# In Travancore Rubber and 'I ea Company Ltd v. Income-ta.>

- **Citation:** [1961] 3 S.C.R. 287
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** ivat<) Ltd. manuring etc .. of immature rubber trees. That judgKapu
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/in-travancore-rubber-and-i-ea-company-ltd-v-income-ta-1987
- **Pages:** 10

## Headnote

ment will govern this case also. This appeal therefore fail.s and is dismissed wi~h costs in this courL and
the High Court.
Appeal dismissed
RAJA BAHADUR VISHESHWARA SINGH
AND OTHEHS.
v.
COMMISSIONER OE' INCOME-TAX, BIHAR
AN'D ORISSA
(J. L. KA!'UR, M. HIDAYATULLAH and J.C. SHAH, JJ.)
Income Tax-l'urihase and sate of shares and scwrities with
surplus tn.oney-Such transactions, if amount to investment or busi·
ness in shares~Test-Excess sale proceeds-If amou,nt to business
profit or mere accretion to capital-Indian Income-tax Act, 1922 (II
of 1922), s. 66(2).
The appellant used to invest his cash surplus in shares and
securities and maintained an account book called Book No. l
relating thereto. During the period from 1930 to 1941-42 he
purchased a large number of shares and securities which by the
accounting year 1941-42 were of a value Rs. 14·91 lacs. He sold
certain shares and se<;urities of the value of several lacs and
made certain amount of profit on those sales. In 1940 the appellant borrowed a large amount of money from his brother, the
Maharaj a of Darbhanga and opened a new account named account
No. 2 \vhich contained all entries regarding shares purchased
and sold out of the money borrowed from the Maharaja. In the
assessment year 19-14-45 to 1948-49 the profits made by ti)e
(1) [i961] 3 S.C.R. 279.
Decetnbe" z5.
288
SUPREME COURT REPORTS
[1961]
1960
appellant from purchase and sale of shares amounted to several
lacs and the Income-tax Officer held those to be liable to income·
Raja Bahadur
tax as business profits. The Appellate Assistant Commissioner
Visheshwara Singh upheld the assessments but excluded the profits for the years
& Another
1944-45. On appeal by both the ;>arties the Appellate Tribunal
v.
held on the evidence that the appellant was to be regarded as a
Cominissioner of dealer in shares and securities and therefore the profits were
Income-ta<, Bihar assessable to income-tax. The High Court stated the following
& Orissa
two questions under s. 66(2) of the Income-tax Act and answered
them in the affirmative:-
"(r) Whether in the circumstances of the case, there is
material to support the finding of the Appellate Tribunal that
the assessee was a dealer in shares and securities with respect to
each of the aecount and, therefore, liable to be taxed?
(2) Whether having regard to the finding of the Appellate
Tribunal in respect of 1941-42 assessment, it was open to the
Appellate Tribunal in the present case to hold that the profits
and transactions of sale and purchase of shares and securities
amounted to profits of business and so liable to be taxed?"
On appeal by special leave the appellant contended inter alia,
that being a Zamindar the buying and selling of shares was not
his normal activity and he did not carry on any such business
but his purchases and sales were in the nature of investments of
his surplus monies and therefore the excess amounts received
by sales were capital receipts being merely surplus and r;ot
profits.
Held, that on the materials produced and on the facts proved
the appellant mu;t be held to have been rightly assessed. The
principle applicable to such transactions is that when an owner
of an ordinary investment chooses to realise it and obtains a
higher price for it than t.he original price paid by him, the
enhanced price is not a profit assessable to income tax, but where
as in the present case what is done is not merely a realisation or
a change of investment but an act done in what is truly the
carrying on of a business the amour.t recovered as appreciation
will be assessable.
G. Venkataswami Naidu 0- Co. v. The Commissioner of
lncome-ta:c, (1959] Supp. I S.C.R. 464, Oriental Investment Company Ltd. v. The Commissioner of Income-tax, [1958] S.C.R. 49,
Raja Bahadur Kamakshya Narain Singh v. Commissioner of
Income-tax, Bihar and Orissa, (1943) L.R. 70 I.A. 180, discussed.
