were asked to furnish details regarding the old machinery discarded showing the details under items 1 to 6 mentioned in his letter. The information called for included the original cost, the depreciation allowed up to December 31, 1942, reasons for discarding the machinery and the value realised by sale of scrap value of the asset. The Deputy Commissioner further says that the auditors have not furnished all the particulars called for. He has also stated that the amount claimed as allowance is the value as per the books, and not the balance after deduction of depreciation already allowed on the machinery. In this view, the Deputy Commissioner rejected the assessee's claim in this regard.

11. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the order of the Deputy Commissioner. He has also stated that the auditors were requested by the Deputy Commissioner to furnish the prescribed particulars regarding the machinery which was claimed to have become obsolete and that the company failed to do so. In this connection, the Appellate Assistant Commissioner refers to the sixth annual report of the directors on this point, wherein it was stated as follows:

“Anotherfeature which has been engaging the attention of the company was the extraction of cashew-shell oil from the raw nuts. One plant was installed as an experiment at a very nominal cost but not with much success. Another plant which is reported to admit of definite success is being installed.”

12. From this, the appellate authority drew the inference that the machinery was erected in 1942, as an experiment and that it cannot be claimed as obsolete in 1943. He concludes this point against the assessee on the ground that ‘the new plant was erected not because the old one was uneconomical. The experiment was a failure and hence the unit was dismantled.’

13. Though it was contended by the assessee that the expression “obsolete” includes cases of unfitness arising from whatever cause whether it is due to total destruction or a supersession, or by new invention, the appellate authority did not accept the contention.

14. The Income-Tax Appellate Tribunal disposed of the contention regarding the claim for “obsolescence” under this head as follows:

“The first point relates to the deduction claimed on account of the writing off of the old machinery as having become obsolete. It appears from the report of the directors, that the task of extraction of cashew shell oil from the raw nuts was engaging the attention of the company, that one plant was installed as an experiment, that that experiment proved a failure and that another plant, which was reported to be a definite success, was installed. In our opinion, the claim made on behalf of the company in this respect is unsustainable under law. The plant was installed as an experiment and it proved a failure. It is not like the case of a plant that became obsolete by use or any other method contemplated by the provisions of law. We, therefore, accept the conclusions of the learned Assistant Commissioner in this respect.”

15. From the various orders referred to above, it will be seen that the claim of the assessee under this head was negatived on the ground that the plant was installed only as an experiment. The Appellate Tribunal rejected it on a more specific ground, namely, that the plant was installed as an experiment and it proved a failure and that it is not like the case of a plant that became obsolete by use or any other method contemplated by the provisions of law.

16. Mr. Govindan Nair, learned counsel for the applicant, has contended that the view taken by the Appellate Tribunal is not sustainable in law. According to the learned counsel, the expression “obsolete” includes cases of unfitness from whatever cause, whether it is due to total destruction or supersession by new invention. In this case, it is not the case of the Department that the said machinery was not used for extracting oil. As it was considered to be uneconomical, a new machinery was installed in 1943. The extract quoted from the sixth annual report of the company has been misread by the Tribunal and the word “experiment” has been cut out from its context.

17. On the other hand, Mr. G. Rama Iyer, learned counsel for the revenue, has contended that the Tribunal has found that the machinery installed was only as an experiment. It has also found that to enable an assessee to claim under this head, the machinery must become obsolete by use or any other method contemplated by the provisions of law. In this case, the machinery installed in 1942 cannot be considered to have become obsolete in 1943, by use or any other method contemplated by law. Substitution of the old machinery by a new one will not, according to the learned counsel, make the old machinery obsolete. The learned counsel also contended in the alternative that the assessee will not be entitled to the full allowance claimed by him. Particulars were called for by the Deputy Commissioner regarding the depreciation allowed and the value of the scrap realised and other particulars. Even section 8(2)(vii) of the Regulation under which this claim is made contemplates all these circumstances to be taken into account when allowance is claimed under this head.

18. After hearing learned counsel on both sides on this point, as a matter of law, we do not think that the view of the Appellate Tribunal that a machinery can be considered to have become obsolete only by use or any other method contemplated by the provisions of law, is correct. A similar allowance was given on plant or machinery which had become obsolete under section 10(2)(vii) of the Income-Tax Act (XI of 1922), as it originally stood. In Rathan Singh v. Commissioner of Income-Tax A.I.R 1926 Mad. 462., a Division Bench of the Madras High Court consisting of the Chief Justice and Beasley, J., had to consider the meaning of the expression “obsolete”. No doubt, in that case for a new car, which met with an accident and had to be sold as scrap iron, allowance for the value of the car was claimed on the ground that it had become obsolete under section 10(2)(vii) of the Indian Income-Tax Act (XI of 1922) as it stood then. The learned judges negatived this contention as being contrary to the plain meaning of the language used in the statute and observed at page 462 as follows:

“Obsolete machinery means machinery which though it is able to perform its function, has become in common parlance out of date and performs its function so indifferently or at such a cost that a prudent man instead of continuing to use such machinery, would discard it and install more modern and more labour-saving machines. In our opinion the word obsolete is quite inapplicable to a new car which is only useless for its purposes because it has been broken to pieces in an accident and in our opinion this cannot be allowed as a deduction and we disagree with the learned judge.”

