# '::. NEW ERA AGENCIES (PVT.) LTD., BOMBAY v. COMMISSIONER OF INCOME-TAX, BOMBAY CITY I, BOMBAY

- **Citation:** [1968] 2 S.C.R. 483
- **Court:** Supreme Court of India
- **Decided:** 1967-11-28
- **Case number:** Civil Appeal No. 2462 of 1966
- **Bench:** J. C. Shah. V. Ramaswami, V. Bhargava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/new-era-agencies-pvt-ltd-bombay-v-commissioner-of-income-tax-bombay-city-i-4224
- **Pages:** 9

## Headnote

Indian /ncome..rax Act, 1922--Profit on sale of shares-Whether capital accretion or r'-:"enue receipt.
During the yea.rs 1942 to 1948. the dealings in shares of the assessee
included dealings in shares of Elphinstone Mills and the profit and loss
in the dealings of the Mills was taken. by the assessee to its revenue account.
M was in control of the assessce-company and he a1so purchased the control
and managing agency of the Mills, and in this managing agency company-
. the aSsessec \\'as also a share holder.
From 1949 onwards the assessee
did not sell the shares of the Mills but added to its holding. In 1953, M
sold the entire shares in the Mills with him and under his control including that with the asscssee.
Along with that M got the venclee and the
latter's nominee appointed directors and also got the resignation of the
Managing agency-company from the managi11J>: agency of the Mill.
Out
of the total sale price the assessee received certain amount· which was in
excess of the cosi price of the shares. The assessee did not show the excess amount on the sale of these shares in its profit and loss account but
took it to the capital reserve account and showed it as a capital reserve in
its balance-sheet.
The asses:iee. in appeal, contended that (i) the excess
amount received was a capital accretion on the sale of the shares and did
not represent iflcome from business in shares; and (ii) the excess amount
over and above the market price was pai<I for the controlling interest which
was being transferred along with the shares.
HELD : The appeal must be <!is.missed.
(i) The profit made by the assessee on the sate of the snares was its
business income.
During the years 1943-48 the profits and loss~s
in
· these shares had been treated on the same footing as the profit and losses
in other shares of the assessee. The circumstance that from 1949 onward~
the asses'see had not sold the shares of the Mills. but had added to its
holding, was not in itself sufficient to reach an inference that the assessee
had treated its holding in the shares an investment.
During the years
1949-53 the shares had slumped in price and this may be the ~eason whv
the 3.ssessee did not effect any sales during this period. It ·was not unreasonable to think that the assessee who was a dealer in shares was makin.2
further purchases and accumulating its holding when the market was falling so a.c; to be in a position to sell thte shFres to its advantage when a
suitable opportunity occurred.
Titere was no material on the record to
suggest that the main object of the asscssee in acquiring the shares was to
give support to the Managing A~ents. When the managin~ a~ency was
acquired, there was no need to make anv use of the holding of the assessee
because the assessee at that time had hardly any shares. Subsequent to
the acauisition of the managing a~ency, until it was
relinquished, the
managin~ agency never felt its existence either precarious or in need of
suppert. [488 D-H; 489 B-DJ
484
SUPREME COURT REPORTS
[1968] 2 S.C.R.
Californian Copper Syndicate (Ljmi!ed and Reduced) v.
Harris.
5
Tax Cas. 159, Commissioner of Taxes v. Melbourne Tr~st Ltd.,
[19141
A.C. 1001, Rees Roturbo Development Syndicate Ltd. v. Ducker, 13 Tax
Cas, 366 and Venka1aswa1ni Naidu & Co. v. Colfunissioner of Income-tax,
35 I.T.R. 594, referred to.
(ii) No part of the amount received by the assessee could be regarded
as consideration for any other valuable right excepting the price of the
shares sold by it.
No controlling power was held by th~ assessee itself
in the Mills and it ,vas not in a position to procure the resignation of the
Directors or hring about the
appointment of vendee's nominees
as
Directors. Nor was it in a position to call upon the Managing Agents to
relinquish their offices.
All these things were possible to M because of
the influence and power he possessed.
The part taken by the assessee in
the transaction with the vendee was merelv a passive oart. viz.,
keeping
at the dispos