The substantial nature of the transactions, the manner in
which the books were maintained, the magnitude of the s

## Text

3 S.C.R. SUPREME COURT REPOR'l'S
287
deriving the agricultural income" are used in the latter.
196.0
If anything the words of the former Act are more
.t:
bl
h
d
The Commissiontr
1avoura e to t e respon ent.
,
.
of Ag>icultural
In Travancore Rubber and 'I ea Company Ltd. v.
Income-ta.>
Commissioner of Agricultural Income Tax, Kerala ('),
v.
which was an assessment under the Travancore
The Calva'Y
Cochin Act, we have decided the question of deductiMount Estates
bility of sums expended for purposes of forking,
(P,ivat<) Ltd.
manuring etc .. of immature rubber trees. That judgKapu' J.
ment will govern this case also. This appeal therefore fail.s and is dismissed wi~h costs in this courL and
the High Court.
Appeal dismissed
RAJA BAHADUR VISHESHWARA SINGH
AND OTHEHS.
v.
COMMISSIONER OE' INCOME-TAX, BIHAR
AN'D ORISSA
(J. L. KA!'UR, M. HIDAYATULLAH and J.C. SHAH, JJ.)
Income Tax-l'urihase and sate of shares and scwrities with
surplus tn.oney-Such transactions, if amount to investment or busi·
ness in shares~Test-Excess sale proceeds-If amou,nt to business
profit or mere accretion to capital-Indian Income-tax Act, 1922 (II
of 1922), s. 66(2).
The appellant used to invest his cash surplus in shares and
securities and maintained an account book called Book No. l
relating thereto. During the period from 1930 to 1941-42 he
purchased a large number of shares and securities which by the
accounting year 1941-42 were of a value Rs. 14·91 lacs. He sold
certain shares and se<;urities of the value of several lacs and
made certain amount of profit on those sales. In 1940 the appellant borrowed a large amount of money from his brother, the
Maharaj a of Darbhanga and opened a new account named account
No. 2 \vhich contained all entries regarding shares purchased
and sold out of the money borrowed from the Maharaja. In the
assessment year 19-14-45 to 1948-49 the profits made by ti)e
(1) [i961] 3 S.C.R. 279.
Decetnbe" z5.
288
SUPREME COURT REPORTS
[1961]
1960
appellant from purchase and sale of shares amounted to several
lacs and the Income-tax Officer held those to be liable to income·
Raja Bahadur
tax as business profits. The Appellate Assistant Commissioner
Visheshwara Singh upheld the assessments but excluded the profits for the years
& Another
1944-45. On appeal by both the ;>arties the Appellate Tribunal
v.
held on the evidence that the appellant was to be regarded as a
Cominissioner of dealer in shares and securities and therefore the profits were
Income-ta<, Bihar assessable to income-tax. The High Court stated the following
& Orissa
two questions under s. 66(2) of the Income-tax Act and answered
them in the affirmative:-
"(r) Whether in the circumstances of the case, there is
material to support the finding of the Appellate Tribunal that
the assessee was a dealer in shares and securities with respect to
each of the aecount and, therefore, liable to be taxed?
(2) Whether having regard to the finding of the Appellate
Tribunal in respect of 1941-42 assessment, it was open to the
Appellate Tribunal in the present case to hold that the profits
and transactions of sale and purchase of shares and securities
amounted to profits of business and so liable to be taxed?"
On appeal by special leave the appellant contended inter alia,
that being a Zamindar the buying and selling of shares was not
his normal activity and he did not carry on any such business
but his purchases and sales were in the nature of investments of
his surplus monies and therefore the excess amounts received
by sales were capital receipts being merely surplus and r;ot
profits.
Held, that on the materials produced and on the facts proved
the appellant mu;t be held to have been rightly assessed. The
principle applicable to such transactions is that when an owner
of an ordinary investment chooses to realise it and obtains a
higher price for it than t.he original price paid by him, the
enhanced price is not a profit assessable to income tax, but where
as in the present case what is done is not merely a realisation or
a change of investment but an act done in what is truly the
carrying on of a business the amour.t recovered as appreciation
will be assessable.