19. The test laid down by the Madras High Court in Rathan Singh v. Commissioner of Income-Tax, has been quoted with approval by a Full Bench of the Calcutta High Court in the decision reported in In the Matter of Shewdayal Jagannath Binjraj2. The learned Chief Justice, Rankin, C.J, who delivered the leading judgment observes at page 600 as follows:

“The statute recognises however that machinery and plant may have to be discarded not because it has come to the end of its working ‘life’ but by reason that newer types of machinery or newer methods have become necessary in the face of competition. Even if it is good of its kind, obsolescence allowance comes into play in such a case …”

20. After making these observations, the learned Chief Justice quotes with approval the passage from the Madras High Court judgment referred to above regarding the meaning of the word “obsolete”.

21. In South Metropolitan Gas Co. v. Dadd 1927 13 Tax Cas. 205., the Commissioners held on the facts that a particular ship, in respect of which allowance was claimed, had not become “obsolete”. Rowlatt, J., of the King's Bench Division, before whom the matter came, confirmed the actual finding of the commissioners that the ship had not become “obsolete”. But the learned judge makes a few observations regarding the meaning of the word “obsolete”. Those observations are at page 211 of the reports and they are as follows:

“This case is not to be taken as deciding that in order to be obsolete a thing must be worn out, nor it is to be taken as deciding that a thing is not obsolete so long as it can be useful to other people in the same business who are less progressive in their methods. That will not do.”

22. The above decisions clearly show that a machinery can become obsolete not only by use and being worn out alone. A machinery can become obsolete by becoming out of date or performing its functions so indifferently that a prudent man would discard it and install more modern and more labour-saving machines. From this it follows that the view of the Tribunal that the machinery has not become obsolete by use and, therefore, no allowance can be given, is certainly not sustainable in law.

23. But the question does not stop here. As contended by Mr. G. Rama Iyer, learned counsel for the Department, the applicant has not furnished the necessary information on the several points asked for by the Deputy Commissioner. Though we answer question No. (1) in the affirmative, we are not inclined to allow the applicant to reopen an assessment proceeding of 1120 on this point, especially when it has not cared to furnish the necessary information called for by the Department.

24. The second question, and the more difficult one, is as to whether the profits earned by the petitioner by the sale of the rubber shares is a transaction relating to the sale of shares involving revenue profit or capital appreciation and whether the applicant could be said to carry on business in buying and selling of shares.

25. Question No. (2) that has been referred to us, is as follows:

The relevant facts necessary for a consideration of this question are briefly as follows:

The company purchased 11,991 Rajagiri rubber shares and they purchased 20,000 shares in the Nilamalai tea and coffee estates for Rs. 1,00,000 and 1,000 shares in Thomcos for Rs. 5,000. During the year of assessment, the company sold away 7,400 Rajagiri shares for Rs. 1,40,939-7-0. According to the Deputy Commissioner the company had made a profit of Rs. 1,00,340-15-0 and that the company was bound to pay tax on the profit made on the ground that it is a revenue income. According to the assessee, these profits represented only capital appreciation of the investments on their resale. The Deputy Commissioner referred to a passage in the sixth annual report of the company which was as follows:

“The policy the company has in view is to invest such profits, also such surplus cash that may be available, in similar investments, so that by this method itself, the company hopes to realise much of the capital that stands reduced.”

26. This passage extracted from the report, according to the Deputy Commissioner, was enough to hold that this was not a case of realisation of “investments”, but the original “investment” themselves were made for the purpose of securing to the company a comfortable margin. He also held that the investments were made in order to get a margin which the managing agents, Messrs. A.V Thomas & Co. Ltd. knew they could get. The Deputy Commissioner also perused the memorandum and articles of association of the company and according to him, clause (3) sub-clauses (g), (o) and (q) of the memorandum of association will show that one of the objects for which the company was formed includes the purchase and sale of shares in general. He also relied upon article 95 of the articles of association about the nature of the transactions that the company was authorised to do. The Deputy Commissioner relied upon a decision of the Patna High Court for holding that the profits from the sale of shares in this case will be liable to tax, This decision relied upon by the officer will be discussed by us later in the judgment.

27. It will be seen that the Deputy Commissioner regarded even the original investment in the rubber shares as having been made with a view to secure to the company a comfortable margin on the shares being resold. He also was of the view that the several clauses in the memorandum of association of the company referred to above, showed that one of the objects of the company was also to trade in purchase and sale of shares in general.

28. At this stage, we may state that it is unnecessary for us to consider whether the view of the Deputy Commissioner that the different clauses in the memorandum of association relied upon by him show that one of the objects of the company was to purchase and sell shares in general. This position taken up by the Deputy Commissioner has been given the go-by by the Appellate Assistant Commissioner and by the Appellate Tribunal. Both the Appellate Assistant Commissioner and the Tribunal have proceeded on the basis that there is no such clause in the memorandum of association of the company. Even the second question that has been referred to us is on the basis that there is no such provision in the memorandum of association of the applicant company. Therefore, we would not deal any further with this view of the Deputy Commissioner based on the provisions in the memorandum of association.

29. The Appellate Assistant Commissioner on appeal accepted a contention on behalf of the assessee that there was a mistake committed by the Deputy Commissioner of Income-Tax in calculating the profits even on the assumption that such profits are taxable. Therefore, the Appellate Assistant Commissioner re-worked the profits and held that under this head only a sum of Rs. 75,176 will be liable to tax.

