# DALHOUSIE INVESTMENT TRUST COMPANY LTD v. COMMISSIONER OF INCOME·TAX (CENTRAL), CALCUTTA

- **Citation:** [1968] 2 S.C.R. 353
- **Court:** Supreme Court of India
- **Decided:** 1967-11-22
- **Case number:** Civil Appeals Nos. 581 to 584 of 1966
- **Bench:** J. C. Shah, V. Ramaswami, V. Bhagrava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dalhousie-investment-trust-company-ltd-v-commissioner-of-income-tax-central-4209
- **Pages:** 7

## Headnote

Indian Income"'ax A.ct, 1922 (11 of 1922), s. 2(4) Purchase and sale
of share when. amounts to adventure in the nature of Trade-Previous
findillgs of Tribunal whether blndillg in subsequent assessment years.
The principal activity of the assessee was investment of its capitals in
shares and stocks. It changed its investments by sale of its shares and
stocks from time to time. The assessee's income was primarily derived
from dividends on shares and interest derived by it on the Investments.
The assessee purchased the shares of a company V>hen their prices were
falling by taking loan at lnterest and the return on investment was not
at all substanti"1. The assessee's explanation that the shares were, in fact,
being held as investment and \\'-ere sold simply because the. co111:rol of the
company went out of the hands of the Directors of the ass-esscc, was not
accepted by the Tribunal.
HELD : The incJme derived by the
1 asscssce from tlie sale of these
-shares was revenue n~ceipt and as such taxable under the lncon1c·tax Act.
From the evidence about the course of dealings and conduct of the
as.sessee, the conclusion followed that the purchases of the shares were
not for the purf)ose of keeping controlling interest in that company, or
for investment, but shares were being pμrchased and sold for earning
profit, so that the transactions were an adventure in the nature of trade in
these shares. [359 A-Bl
. '•
The acceptance by the Reveoue, in the earlier.years, that the acquisi·c
tions and sales of shares were in the nature of invesunents, was not binding in the proceeding for assessment during subsequent years. [356 B-C]
Bengal and Assam Investors Ltd. v.
Commissioner of Inco1ne-tax,
West Bengdl, 59 I.T.R. 547 and Commissioner of Jnc.on1e.tax
v.
Bai Shrinbai K. Kooka, 46 I. T.R. 86, referred to.
Ram Narain Sons (P) Ltd. \', Commissioner of Income-tax, Bombay,
41 l.T.R. 534, held inapplicable.

## Text

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DALHOUSIE INVESTMENT TRUST COMPANY LTD.
v.
COMMISSIONER OF INCOME·TAX (CENTRAL),
CALCUTTA
November 22, 1967
[J. C. SHAH, V. RAMASWAMI AND V. BHAGRAVA, JJ.]
Indian Income"'ax A.ct, 1922 (11 of 1922), s. 2(4) Purchase and sale
of share when. amounts to adventure in the nature of Trade-Previous
findillgs of Tribunal whether blndillg in subsequent assessment years.
The principal activity of the assessee was investment of its capitals in
shares and stocks. It changed its investments by sale of its shares and
stocks from time to time. The assessee's income was primarily derived
from dividends on shares and interest derived by it on the Investments.
The assessee purchased the shares of a company V>hen their prices were
falling by taking loan at lnterest and the return on investment was not
at all substanti"1. The assessee's explanation that the shares were, in fact,
being held as investment and \\'-ere sold simply because the. co111:rol of the
company went out of the hands of the Directors of the ass-esscc, was not
accepted by the Tribunal.
HELD : The incJme derived by the
1 asscssce from tlie sale of these
-shares was revenue n~ceipt and as such taxable under the lncon1c·tax Act.