G. Venkataswami Naidu 0- Co. v. The Commissioner of
lncome-ta:c, (1959] Supp. I S.C.R. 464, Oriental Investment Company Ltd. v. The Commissioner of Income-tax, [1958] S.C.R. 49,
Raja Bahadur Kamakshya Narain Singh v. Commissioner of
Income-tax, Bihar and Orissa, (1943) L.R. 70 I.A. 180, discussed.
The substantial nature of the transactions, the manner in
which the books were maintained, the magnitude of the shares
purchased and sold and the ratio between the purchases and sales
and the holding justified the Tribunal to come to the conclusion
that the appellant was dealing in shares as business. The High
Court could not interfere with those findings and it rightly
answered the questions in the affirmative.
There is no such thing as res judicata in income-tax matters
3 S.C.R. SUPREME COURT REPORTS
289
and it was quite open to the Appellate Tribunal to give the findIy6o
ing that it did.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos . .. 11aJa Hahad~r
137 to 141 of 1958.
J 1Sh'5hwaraSrnghAppeals by special leave from the judgment and
order dated April 26, 1956 of the Patna High Court in
Misc.Judicial Cases Nos. 362 to 366 of 1955.
A. V. Viswanatha Sastri, S. ](. }1Jajumdar and
I. N. Shroff, for the appelhtnts Nos. 2 to 4 (In all the
appeals).
Harda.yal Hardy and D. Gupta, for the respondent
(In all the appeals).
1960.
December 15.
The Jucjgment of the Court
was delivered by
& Others
v.
Cu111mis~io11er of
J11cv;ne~tax,
B:har ~-- Orissa
KAPUR, J.-The assessee who is the appellant has
Kapur J.
brought these five appeals agltinst the judgment
and order of the High Court of Pa,tna by which it
answered the two questions stated under s. 66(2) of
the Indian Income-tax Act against the appellant and
in fiwour of the Commissioner of Income-tax.
The appellant is the son of the late Malrnraj:tdhirn,ja of Darblurnga and the brother of :the present
l\Iaharaja.
The fo.ther died in 1929 and the appellant
was given by way of maintenance the Estate .of lfajw•gar.
He \ras also given a yearly allowance of
Hs. 30,000 ,,-hich was later raised to Rs. 48,000 .. From
1929, the appellant invested his cash surplus in
shares and securities, the account of which was entered in what is called Account Book No. 1.
From
the yc>tr 1930 onwards up to the year 1941-42 the
appelim1t purchased a ln,rge number of shares and
securities which by the accountir.g year 1941-42 were
of the value of Rs. 14'91 lacs. During this period the
appellant sold shares and securities in the accounting years 1936-37 and 1939-40 of the value of 1·48.
lacs and l ·69 lacs respectively. He made certain
amount of profits on these sales but under orders of
the Commissioner of Income-tax in the former case
and of the Income-tax Tribunal in the latter case,
these sums were not assessed to income-tax. In the
37
290
SUPREME COURT REPORTS
[1961J
' 960
accounting years 1942-43 to 1946-47 the appellant
Raja Bahadur purchased and sold some shares and securities. The
Visheshwarn Singh entries in Account No. 1 stood as follows:-
<f>. Others
v.
Comniissioner o/
Income-tax,
Bihar & Or issa
Kapur j.
Year
r350 Fs.
r942-43
r35r _ Fs.
r943-44
r352 Fs.
r944-45
r353 Fs.
1945-46r354 Fs"
1946-47
Total value of
shares & securities
at cost at the
beginning of the
year.
Rs. r f66 lacs
Total cost of
shares and
securities purchased during the
year.
Nil
Rs.
9·98 lacs
Rs. 2·37 lacs.
(4 items)
Total cost of shares
and securities sold
during the year.
Rs. 4·68 lacs
(r3 items)
Rs. 4·r6 lacs
(r2 items)
Rs.
Rs. 3•05 lacs.
8·20 lacs
(2 items) and
other call money.
Rs. 0·69 lacs
(3 items)
Rs. ro·52 lacs
Nil
Rs.
9·50 lacs
Rs. IS 83 lacs.