30. On the question of the said amount being liable to tax, the assessee contended that all the available liquid resources of the company were invested in Rajagiri rubber shares in 1942. The company had sustained loss during the previous years. Therefore, the directors decided to consolidate the capital position of the company and to invest the liquid cash available in good investments so as to ensure a proper and regular return. But strict control was enforced in 1942, regarding rubber and synthetic rubber was also coming into the field. Therefore, the directors thought it wiser to sell a portion of the investment covered by the rubber shares and to invest the sale proceeds on tea shares and the shares of a good bank. It was with this view, that 7,400 Rajagiri shares were sold and it resulted in a profit. It is only a stray transaction and the companj? was not certainly doing any regular buying or selling, or dealing in shares,

31. In meeting this contention the Appellate Assistant Commissioner referred to an extract from the sixth annual report of the company which ran as follows:

“The company is happy in their experience of investing the surplus cash in a sound planting concern. The results of this are encouraging in that apart from good dividends earned on the investment, the company stands to gain considerably by the capital appreciation of these investments, on their resale. The policy the company has in view is to invest such profits and also such surplus cash that may be available, in similar investments, so that by this method itself, the company hopes to realise much of the capital that stands reduced.”

32. The appellate authority was of the view that the assessee “did some business in 1943 with a view to making profits from the purchase and sale of shares; and not with a view to improve the nature of investments as alleged by them now.” Obviously, agreeing with the contention that the object of the company is not to trade in shares as disclosed by the memorandum of association, the Appellate Assistant Commissioner finally held as follows:

“It matters little for purpose of tax, whether profits accrue in virtue of general powers or special powers. The appellants have made a substantial profit by purchase and sale of shares in 1943 (the investment account for 1944 also shows transactions in shares) and the profits arising therefrom are taxable, notwithstanding the fact that they have not been disclosed in the profit and loss account. Profits do not cease to be profits merely because the appellants misname it as ‘capital appreciation’.”

33. On this reasoning, the Appellate Assistant Commissioner rejected the plea of exemption for this amount from taxation.

34. It will be seen that according to the Appellate Assistant Commissioner, the applicants did some business in 1943, with a view to making profits from the purchase and sale of shares and for this conclusion, he relied upon the extract from the sixth annual report referred to earlier. The Income-Tax Appellate Tribunal, by its order dated 2nd Mithunam, 1123, in Income-Tax Appeal No. 79 of 1123, rejected this contention of the assessee as follows:

“The next point relates to the profits from sale of shares. The learned Assistant Commissioner has carefully considered all the aspects of the matter and came to the right conclusion that it is not an allowable claim. The fact that there is no provision in the memorandum or articles for the sale of shares does not make the profit earned out of such sales any the less profit or income, derived by the company. As a matter of fact, the shares were sold and a large sum accrued to the company in the shape of profits. As the learned Assistant Commissioner — observes, the profits do not cease to be profits, merely because the appellants chose to treat them as capital appreciation. For the above reasons, we are unable to accept the contention of the appellants in this respect also.”

35. It will be seen that the Appellate Tribunal was of the view that the Appellate Assistant Commissioner has carefully considered all the aspects of the matter. It will also be seen that the Appellate Tribunal is inclined to agree with the view that there is no provision in the memorandum of association of the company for sale of shares. The Tribunal proceeds on the basis that as a matter of fact, the shares were sold and a large sum accrued to the company in the shape of profits.

36. The question is whether the view of the Tribunal is correct. This again will depend upon the question whether the profits realised by the sale of the Rajagiri shares can be considered to be a profit or gain from any business carried on by the assessee under section 4, clause (iv), read with section 8, clause (1), of the Travancore Income-Tax Regulation (Regulation VIII of 1096) corresponding to section 6 clause (iv) read with section 10 of the Indian Income-Tax Act (XI of 1922).

37. Mr. Govindan Nair, learned counsellor the assessee, contended that the Tribunal has not at all adverted to the question as to whether the company was doing business in shares so as to make profits earned by the sale of shares taxable. The Tribunal proceeds on the basis that if, as a matter of fact, shares were sold and profits realised, such profits are liable to tax. The contention of the assessee was that the company was not doing “business” in shares and it had only invested its capital in the rubber shares for purpose of appreciation of capital assets. When the rubber market was becoming difficult due to war conditions, as a prudent investor, the company changed the nature of its investment by selling a part of its rubber shares and investing in tea, coffee and bank shares. Buying and selling of shares is not a part of the company's business and is only a stray single transaction of a casual type. The profits accruing from a change of investment of capital cannot certainly be liable to tax. He also contended that the Appellate Assistant Commissioner and the Deputy Commissioner have both misread and misunderstood the sixth annual report. The extract quoted by the two officers will clearly show that the company was only making a change of investment. Even if the company had invested in the rubber shares with a view to make a profit, ultimately, that by itself will not make the profits so earned profits accruing from a business. The learned counsel finally contended that the Tribunal has not applied the correct legal principles in considering the question that was argued before him.

38. The learned counsel also contended that the finding of the Appellate Assistant Commissioner that the company did some business in 1943, with a view to making profits, is neither based upon the evidence, nor is it supported by the evidence on record. It is this conclusion arrived at by the Appellate Assistant Commissioner that has been characterised by the Tribunal as having been carefully considered and a right conclusion being arrived at by the Appellate Assistant Commissioner.

39. The learned counsel for the revenue, Mr. G. Rama Iyer, strenuously contended that the points arising for decision on this question are questions of fact on which all the authorities have recorded findings against the petitioner. The question whether an assessee is doing business or not is a pure question of fact and the Appellate Assistant Commissioner has recorded a finding to the effect that the assessee was doing some business in shares in 1943. That is a finding of fact which has also been accepted by the Appellate Tribunal. Such a finding of fact cannot be challenged by the assessee in these proceedings before this court. There was material before the officers from which they could come to a conclusion that the assessee was doing business in shares. It may be that from the same set of facts two conclusions are possible, one favourable to the assessee and one favourable to the Department. In this case, a finding as against the assessee has been recorded. This court will not interfere with a finding of fact so arrived at by the Department on a consideration of the material before it.