## Text

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-'::.
NEW ERA AGENCIES (PVT.) LTD., BOMBAY
v.
COMMISSIONER OF INCOME-TAX, BOMBAY CITY I,
BOMBAY
November 28, 1967
[J. C. SHAH. V. RAMASWAMI AND V. BHARGAVA, JJ.J
Indian /ncome..rax Act, 1922--Profit on sale of shares-Whether capital accretion or r'-:"enue receipt.
During the yea.rs 1942 to 1948. the dealings in shares of the assessee
included dealings in shares of Elphinstone Mills and the profit and loss
in the dealings of the Mills was taken. by the assessee to its revenue account.
M was in control of the assessce-company and he a1so purchased the control
and managing agency of the Mills, and in this managing agency company-
. the aSsessec \\'as also a share holder.
From 1949 onwards the assessee
did not sell the shares of the Mills but added to its holding. In 1953, M
sold the entire shares in the Mills with him and under his control including that with the asscssee.
Along with that M got the venclee and the
latter's nominee appointed directors and also got the resignation of the
Managing agency-company from the managi11J>: agency of the Mill.
Out
of the total sale price the assessee received certain amount· which was in
excess of the cosi price of the shares. The assessee did not show the excess amount on the sale of these shares in its profit and loss account but
took it to the capital reserve account and showed it as a capital reserve in
its balance-sheet.
The asses:iee. in appeal, contended that (i) the excess
amount received was a capital accretion on the sale of the shares and did
not represent iflcome from business in shares; and (ii) the excess amount
over and above the market price was pai<I for the controlling interest which
was being transferred along with the shares.
HELD : The appeal must be <!is.missed.
(i) The profit made by the assessee on the sate of the snares was its
business income.
During the years 1943-48 the profits and loss~s
in
· these shares had been treated on the same footing as the profit and losses
in other shares of the assessee. The circumstance that from 1949 onward~
the asses'see had not sold the shares of the Mills. but had added to its
holding, was not in itself sufficient to reach an inference that the assessee
had treated its holding in the shares an investment.
During the years
1949-53 the shares had slumped in price and this may be the ~eason whv
the 3.ssessee did not effect any sales during this period. It ·was not unreasonable to think that the assessee who was a dealer in shares was makin.2
further purchases and accumulating its holding when the market was falling so a.c; to be in a position to sell thte shFres to its advantage when a
suitable opportunity occurred.
Titere was no material on the record to
suggest that the main object of the asscssee in acquiring the shares was to
give support to the Managing A~ents. When the managin~ a~ency was
acquired, there was no need to make anv use of the holding of the assessee
because the assessee at that time had hardly any shares. Subsequent to
the acauisition of the managing a~ency, until it was
relinquished, the
managin~ agency never felt its existence either precarious or in need of
suppert. [488 D-H; 489 B-DJ
484
SUPREME COURT REPORTS
[1968] 2 S.C.R.
Californian Copper Syndicate (Ljmi!ed and Reduced) v.
Harris.
5
Tax Cas. 159, Commissioner of Taxes v. Melbourne Tr~st Ltd.,
[19141
A.C. 1001, Rees Roturbo Development Syndicate Ltd. v. Ducker, 13 Tax
Cas, 366 and Venka1aswa1ni Naidu & Co. v. Colfunissioner of Income-tax,
35 I.T.R. 594, referred to.
(ii) No part of the amount received by the assessee could be regarded
as consideration for any other valuable right excepting the price of the
shares sold by it.
No controlling power was held by th~ assessee itself
in the Mills and it ,vas not in a position to procure the resignation of the
Directors or hring about the
appointment of vendee's nominees
as
Directors. Nor was it in a position to call upon the Managing Agents to
relinquish their offices.
All these things were possible to M because of
the influence and power he possessed.
The part taken by the assessee in
the transaction with the vendee was merelv a passive oart. viz.,
keeping
at the disposal of M its holding in the Mills' share, which it had held in
its business as a dealer in shares. Therefore, so far as the assessee was
concerned. what it parted with was the shares which it held and what it
received was th~ payn1cnt for those shares. f49 l D-Fl
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2462 of
1966.
Appeal from the iudgmeni and order dated April 21/22.
1964 of the Bombay High Court in Income-tax Reference No. 19
of 1961.
Sanat P. Mehta, .T. B. Dadachanji and 0. C. Mathur, for the
appellant.
B. Sen, T. A. Ramachandran, R. N. Sachthey and S. P. Nayar,
for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J_
The appellant is a Private Limited Company
controlled by Mulraj Kersondas and his nominees. It is a dealer
in shares, both in forward and ready market. In the year 1942
Mulrai Kersondas obtained control of the Elphinstone Spinning
and Weaving Mills (hereinafter referred to as the 'Elphinstone
Mills'). He also acquired the managing agency of the Elphinstone
Mills for a consideration of Rs. 6 Jakhs.