(9 items)
Rs. ro3 lacs
(3 items)
Rs. 3·39 lacs
(2 items)
and in all these years the appellant made profits which
varied from Rs. 2,56,959 in the accounting year 194243 to Rs. 33,174 in the accounting year 1946-47.
On July 16, 1940, the appellant arranged a.n overdraft with the Mercantile Bank of India and actually
withdrew Rs. 10,000 for the purchase of aha.res.
But
his brother the M:aharaja advanced to him witpout
interest Rs. 10 lacs and thus the overdraft was pa.id
off.
A new Account was opened in the books of the
appellant named No. 2 Investment Account which
contained all entries in regard to shares purchased
a.nd sold from out of the money borrowed from the
M:aharajadhiraj. In this account entries of the different yea.rs were as follows:-
I
3 S.C.R. SUPREME COURT REPORTS
291
Total value of
Total cost of
Total cost of shares
1960
Year.
shares & securities
shares and
and z.ecurities sold
at cost at 'the
securities purduring the year.
Raja Bahadur
beginning of the
chased during the
Visheshwara Singh
year.
year.
.1347 F~
Nil
Rs. 6·05 lacs
Nil
& Others
v.
1939-40
(8 items)
Comniissioner of
1348 Fs.
Rs.
6-05 lacs
Rs. 6·2 r lacs
Rs. r78 lacs
1940-41
(32 items)
(1 item)
1349 Fs.
Rs. 10·47 l,acs
Nil
Nil
1941-42
Rs. o 24 lacs
Rs. y6o I
1350 Fs.
Rs. 10·55 lacs
(I item)
lacs
i
(Darbhanga
(z items) I
1942-43
I
Sugar)
I
Rs. 2·29 lacs
Rs. 3·60 I
1351 Fs.
Rs. rso lacs
(I item)
lacs
I
1943-44
(Darbhanga
(9 items) 1
Sugar)
I
1352 Fs~
Rs. 6· 49 lacs
Nil
Rs. r25 I Under
1944-45
lacs
> Ap-
(3 items) I peal.
Rs. 9·65 lacs Rs. 0·30
I
I
1353 Fs.
Rs. 5·23 lacs
(1 item)
lacs
I
1945-46
(Port Trust
(1 item)
I
I
Deb.)
I
1354 Fs.
Rs. II ·04 lacs Rs. 9·65
I
1946-47
I<s. 14·60 lacs
(5 items)
lacs I
(1 item)
I
(Port Trust !
Deb.)
j
The High Court divided the transactions of the
appellant into three periods, i.e., assessment years
1930-31 to 1940-41, 1941-42 to 1943-44 and 1944-45 to
1948-49. In the first period as the statement of account shows two sales were effected in which there
was a profit which the appellant claimed as appreciation of capital. Both those sums were held by the
Income-tax authorities in the one case and the Income-tax Appellate Tribunal in the other to be
exempt from assessment as being conversion of investments. Similarly during the second period also the
sum of Rs. 39,325 for the assessment year 1942-43
Incon1e-tax,
Bihar & Orissa
Kapur ].
292
SUPREME COURT REPOR.TS
[1961]
'96"
was held not to be taxable. Thus in the second
Raja Bahadur period the a.ssessee ~as he!d n~t to be carrying on
Visheshwara Singh any trade. In the third per10d, 1.e., the assessment
& 0,1,,rs
years 1944-45 to 1948-49 the profits made by the
v.
appellant from purchase and sale of shares were as·
Cominissioner of follows:-
lncome-ta~.
Bihar & Orissa
1944-45
Rs. 2,62,000 and odd
Kapur J.
1945-46
Rs. 3,95,000 and odd
1946-47
Rs. 1,57,000 and odd
1947-48
Rs. 1,33,000 and odd
1948-49
Rs.
76,000 and odd
The Income-Tax Officer held these. to be liable to
income-tax as business profits. On appeal the Appellate Assistant Commissioner excluded the profits for
the years 1944-45 and 1945-46 but for the years
1946-4 7 to 1948-49 the assessments were upheld. Both
parties appealed to the Appellate Tribunal. It held on
the evidence that the appellant was to be regarded
as a dealer in shares and securities and therefore the
profits were assessable to income-tax. The appellant
applied for a case to be stated under s. 66(1) of the
Income-tax Act. This application was dismissed but
the High Court made an order under s. 66(2) of the
Income-tax Act to state a case on two questions of
law. The questions were as follows:
(1) Whether in the circumstances of the case,
there is material to support the finding of the
Appellate Tribuna.l that the assessee was a dealer
in shares and securities with respect to each of
the accounts and, therefore, liable to be taxed?