40. In this connection, the learned counsel relied upon the decision of the Supreme Court reported in Sree Meenakshi Mills Ltd. v. Commissioner of Income-Tax. After going through the decision we are of the view that the said decision only lays down that findings on questions of fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference, unless it be on the ground that it is not supported by any evidence or that it is perverse. In fact it is also the contention of Mr. Govindan Nair that the finding in this case is not supported by any evidence on record.

41. Mr. Govindan Nair has drawn our attention to another decision of the Supreme Court reported in Oriental Investment Co. Ltd. v. Commissioner Of Income Tax, Bombay. In fact, the point that arose before their Lordships directly was as to whether the assessee before them is a dealer in shares or an investor, from the facts found by the Tribunal, and whether such a question is a question of law or not. In that case the Tribunal held that the company had dealt in investment and properties throughout and the company had also all along in the past asserted that it was a dealer in investments and properties. The Appellate Tribunal declined, when moved under section 66(1) of the Act, to make a reference. The Bombay High Court also declined to direct the Tribunal to state a case when it was moved under section 66(2) on the ground that there was no question of law for being referred. The assessee appealed from the order of the High Court by special leave and the question for consideration for their Lordships was whether any questions of law arose out of the order of the Appellate Tribunal in that case. Their Lordships, if we may say so with respect, have very exhaustively dealt with the entire case law, including Scottish and English cases, and held at page 676 as follows:

“As to what are the characteristics of the business of dealing in shares or that of an investor is a mixed question of fact and law. What is the legal effect of the facts found by the Tribunal and whether as a result the assessee can be termed a dealer or an investor is itself a question of law.”

42. Therefore, in view of the decision of the Supreme Court quoted above, it is idle for Mr. G. Rama Iyer to contend that the question whether the assessee is a dealer or an investor in shares is a question of fact. We may also advert to this decision of the Supreme Court to show that according to their Lordships, merely because the company has within its objects a dealing in investments in shares does not by itself give to it characteristics of a dealer in shares and that if other circumstances are proved, it may be a relevant consideration for the purpose of determining the nature of activities of an assessee. The question as to whether an isolated transaction, like the one that we have before us, can be termed a business, or an adventure in the nature of trade has always agitated the minds of the courts as will be seen from the decisions that have been cited at the Bar.

43. In Radha Debi Jalan v. Commissioner of Income-Tax a Division Bench of the Calcutta High Court had to consider whether profits made by certain ladies by sale of a block of shares was a business income taxable as such. Chakravartti and Das Gupta, JJ., observed at page 182 as follows:

“The question whether the profits derived from an isolated transaction do or do not constitute taxable income is, except in the plainest of cases, always attended with difficulty. It falls to be decided under three provisions of the Indian Income-Tax Act to which reference may be made first.

The primary section is section 10 which provides, to quote only the material portion, that the tax shall be payable by an assessee under the head profits and gains of business … in respect of the profits or gains of any business … carried on by him’. Shortly stated, this section provides for taxation of income derived from business. Section 2(4) of the Act purports to define what business is, but actually does no more than to say that it ‘includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture It will be seen that not only income derived from trade, but income derived from any adventure in the nature of trade is also to be regarded as business income and is therefore taxable under section 10. The matter is carried a little further by section 4(3) of the Act. Section 4, which deals with the total income of an assessee and enumerates the categories to be included or excluded, provides by sub-section (3), for a number of exceptions, one of which is contained in clause (vii) of the sub-section. That clause, read with the opening words of sub-section (3) provides that ‘any receipts not being receipts arising from business which are of a casual and non-recurring nature … shall not be included in the total income of the person receiving them’. This clause provides for the exclusion of receipts of a casual and non-recurring nature, but at the same time provides that if such receipts be receipts from business they will be treated as taxable income. The clause therefore implies that any casual receipt from even an adventure in the nature of trade will be regarded as income and will be assessable to tax. The question before us accordingly is whether the profits made by the ladies from the isolated transaction of sale were, although casual receipts, nevertheless receipts from an adventure in the nature of trade. As already stated, the Tribunal has answered the question in the affirmative.”

44. On page 184 the learned judges further observed as follows:

“It is well settled now that the mere fact that a person purchases a commodity with the intention of reselling it at a profit does not by itself make the transaction of purchase and sale a trade. Such intention, however, is certainly an element to be borne in mind, but is not by itself decisive. As it has been pointed out in certain cases, a man might find some commodity going cheap and might decide to purchase it with no intention of holding it for ever but with the expectation of being able to sell it off at a profit when the commodity appreciates in value, as he expects it will. In such a case there will be no intention to trade. But if someone purchases a commodity with the sole object of turning it over and selling it at a profit, such intention or object, I conceive, will be an indication that the person is trading. Perhaps it will not be incorrect to say that if a person purchases by an isolated transaction some particular commodity merely in the hope and expectation that he may some day be able to sell it at a profit, he cannot be said to be trading …”

45. Finally, the learned judges concluded by holding that the transaction of purchases and sale of the shares by the ladies was not an adventure in the nature of a trade. At page 187 the learned judges observed as follows:

“In ray opinion, the facts relied upon by the Tribunal, individually or taken together, do not furnish any evidence on which it can properly be held that the transaction of purchase and sale of the shares was itself an adventure in the nature of a trade. As I have already stated, the ladies are not share dealers. They have not dealt in shares on any other occasion. That they bought and sold some shares on this occasion and did so together is not of any particular significance, …”