From the evidence about the course of dealings and conduct of the
as.sessee, the conclusion followed that the purchases of the shares were
not for the purf)ose of keeping controlling interest in that company, or
for investment, but shares were being pμrchased and sold for earning
profit, so that the transactions were an adventure in the nature of trade in
these shares. [359 A-Bl
. '•
The acceptance by the Reveoue, in the earlier.years, that the acquisi·c
tions and sales of shares were in the nature of invesunents, was not binding in the proceeding for assessment during subsequent years. [356 B-C]
Bengal and Assam Investors Ltd. v.
Commissioner of Inco1ne-tax,
West Bengdl, 59 I.T.R. 547 and Commissioner of Jnc.on1e.tax
v.
Bai Shrinbai K. Kooka, 46 I. T.R. 86, referred to.
Ram Narain Sons (P) Ltd. \', Commissioner of Income-tax, Bombay,
41 l.T.R. 534, held inapplicable.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 581 to
584 of 1966.
Appeals by special leave from the judgment and order dated
March 26, 1964 of the Calclltta
High Court in J ncome-tax
Reference No. 6 of 1961.
A. K. Sen, Bishan Narain, R. K. Chaudhuri and E. P. MaheshH
wari, for the appellant (in a]J the appeals).
Niren De, Solicitor-General, T. A. Ramachandran,
R.
N.
Sa~hthey and S. P. Nayar, for the respondent (in all the appeals)
354
SUPRBME COURT REPORTS
(1968] 2 S.C.R.
The Judgment of the Court was delivered by
Bhargava, J.
These appeals came up before this Courl'on the
17th April, I 967, when an order of remand was made by
this
Court, asking the Income-tax Appellate Tribunal to submit a further statement of the case.
The question that has come up for
consideration is :-
"Whether on the facts and circumstances of the case, the
surplus derived by the assessee in the sale of its shares
and securities in the relevant previous years was a revenue receipt and as such taxable under the Income Tax
Act."
The facts and circumstances under which the question was referred
by the Tribunal for the opinion of the High Court are mentioned
in that order of remand and need not be repeated.
In the order of remand, it was pointed out that it was not
pos.sible to find out from the statement of the case whether tlte
Tribunal accepted tl1e explanation of the assessee that, in the previous year relevant to the assessment yqr 1953-54, the control
of McLeod & Co. Ltd. went out of the hands of the Directors of
the assessee and it was for thi<; reason that the assessee sold the
shares of McLeod & Co. It was also pointed out further that the
'Yribunal had not stated what was the object of the assessce in buying 6,900 ordinary shares of McLeod & Co. It appeared from the
order of the Income-tax Officer that these shares were purchased
in a number of lots from the year I 948 to I 950, and it was also
not stated as to what was the object in buying other securities, and
why did the assessee confine its activities mostly to th.; shares of
McLeod & Co. Ltd. and the companies managc:P by McLeod &
Co. Ltd. . It was in the light of these omissions that the Tribunal
was asked to send a supplementary statement. That supplementary statement has now been received
and the answer to the
questiorr has to be given on the basis of the facts contained in the
original statement of the case as well as this supplementary statement.
The relevant facts which emerge out of these statements of the
case are that the principal activity of the assessee was investment
of its capital in shares and stocks. It changed it• investments by
sale of its shares and stocks from time to time.
The income of
the Company was primari\y derived from dividends on shares and
interest received by it on the investments.
These activities were
covered by Clauses (I), (3) and ( 4) of the Memorandum of
Association. The activity mentioned as the object in Clause ( 2)
is :
"to
acquire,
bold,
sell and transfer shares, stocks,
Debentures, Debenture Stocks, Bond, obligations and
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DALHOUSIE ')'RUST v. C.I.T. (Bhargava. /.)
355
securities issued or· guaran te::d by any company constituted or carrying qn business in British India and in the
United Kingdom or in any colony, or dependency or
possession thereof or in any foreign country and Debenture Stocks, Bonds, obligations and securities, issued or
guaranteed by any Government, Sovereign, Ruler, Commissioners, public body or authority supreme, Municipal
Local or otherwise whether at home or abroad."