(2) Whether, having regard to the findings of
the Appellate Tribunal in respect of 1941/42 assessment, it was open to the Appellate Tribunal in the
present case to hold that the profits and the transactions of sale and purchase of shares and securities amounted to profits of business and so liable to
be ta,xed?
The High Court held that the facts and circumstances
which the Tribunal took into consideration in arriving at the finding were the material before the
Tribunal to support the finding and the first question
I
r
3 S.C.R. SUPREME COURT REPORTS
293
was answered in the affirmative and therefore against
i96o
the appellant.
I~ re~ard to the seco?-d question .the
Raja Bahadur
answer was agam m the affirmative and agamst Visheshwarn Singh
the appellant who has come to this Court by special
s. Others
leave.
v.
It was argued on behalf of the appellant that he Commissioner of
was not carrying on the business of buying and
Income-ta~,
II.
b
.
h
d
l
.
h
Bihar &- O"ssa
se mg shares ut his pure ases an sa es were m t e
nature of investments of his surplus monies and
Kapur J.
therefore the excess amounts received by sales were
capital receipts being merely surplus and not profits.
It was also submitted that the appellant being a
zamindar the buying and selling of shares was not
his normal activity; that he had a large income and it
was his surplus income which he was investing in buying the shares and whenever he found it profitable he
converted his holdings and securities and for a number
of years from 1931-32 he had been buying shares but
he did not sell them; that the very nature of investments was such that they had to be constantly
changed so that the monies invested may be used to
the best advantage of the investor; and that the
sales were really for the purpose of re-employing the
monies that he had invested to his best advantage.
Counsel for the appellant relied upon certain cases
in support of his submission that the first question
raised was of a wider amplitude and that it had been
erroneously restricted by tha High Court and that its
true import was the same as of the questions which
were raised in the following cases decided by this
Court,
He relied on G. Venkataswami Naidu & Go.
v. The Commissioner of Income-tax (1), Oriental Investment Go., Ltd. v. The Commissioner of Income-tax,
Bombay (2). In the former case the assessee purchased
four plots of land adjacent to the mills of which he
was the Managing Agent. On various dates and about
five years later sold them to the mills in w hinh h.e realized about Rs. 43,000 in excess of his purchase price.
This was treated by the Income-tax authorities as
purchase with a view to sell at a profit. The question
referred was whether there was material for the
(1) [1959] Supp. 1 S.C.R. 640.
<•J [195BJ s.c.R. 49.
294
SUPREME COURT REPORTS
[1961]
r96o
assessment of that amount as income arising from an
adventure in the nature of trade. The High Court
V Rhajah Baha~~' h held that that was the nature of the transaction. On
is es wara . .Jing
,
e,. oehm
appeal this Court held that before the Tribunal could
v.
come to the conclusion that it was an adventure in
Commissioner of the nature of trade, it had to take into consideration
Income-tax,
the legal requirements associated with the concept of
Bihar cS, Orissa
h
d
b ·
d h
t e tra e or usmess an t at such a question was a
Kapur (·
mixed question of law and fact. It was also held that
where a person invests money in land intending to hold
it. and then sells it at a profit it is a case of capital accretion and not profit derived from an adventure, in
the nature of trade but if a purchase is made solely
and exclusively with the intention to resell it at profit
and the purchaser never had any intention to hold the
property for himself there would be a strong presumption that the transaction is in the nature of
trade but that was also a rebuttable presumption.
The purchase in the absence of any rebutting evidence was held to fall in the latter category, i.e., adventure in the nature of trade. In the Oriental Investment case (1) the assessee was an investment company.
It had purchased certain shares and sold them and
qua those shares it claimed to be treated as an investor and not a dealer on the ground that it did not
carry on any business in the purchase and sale of
shares. The assessee's applications for reference to
the High Court were rejected on the ground that no
question of law arose out of the order of the Tribunal.