46. In Rajputana Agencies Ltd. v. Commissioner Of Income Tax , the Bombay High Court had again to consider the case of an isolated transaction. No doubt, in that case, the learned judges held that there were materials before the Tribunal to justify the finding that the transaction of purchase and sale in that case was an adventure in the nature of a trade. But some of the observations made by the learned Chief Justice, who delivered the leading judgment, are worth noting. At page 56 of the reports, Chagla, C.J, observed as follows:

“It is not disputed that this is the only transaction which the assessee company has entered into of purchase and sale of shares. Therefore we are dealing with an isolated transaction. We are not dealing with a business carried on by the assessee, but we are dealing with the profits which arise out of a single transaction entered into by the assessee company. The profits which arise out of an isolated transaction may or may not be taxable. They would only be taxable if the isolated transaction is an adventure in the nature of trade. There must be some element of trade attaching to that transaction, there must be some activity or some organisation which one associates with trade or trading. There may be profit made by purchase and sale which would obviously not be in the nature of profit made from an adventure in the nature of trade. A lawyer, for instance, may buy and sell shares investing his income in this transaction. His object may be capital appreciation and he may realise the capital appreciation by the sale of shares. But mere capital appreciation and profits arising out of capital appreciation would not constitute taxable profits because they would not arise out of a transaction which is an adventure in the nature of trade. Or a person may buy an object of art, he may have the intention of selling that object of art if the price of that object goes up, and when he sells it he may make profit. This may not be a case of capital appreciation. It may be a case of casual receipt or casual gain. Neither the one nor the other would be taxable. Therefore when we are dealing with an isolated transaction, what is essential to find is whether the transaction is an adventure in the nature of trade. A continuous business requires more activity and greater organization. A single transaction would not require the same amount of activity or the same nature of organization. But even so, we must find some features of business in the transaction we are dealing with before we can call that transaction an adventure in the nature of trade. In this particular case no question of capital appreciation can possibly arise because no part of the capital of the assessee company was invested in the purchase of these shares, and, what is even more important, these shares never formed part of the capital of the assessee company.”

47. In the case before us, the rubber shares sold formed part of the capital investment and it was also claimed by the company itself to be a capital appreciation when it was sold for a higher price. Therefore, the shares sold always formed part of the capital of the assessee company.

48. The above observations of the Bombay High Court further emphasises that even in the case of an isolated transaction, it would be taxable only if it is an adventure in the nature of trade and that there must be some element of trade attaching to that transaction. As observed by the learned Chief Justice in the Bombay case referred to, at page 57:

“Now, when we turn to the authorities on this aspect of the case on which Mr. Palkhivala has relied, the one fact which clearly emerges is that it is difficult and not desirable either to apply one case to another case where the facts and the circumstances are different …”

49. The leading case that is generally referred to, in considering whether an assessee can be considered to be doing business and whether the income from a particular transaction is an income from business, is the decision of the House of Lords in Leeming v. Jones. In that case, the assessee was a member of a syndicate and that syndicate purchased two options over two rubber estates. The rubber estates were sold ultimately and the syndicate made a profit and paid over to the assessee his share of profit. The question was whether his share of profit was liable to tax as profit arising out of business.

50. The General Commissioners held that the assessee had acquired interest in the property with the sole object of turning it over at a profit and that he had no intention at any time of holding it as an investment. When the matter came before the court, Mr. Justice Rowlatt remanded the matter to the Commissioners to find out whether what they had before them was a concern in the nature of trade. The learned judge pointed out that, all that the Commissioners found was that the property was acquired with the sole object of selling it at a profit. According to the learned judge, that was not sufficient for arriving at a conclusion that the assessee was carrying on a trade. After considering all matters, the learned judge directed the Commissioners to give a finding as to whether the transaction in that case was an adventure in the nature of trade or not. After remand, the Commissioners held that the transaction in question was not a concern in the nature of a trade and this was accepted by the Court of Appeal and by the House of Lords. Lord Buckmaster observed in that case as follows:

“An accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise, its realisation does not make it income.”

51. Again at page 360 Lord Dunedin states:

“The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments, but per se it leads to no conclusion whatever.”

52. Reference may also be made to the decision in Californian Copper Syndicate v. Harris. That was a case of a company formed for acquiring and reselling mining property. After acquiring and working various property, the company resold the whole property to a second company receiving payment in fully paid shares of the latter company and it was held that the difference between the purchase price and the value of the shares was a profit assessable to tax. But the principle has been stated by Lord Justice Clark on page 166:

“It is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrrying out, of a business.” These observations again emphasise that in order to make an income by way of profits out of a sale taxable, it must be an act done in the carrying on, or carrying out, of a business.

53. In Sohan Lal Gupta…Applicant; v. Commissioner Of Income-Tax…Opposite Party., a Division Bench of the Allahabad High Court posed the question as follows at page 790:

“What the Tribunal had really to find out was whether the intention of the assessee at the time of purchasing those 100 shares in 1940 was that he would subsequently sell them at a profit and earn income by that transaction, or whether the assessee's plea was correct to the effect that he had purchased those shares as an investment pure and simple because he was possessed of surplus funds.”

54. According to the learned judges, the question that the Tribunal has to advert to, and consider was whether the plea of the assessee that he had purchased the shares as an investment because he was possessed of surplus funds, is correct or not.