In the supplementary sta!ement, the Tribunal has recorded the
finding that, in its opinion, the purchases and sales of the shares
in questio)l were in pursuit of this clal!l'e (2) in the Memorandum
of Association. The Tribunal has further stated that the assessee
had not placed any evidence as to the object behind the acquisition of the shares of McLeod & Co. Ltd and the shares of companies managed by McLeod & Co. Ltd., nor had the Incomet;u Officer ascertained the object behind such acquisitions. The
Tribunal was also unatife to find out why the assessee had more or
less confined its activities mostly to the shares of McLeod & Co.
Ltd and the companies managed by McLeod & Co. Ltd. The
facts proved showed that, in the account year relevant to the
assessment year in question, 21,046 shares were . held by the
Kanoria group, including 6,977 shares in McLeod&. Co. Ltd. held
by the assessee. Mr. C. L. Kanoria resigned his office as Director
of McLeod & Co. Ltd. on 17th March, 1952, and the approval of
the Government to his resignation was given by the Central
Government on
16th October, 1952. Thereafter, . Sri C. L.
Bajoria joined the Directorate of McLeod & Co. Ltd. 6,900 shares
were .sold by the assessee to Sri C. L. Bajoria or his nominees on
27th May, 19?2, at a time when Sri C. L. Kanoria had already
sent in his resignation from the office of DirlJctor, but the resignation had not yet been accepted by the Government. It has also
been found that Sri C. L. Bajoria acquired 12,440 shares ,in all,
including 6,900 shares purchased from the assessee; but there was
no material on the record to prove that his group obtained a controlling interest in McLeod & Co. Ltd. as a result of acquisition of
these shares. As a fact, it was held that after the resignation of
Sri. C. L. Kanoria, Messrs C. L. Bajoria and Baijnat!l Jalan, both
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Of M/s. Soorajmull Nagarmull, became Directors of McLeod &
Co. Ltd; These are the principal £acts on the basis of which it
ha8 to be determined whether the s:i!e of these shares by the assessee resulted in a revenue receipt or in a capital gain.
8
It appears to us that the facts and circumstances in this case
tan lead to no other concluSion,
except that these
shares
were purchased and sold by the assessee with the motive of
earning a profit by such purchases and sales and not with the
object of investing its capital in the5e. shares in order to derive
:156
SUPRl!MI! COURT RBPORTS
[1908] 2 S.C.R.
income from that investment. It is true that the principal busines'
of th.~ assesscc was to invest capital and to derive income from
dividends on shares and interest. on other investments; but lit the
same time. the object contained in the Memorandum of Association of the assessec Company clearly showed that one of the objects was also to deal in shares, stocks, debentures, etc., by acquiring, holding, selling and transferring them. In the years prior to
th.~ assessment year. the ca'e put forward by the assessee that the
various actjuisitions and sales of shares were
in
the nature of
investments was accepted by ~he Department. but such a decision
given in the earlier years is not binding in the
proceedings
for
assessment during subsequent years.
The particular shares now
in question. it appears, were purchased - between
31st March.
1948 and 31st March, 1952.
The earliest purchases in March.
1948 we;e at an average price of Rs. 267-13-0 per share. In the
nex'. two years ended 31st March. 1949 and 31st March, 1950.
the average purchase price was Rs. 201-8-0 and Rs. 182-10-0,
and the last purchase in the year ended 31st March, I 952 was at
the rate of Rs. 128-14-0. On 1st April, 1952, the assesscc's total
holding of shares in McLeod & Co. Ltd. was 6,977 at a total co5t
of Rs.14,29,587-4-0 ou'. of the total holding of shares, including
shares in other companies, of the value of - Rs. 17,58,741-4-0.
Thus, on that date. the holdings in McLeod & Co. Ltd. formed
the major part of the share holdings of the asscssec. It is sign;fic
cant that the shares were purchased during a period when their
marke: pr;cc was continuously falling.