It was held that the question whether the assessee's
business amounted to dealing in shares and in properties or was merely an investment was a mixed
question of Jaw and fact and the legal effect of the
facts found was a question of law and this Court
ordered the case to be stated on two questions that it
framed. One of the questions was similar to the first
question in the present case but tile second question
was a wider one, i.e., whether the profits and losses
arising from the sale of shares etc. could be taxed as
'
business profits.
The question which the High Coqrt had to answer
(I) [1958] S.C.R. 49.
3 s.c.R. SUPREME COURT REPORTS
295
in the present case was a narrow one and the answer
'960
t~ that.on the m.ateri~l before the ~ourt was r~ghtl,v Raja Bahadur
given m the affirmative. But even if the quest10n 1s Vis/,;shwa.a Singh
taken to be wider in amplitude, on the materials
& Others
produced and on the facts proved the appellant must
v.
be held to have been rightly assessed. Counsel for the Commission" of
appellant argued that the amounts received by him in
Income.tax,
Bihar 1§. Orissa
the accounting years were in the nature of capital
accretions and therefore not assessable. In support,
Kapur J.
Counsel for the appellant relied on the following
cases:-Raja Bahadur Kamakshya Nar-ain Singh v. The
Commissioner of Income-Tax, Bihar & Orissa (') where
Lord Wright observed that profits r.ealised by the sale
of shares may be capital if the seller is an ordinary
investor changing his securities but in some instances
it may be income if the seller of the shares ia an investment company or an insurance company. The
other cases relied upon were Californian Copper Syndicate Limited v. Harris ('); Cooper v. Stubbs (');
Leeming v. Jones(') and Edwards v. Bairstow &
Harrison(').
It is not necessary to discuss these
cases because the principle applicable to such transactions is that when an owner of an ordinary investment
chooses to realise it and obtains a higher price for it
than he originally acquired it at, the enhanced price
is not a profit assessable to income tax but where as
in the present case what is done is not merely a realisation or a change of investment but an act done in
what is truly the carrying on of a business the
amount recovered as appreciation will be assessable.
In July 1948 the appellant had borrowed, though
without interest, a larg(l sum of money to the extent
of about Rs. 10,00,000, no doubt from his brother.
He started a new account calling it No. 2 Investment
Account. For the .asse~sment years under appeal
· shares purchased and sold were of a large magnitude
ranging from Rs. 4·68 lacs to Rs. 69 thousands in
what is called the first account and from Rs. 9,64,000
or even if Port Trust Debentures are excluded
(I) [1943] L.R.70 I.A. 180, 194.
(2) [1904] 5 T.C. 159.
(3) [1925J 10 T.C. 29, 57.
(<) [1930] 15 T.C. 333
(5) [19'5] 36 T.C. •O'f·
296
SUP]:tEME COURT REPORTS
[1961]
'960
Rs. 3,60,000 to Rs. 30,000. The magnitude and the
Raja Bahadur
freq~ency and th~ rii.tio of sales to. purchases and total
Visheshw"'a Singh holdrngs was evidence from wh10h the Income-tax
& others
Appellate Tribunal could come to the conclusion as
. v:
to the true nature of the activities of the appellant..
Commissioner of The principle which is applicable to the present case
Income-tax.
is what we have said aliove .and on the evidence which
Bihar 6- Orissa was before the Tribunal, i.e., the substantial nature of
Kapur ;.
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, if on this material the
Tribunal came to the conclusion that there was matetrial to support the finding that the appellant was
dealing in shares as a business, it could not be interfered with by the High Court and in our opinion it
rightly answered the question against the appellant
in the affirmative.
The second question is wholly unsubstantial. There
is no such thing as res judicata in income-tax matters.
The Appellate Tribunal has placed in a tabulated
form the activities of the appellant showing the buying and selling and the magnitude of holdings and it
cannot be said therefore that it was not op,en tu the
Appellate Tribunal to give the finding that it did.
In our opinion the High Court rightly held against
the appellant. The appeals are therefore dismissed
with costs. One hearing fee in this Court.
Appeals dismissed.