55. In Commissioners of Inland Revenue v. Reinhold, the assessee, a director of a company, carrying on the business of warehousemen, bought four houses in January, 1945, and sold them at a profit in December, 1947. The assessee admitted that he purchased the property with a view to resale and had also instructed his agents to sell whenever a suitable opportunity arose. The assessee contended that the profit obtained on resale was not taxable. The Crown on the other hand contended that the purchase and sale of the property constituted an adventure in the nature of trade and, therefore, the profits were chargeable to income-tax. Lord Russell; in discussing this aspect, observed at page 394 as follows:

“The profit of an isolated transaction by way of purchase and resale at a profit may be taxable as income under Schedule D if the transaction is properly to be regarded as ‘an adventure in the nature of trade’. In each case regard must be had to the character and circumstances of the particular transaction …

The circumstance stressed by the appellants was that the houses purchased by the respondent were bought for sale and that the respondent's agents were instructed to sell whenever a suitable opportunity arose. The Lord Advocate contended that if a person buys anything with a view to sale, that is a transaction in the nature of trade, that the purpose of the acquisition in the mind of the purchaser is all-important and conclusive, and that the nature of the thing purchased and the other surrounding circumstances do not and cannot operate so as to render the transaction other than an adventure in the nature of trade. In my opinion that argument, so formulated, is too absolute and is not supported by the judicial pronouncements on which it was sought to be based. It takes no account of a variety of circumstances which are or may be relevant to the determination of such a question. Among such features adverted to in previous cases reference may be made to such matters as these, viz., whether the article purchased, in kind and in quantity, is capable only of commercial disposal and not of retention as an investment or of use by the purchaser personally, e.g, aeroplane linen, toilet paper, whisky, whether the transaction is in the line of business or trade carried on by the purchaser, whether the purchaser before resale has caused expense to be incurred in making the commodity more readily saleable, e.g, a ship converted before resale into a trawler, whether the transaction is exactly of the kind that takes place in ordinary trade in which the resale requires a number of separate disposals. None of the above-mentioned features is an incident of the transaction under notice in this case. The appellants' submission is that it is the intention of the buyer at the time of purchase which stamps the venture as in the nature of trade, if his intention is to sell, irrespective of what the subject bought may be or of what interval may elapse before sale, and that if and when a sale is made yielding profit that profit is income chargeable to tax. I have had the opportunity of considering the opinion of your Lordship in which that argument has been examined and criticised, and I am in full agreement with the conclusion at which your Lordship has arrived, and with the reasoning by which it is supported.”

56. The observations extracted above only emphasise that a purchase with a view to resale will not by itself make the transaction in the nature of a trade, and, according to Lord Russell, a variety of other circumstances, which are, or may be, relevant to the determination of such a question, have to be taken into account.

57. In Gajalakshmi Ginning Factory v. Commissioner of Income-Tax, Satyanarayana Rao and Rajagopalan, JJ., had to consider the question whether the profit earned by the sale of lands in that case was an income from a business. At page 512, Mr. Justice Satyanarayana Rao, who delivered the leading judgment of the court, observes as follows:

“The sum of Rs. 9,397, in our opinion, must also be treated as a capital receipt and not a revenue receipt. It was claimed by the Department that this amount really represents profits earned by the assessee by carrying on business or at any rate an adventure in the nature of a trade, and, in support of this view, a number of decisions, English and Indian, were cited, in which on a given set of facts one view or the other was held. It is, however, not possible from an examination of these decisions to evolve a satisfactory definition or draw the line of demarcation between a capital receipt and a revenue receipt. As is often the case, each case must be decided on its own facts and no hard and fast rule can be laid down. That is the only ‘principle’ that emerges on an analysis of the decisions cited at the bar. When it is claimed that an income is an income earned by carrying on a business, one has naturally to look into the definition of ‘business’ contained in the Act [vide section 2(4)], where it is defined as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It consists, therefore, really of two parts. The activities of a person constitute either trade, commerce or manufacture or it may be an adventure or concern not exactly amounting to trade, commerce or manufacture but may be something analogous or in the nature of a trade, commerce or manufacture. Now, then, what is trade? Trade has been explained in the Concise Oxford Dictionary as ‘business, especially mechanical or mercantile, employment opposed to profession carried on as means of livelihood or profit. The meaning of ‘commerce’ as given by the same Dictionary is ‘exchange of merchandise, especially on large scale. In ordinary parlance, trade and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume of business which would convert a trade into commerce. But everybody understands the distinction between the two with sufficient vagueness. It cannot be said that the sale of the plots by the assessee is trade or commerce in the ordinary sense of the term. Indeed, it was not claimed by the Department in any stage of these proceedings that the person did in fact carry on trade in sites for the purposes of earning profit. But what was claimed was that the transactions of the assessee in selling these plots were an adventure in the nature of a trade and, therefore, it falls within the definition of ‘business’ and the profit he made is profit which accrued from the business. If a person buys lands with a view to sell them and thereafter carries on certain operations so as to bring greater profit and facilitate the sale of the plots, it can be said, if it is a single transaction, that his activity is an adventure in the nature of trade, for, the essence of a trade, buying and selling for profit, is present in that activity. But if a person buys land with no intention of selling it and after a long interval finds it convenient to sell the land by parcelling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of a trade. He was merely selling and did not, at the time of buying, start with the intention of buying and selling with a view to make profit. The intention must be that even at the time when the property was acquired it was so acquired for the purpose of sale with a view to make profit. In other words, the object of the acquirer was to deal in that commodity, if one may use that expression, as he deals with the goods in the course of an ordinary trade. In the absence of any such intention gatherable from the circumstances of the case, it is difficult, if not impossible, to hold that the activity he carried on was something analogous to a trade and, therefore, the profit he made was not a capital receipt but a revenue receipt.”