The earliest purchases in
the year ended 31st March, 1948 were at an average price of
Rs. 267-13-0, while in the, last of these three years ended 31st
March 1952, the average price was Rs. 128-14-0.
The largest
block of 4.757 shares was purchased in the ye'!r
ended 31st
March, 1950, when the average price was Rs. 182-10-0. · The
assessment order of the Income-tax Officer abo shows •hat the
shares were not only purchased in a rapidly falling market, but, in
order to make these purchases the assessee
had
taken
loans
amounting to about Rs. 8 lacs at interest varying from 3!% •o
5 % . The dividend being declared was at a very low rate, so that
the return on this investment, after taking into account the intere~t
paid and super-tax to be paid, came to a very small pefC':ntage.
being less than I % . This circumstance that the shares were purchased at a time when their prices were falling and the re).llrn on
investments was not at all substantial while loans had been taken
to purcha$'! these shares strongly points to a conclusion that the
shares could no• have been purchased as an investment to earn
income from dividends and that the purchases of these
shares
were with the object of selling them subsequently at a profit. The
shares were in fact, sold at considerable profit subsequently and
tha• is how the question of charging that profit to tax as revenue
receipt has arisen.
The explanation sought to he l!iven by the
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DALHOUSIE TRUST v. C.l.T. (Bhargava, J.)
357
asFe that the . shares were, in fact, being held as investment
and were sold simply because the control of McLeod & Co. Ltd.
went out of the hands of the Directors of the assessee has not been
proved, according to the supplementa1y statement of the case submitted· by the .Tribunal.
ln fact, the Tribunal was not satisfied
that even the purchasers, viz., the Bajoria group on buying these
shares from the assessee acquired a controllmg interest in McLeod
& Co. Ltd. or in the companies managed by that Company. The
object of the sale as given by the assessee has therefore, remained
unproved, whereas the fact that the purchases of the shares were
m:ide at a time when they were not ell<pected to give a good return
a< investment and were actually sold at a very good profit leads
to the reverse inference that the purchases and . sales of these
shares were an adventure in the nature of trade. Even the sequence
of events does not bear out the contention of the assessee. Sri C_ L.
Kanoria first resigned on 17th March, 1952 and he sold his shares
while his resigna'ion was still pending for approval by the Government.
The sale took place on 27th May 1952, at a time
when the resignation not having received the approval of 1 the
Government. the control of McLeod & Co. Ltd. group of companies was still with the Kanoria group.
The resignation was
accepted on 16th October, 1952, about five months after the sale
· of the shares. .'There iS ·no evidence to show that, as a result of
this sale, the control in the McLeod & Co. group of companies
passed to the Bajoria group though M/s. C. L. Bajoria and Baijnath Jalan did subsequently join the Directorate of McLeod · &
Co. Ltd. On these facts, it is not possible to hold that the Tribunal
was incorrect in recording its conclusion that the sale
of these
shares by the assessee was not the result of control of the McLeod
& Co. Ltd. passing from the hands of Kanoria group to the Bajoria
group.
In fac'.. the Kanoria group was holding a majority of
2 l,046 shares out of 40,000 shares in McLeod & Co. Ltd. even at
the time when these shares· were sold on 27th May, 1952. The
assessee thus having failed to prove the object of the sale of these
shares, the inference that the shares were sold with the sole object
of earning profit 'is justified.
This conclusion is further s'.rengthened by the conduct of the
assessee as found by the Tribunal in subsequent years. In the
year ended 31st March. 1955, the assessee again purchased a
large number of shares of McLeod & Co. Lfd. These purchases were
made between 23rd August, 1954 and 29th September, 1954.