58. We may also refer to another decision of the Madras High Court reported in G. Venkataswami Naidu & Co. v. Commissioner of Income-Tax, Rajagopalan and Rajagopala Ayyangar, JJ., had to consider the liability to tax in respect of certain profits made by the assessee by a resale in 1947, of lands purchased in 1941 and 1942. In that case there were several circumstances relied upon by the Tribunal for coming to the conclusion that the transaction amounted to a business in selling of lands. Mr. Justice Rajagopalan, who delivered the leading judgment of the court, observed as follows on page 409:

“The real scope of the question referred to us is, whether there was material on record on which the Tribunal could come to the conclusion that the isolated transaction of purchase and sale, the two being separated by an interval of more than five years, was not an investment as pleaded by the assessee, but was an adventure in the nature of trade. That question, despite the numerous cases cited before us, has to be answered primarily with reference to the facts of this case as found by the Tribunal. The courts in England and in India have consistently refused to evolve a formula of universal application to decide the question, when an isolated transaction of purchase and subsequent sale, with or without a substantial interval between purchase and sale, can be viewed only as an adventure in the nature of trade …”

59. The Tribunal had relied upon six circumstances in the above case to decide against the assessee. It was contended that the assessee, at the time of purchase of lands, had no idea of selling the same later. In dealing with this contention, the learned judge observes at page 411 as follows:

“The case of the assessee was that at the time of purchase of the lands it had no idea of selling it to the mills, and it was only the need of the mills for the land to provide housing for its labourers that made the assessee sell the land to the mills. That contention the Tribunal declined to accept, and it was of the view that the original purchase itself was with a view to sell the lands at a high price to the mills. The lands were adjacent to the mills. While the lands would be very useful to the mills, the assessee had no use and could have had no use for the lands other than to sell the lands to the mills.

It is true that the assessee was not a dealer in real property. Its business was that of managing agent of a textile mill. It was an isolated transaction in lands. There was no similar transaction before or after. The question still remains, whether that isolated transaction was an adventure in the nature of trade.”

60. As the Tribunal had relied upon certain other circumstances also, the learned judges accepted the findings of the Tribunal. But the observations and the question posed by the learned judge extracted above, again emphasise that even isolated transaction must be an adventure in the nature of a trade or business.

61. Though the approach made to the same question differs in the cases referred to above, one principle is quite clear namely, that the profits in order to be taxable must be profits arising out of a business or an adventure in the nature of trade. Unless the transaction of sale and purchase in shares amounts to a business or an adventure in the nature of a trade, the profits arising out of a resale of shares will not be liable to tax.

62. Mr. G. Rama Iyer, learned counsel, relied very strongly on the decision of the Privy Council reported in Punjab Co-operative Bank Ltd. v. Commissioner of Income-Tax and also the decision relied upon by the Deputy Commissioner in this case, namely, the decision of the Patna High Court reported in Dalmia Cement, Ltd. v. Commissioner Of Income-Tax*. We have carefully gone through the decision in both the cases and, in our view, those decisions' do not at all assist us to uphold the contention of the Revenue. Before dealing with the observations relied upon in the Privy Council case, we have to state that the Privy Council had before it a case of a company whose memorandum of association specifically authorised the company in that case to carry on business in securities. Further, in the case before the Privy Council, the finding by the Commissioner of Income-Tax was that the company was purchasing and selling shares and securities as part of the company's business. It was when dealing with a company of that nature that their Lordships of the Privy Council made the following observations at page 644:

“…their Lordships do not wish to give any support to the contention that in order to render taxable profits realised on sales of investments in such a case as that before them it is necessary to establish that the taxpayer has been carrying on what may be called a separate business either of buying or selling investments or of merely realizing them.

The principle to be applied in such a case is now well settled. It was admirably stated in a Scottish case, Californian Copper Syndicate v. Harris, and the statement has been more than once approved both in the House of Lords and in the Judicial Committee: See for example Commissioner of Taxes v. Melbourne Trust Ltd. [1914] A.C 1001 at p. 1010. Some dicta which appear to support the view that it is necessary to prove that the taxpayer has carried on a separate or severable business of buying and selling investments with a view to profit in order to establish that profits made on the sale of investments are taxable, for example, the dicta in the case of Commissioners of Inland Revenue v. Scottish Automobile and General Insurance Co. cannot now be relied on. It is well established, to cite the exact words used in Californian Copper Syndicate v. Harris, ‘that enhanced values obtained from realizations or conversion of securities may be so assessable where what is done is not merely a realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business'.”

63. Even otherwise, the observations extracted above clearly show that their Lordships of the Privy Council were emphasizing upon the carrying on or carrying out of a business.

64. The case relied upon by the Deputy Commissioner and also by the learned counsel for the Revenue is the decision of the Patna High Court in Dalmia Cement, Ltd. v. Commissioner Of Income-Tax*. That again was a case of a company having among its objects the acquisition and dealing in shares which might promote the interest of the company. There was also the finding by the Appellate Tribunal that the company acquired and sold shares of a sister company because it promoted and advanced its own interest as required by the memorandum and articles of association. The learned Judges also emphasised this particular aspect namely, that the company was doing what it was required to do under the memorandum and articles of association and, therefore, they held that what the company did was a business in shares. See page 58.