The fii:st purchases were .made af a rate of Rs. 150 /- per share.
and the purchases were continued even in the month of September when the rate rose to nearly Rs. 250/- per share. This-purchase
of shar.es of McLeod & Co. Ltd. in the account year 1954-55,
when there was a rising market and when the control was· no
longer with the Kanoria group and having already passed to the
358
SUPRllMB COURT REPORTS
(1968] 2 S.C.R.
Bajoria group, clearly shows that the Tribunal ·was not wrong ir,
inferring that the purchases of shares of McLeod & Co. Ltd.
were not for the purpose of keeping controlling interest in that
Company or for investment, but that the shares were being
purchased and sold for earning profit, so that the transactions
were an adventure in the
nature of trade in these shares of
McLeod & Co. Ltd.
In this <:onnection, Mr. A. K. Sen. learned counsel for the
appellant drew our attention to the following view
expressed
m
the remand order :-
"We are unable to answer the que<.tion referred
because the mere fact that an
investment company
periodically varies its mvcstments does not necessarily
mean that the pro~:ts resulting from such variation is
taxable under the Income-tax Act. Variation of its investments must amount to dealing in investments before such
profits can be taxed as income under the Income-tax
Act.'"
Reliance was also placed on the ohservations of this Court in
llengal and Anam lnve.1tors Ltd. v. Commissioner of lncom<·-
rax, West Beni:a!('), which were quoted in the remand order and
a re as follows :-
"It seems to us that, on principle before dividends or.
shares can be assessed under section I 0, the assessee.
be it ~n individual or a company or any other entity. must
carry on business in rrspect of s!Jares; that is to say, the
a-;.scsscc must deal in those shares.
It is evident that if
an individual person invests in shares for the pur'pos.z
of earning dividend, he is not carrying on a business.
The only way he can com~ unde. section I 0 is by converting the shares into stock-in-trade, i.e .. by carrying on
the business of dealing in stocks and shares as did the
a~sessc<· in Commissioner of fncome Tax v. ,Ba/ Shirinbai K. Kooka(')".
It was urged that, in this case, the Tribunal has recorded no finding at all that the shares in McLeod & Co. Ltd. which were sold
hy the asses.see were converted by it into stock-in-trade, nor has
it bCen held that the variation of its investments by the assessee
amounted to dealings in investments.
The facts that we found
above show that, so far as the shares of McLeod & Co. Ltd. and
the allied companies which were sold by the assessee
and
the
income from which has been taxed as revenue income are concerned, the assesse-~. in fact. dealt with them as stock-in-trade. It
(I) 59 !.T.R. l47.
(i} 46 J.T.R. 16.
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DALHOUSIE TRUST v. C.I.T. (Bhargava, J.)
35~
is true that in the account books they were never shown as such;
but we have indicated how the evidence and the material in this
case lead to the conclusion that the shares were in fact purchased
even initially not as investments, but for the-purpose of sale at
profit and that they were actually sold with the purpose of earning profit, so that the transactions amounted to an adventure in
the nature of trade.
Learned counsel also referred to the decision of this Court in
Ram Narain Sons (Pr.) Ltd. v Commissioner of Income-tax,
Bombay(') to urge that the principal consideration in determining whether income from sale of shares is revenue
income or
capital gain, is to find out what was the purpose of purchase of
those shares. and, if the purpose was investment, the fact that.
in varying the investment, the sale of those shares resulted in a
profit will not make that profit revenue income. The principle is
perfectly correct, but is not applicable to the case before us on
the finding mentioned by us above that even the initial purchase
of these shares by the assessee was not for the purpose of investment for earning income from dividends, but was with a view to
earn profit by re-sale of those shares.
In these circumstances we hold that the High Court was right
in arriving at the conclusion that, on the facts and circumstances
of the present case, the income derived by the assessee from the
sale of its shares and securities in the relevant pnwious years was
revenue receipt and as such taxable under the Income-tax Act.
The appeals fail and are dismissed with costs. One hearing fee.
Y.P.
Appeals dismissed.
(I) 4t I.T.R. 534.