65. Neither the Patna case nor the decision of the Privy Council will assist the contentions of the Revenue. The decision in both the cases rested mainly on the ground that the purchase and sale of shares was one of the objects of the company before them. There were also findings by the Commissioner in the Privy Council case and the Appellate Tribunal in the Patna case that the company was doing the selling and purchase of shares as a business to further its own prospects, and there were clear findings to the effect that the profits earned were from and out of the business so carried on by the company. It may be a matter for further consideration as to whether the emphasis laid in the Privy Council and Patna cases on the objects contained in the memorandum of association can still be supported in view of the observations of their Lordships of the Supreme Court in the decision reported in Oriental Investment Co. Ltd. v. Commissioner Of Income Tax, Bombay referred to earlier in this judgment. In the Supreme Court case, the Department laid particular emphasis on the fact that the company had one of its object in the memorandum of association namely, dealing in investment in shares. Their Lordships, at page 675, observed as follows:

“Counsel for the assessee relies on the decision of Kishan Prasad's case where this court held that the circumstance whether a transaction is or is not within the powers of the company has no bearing on the nature of the transaction or on the question whether the profits arising therefrom are capital or revenue income and, therefore, it is contended that the Tribunal has relied upon an irrelevant circumstance. Counsel for revenue on the other hand refer to the judgment in Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, where the objects of an incorporated company were held not to be conclusive but relevant for the purpose of determining the nature and scope of its activities. Merely because the company has within its objects the dealing in investment in shares does not give to it the characteristics of a dealer in shares. But if other circumstances are proved it may be a relevant consideration for the purpose of determining the nature of activities of an assessee.”

66. The observations of their Lordships clearly show that the objects of an incorporated company are not conclusive in deciding the matter whether a particular transaction in shares is a business or not. In view of these observations, the stress laid by the Privy Council and the Patna High Court on the memorandum of association requires reconsideration. But it is not necessary for us to consider that aspect in this case, because those two decisions are clearly distinguishable on the facts. But even otherwise, both those decisions emphasize that the profits to be taxable must have accrued from a business carried on in shares.

67. We may also refer to the decision of their Lordships of the Supreme Court reported in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax. No doubt, that was a case where their Lordships had to consider the connotation of the word “business” occurring in the Excess Profits Tax Act (XV of 1940). At page 34 of the reports, their Lordships observed as follows:

“‘Business’ as defined in section 2(5) of the Excess Profits Tax Act includes amongst others, any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. The first part of this definition of a ‘business’ in the Excess Profits Tax Act is the same as the definition of a business in section 2(4) of the Indian Income-Tax Act. Whether a particular activity amounts to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer. On the one hand it has been pointed out by the Judicial Committee in Commissioner of Income-Tax v. Shaw Wallace & Co., that the words used in that definition are no doubt wide but underlying each of them is the fundamental idea of the continuous exercise of an activity. The word ‘business’ connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. On the other hand, a single and isolated transaction has been held to be conceivably capable of falling within the definition of business as being an adventure in the nature of trade provided the transaction bears clear indicia of trade.”

68. Reference may also be made to the latest decision of the Supreme Court reported in Mazagaon Dock Ltd. v. Commissioner of Income-Tax. Their Lordships had to consider the connotation of the word “business” occurring in section 42(2) of the Indian Income-Tax Act. Their Lordships again reiterated the test laid down by their Lordships in the case mentioned earlier. Therefore, it will be seen that the emphasis is again laid that the transaction must bear clear indicia of trade.

69. In several of the cases referred to above, the courts had before them several matters which had been taken into account by the Appellate Tribunal in coming to the conclusion as to whether an assessee was carrying on a business in shares or not. Unfortunately, in this case, the Appellate Tribunal does not give any assistance in this regard. It has merely stated that the Appellate Assistant Commissioner has carefully considered all the aspects of the matter. What the Appellate Assistant Commissioner did was to draw conclusions from the sixth annual report. That was the only material taken into account by the Appellate Assistant Commissioner in coming to the conclusion that the company did business in shares in 1943. That report ultimately says that the investment in shares is only out of capital and is made only for purposes of capital appreciation. No doubt, a statement by an assessee that it is only capital appreciation does not conclude the matter. But the Department will have to take into account all circumstances to find out whether the transaction in this case can be said to be a business in shares. The Tribunal proceeds on the basis that, as a fact, shares were sold and large sums accrued as profits. This by itself, as will be clear from the principles referred to above in the various decisions, will not make the profits as one from a business. All the decisions uniformly emphasize that there must be profit from the business or an adventure in the nature of trade before the profits could be taxed.

70. The Department has not applied the correct principles in deciding the question whether in respect of the single transaction of sale of the rubber shares, the assessee was doing a business or an adventure in the nature of trade in shares as understood in law. The finding of the Appellate Assistant Commissioner and which has been accepted and relied upon by the Tribunal that the assessee company did some business in shares in 1943, is based in our opinion on no evidence in this case. As stated earlier, the only piece of evidence relied upon is the sixth annual report and the statements contained therein do not at all support the conclusions to be drawn in law by the Department as to the nature of the said transaction. Apart from the sixth annual report, there is no other evidence on record and, in fact, no other circumstance has been relied upon by the Appellate Assistant Commissioner of Income-Tax. Further, it will not follow as a matter of law from the report that the company was carrying on business in shares.

71. Therefore, our answer to question No. (2) is that the transaction relating to sale of shares in this case is capital appreciation and not a revenue receipt. Our answer to question No. (1), as already mentioned, is in the affirmative but subject to the directions mentioned in the; earlier portion of the judgment when dealing with that question. Our answer to question No. (2) is that the transaction relating to the sale of shares in this case is not one involving revenue profit, but is only capital appreciation not liable to tax.

72. As the assessee has succeeded substantially, he will be entitled to costs of this reference fixed at Rs. 250.

Reference answered accordingly.