Jn 1943 Mulraj Kersondas assigned the Managing Agency
to a Private Company
known as Chidambaram Mulrai & Co. Ltd. whose shareholders
were Mulraj Kersondas. his nominees and the appellant. During
the years 1942 to 1948 the dealings· in shares of the appellant
included dealings in shares of Elphinstone Mills also and the profit and loss in the dealings of Elphinstone Mills was taken by the
appellant to its revenue account during these years.
At the end
of the year 1948 the appellant held 5,137 ordinary shares and
1131 preference shares of the Elphinstone Mills. During the years
subsequent to the year 1948, the appellant did not effect any
sale in the Elphinstone Mills' shares, excepting a solitary transac-
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NEW ERA AGENCIES I', C.l.T. (Ramaswami, ,/,)
4~'<
lion of 160 shares in the year 1952.
On the other hand, the
appellant pnrchased some more shares and added to its holdings
in the shares of the said mills.
Therefore, in the year 1953 the
appellant held in all 8693 ordinary shares and 2117 preference
shares of the Elphinstone Mills.
It appears that durinl! the years
from 1948 onwards there was a slump in the price o[ the shares
of the Elphinstone Mills and the prices of the ordinary and preference shares on the material date in 1953 were Rs 37 /- per
ordinary share and Rs. 38/- per preference share.
On September 25, 1953 Mulraj Kersondas wrote a letter t<•
K. D. Jalan, a well known businessman of Calcutta making an
offer of sale of 25,000 ordinary shares and 10.000 preference
shares of the Elphinstonc Mills for a total sum of Rs. 45 lakhs.
He stated in that letter that the shares offered stood in the names
of himself, his family members and his
allied concerns.
The
offer for sale was accompanied by a further offer that if the offer
for sale was accepted, Mulraj Kersondas would obtain the resignation of the present Directors of the Elphinstone Mills and would
also get appointed as Directors persons of the choice of K. D.
Jalan and that he would obtain the resignation of the present
Managing Agents of the Elphinstone Mills, viz., Chidambaram
Mulraj and Co. Ltd. It was further stated in the letter that the
price to be paid, the transfer of the shares, the resignation of the
Directors and the appointment of the new Directors of the choice
of the purchaser, and the resignation of the Managing Agents
would all be simultaneous.
K. D. Jalan accepted the offer and
paid the sum of Rs. 45 lakhs out of which Mulrai Kersondas paid
Rs. 10 lakhs to Chidambaram Mulraj and Co. Ltd. which relin·
quished the Managing Agency at his instance. The balance was
distributed at Rs. 80/- per ordinary share and Rs. 150/- per preference share of the Elphinstone Mills (as against the prevailing
market price of Rs. 37 /- and Rs. 88/- respectively) to the respective shareholders whose shares had been sold to K. D. Jalan.
Tn respect of its shares sold to K. D. Jalan, the appellant received
Rs. 10,42,990/-. though the appellant recorded its total receipts
as Rs. 10,37,775/- and the discrepancy of Rs. 5,215/- has not
been explained.
The cost price of the shares to the appellant was
Rs. 8,03,544/- and the profit on the sale was worked out in the
appellant's books at Rs. 2.34.231 / -.
The appellant, however.
did not show the surpbs in its Profit & Loss account but took it
to the capital reserve account and showed it as a capital reserve
in its balance sheet.
rn the assessment of the appellant for the
assessment year 1954-55, the Income Tax Officer treated the
amount of Rs. 2,34,231/- as the income of the appellant from
the sale of tile shares and brought the said amount to tax.
The
appellant took the matter in appeal to the Appellate Assistant
Commissioner who accepted its contention that the said amount
..
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"'l'RI ML COJ'RT REPORTS
[191•RJ 2 SCR.
represented a capilal ~ain and did not fonn part of the income
from the business of the :1ppellant and accordingly allowed its
apμeal.
Against the decision of the Appellate Assistant Comnu~s1oner th~ Deparlment appealed to the Income Tax Appellate
Tribunal which allowed the appeal. sci aside the order of the
Appellate Assistant Commissioner and restored that of the Income
Tax Officer.
Thereafter, at the instance of the
appellant
the
Income Tax Appellate Tribunal stated a case to the High Coun
under s. 66( I) of the Tndian Income Tax Act. 1922 on the following question of Jaw :
"Whether on the facls and in the circumstances of
the case the sum of Rs. 2.34.2301- was the income of
the assessce ?"
On the direction of the High Court, the Tribunal submitted a
supplcme111ary statement of the case and referred the followinir
additional questions of Jaw :
"(2). Whether on the facts and in the circumstances
of the case. the amount of Rs. 10,42,990/- received by
the assessee, as allotteJ by Mulraj Kersondas out of the
sum of Rs. 45 lakhs received by him from Shri K. D.
Jalan represents exclusively the price of the shares or
includes therein any consideration
for the
procuring
of the resignation of the present Directors, for obtaining
the appointment of the Directors, of the choice of Shri
K. D. Jalan and for the ·resignation
of the
present
managing agents of the Mills.
(3). If so, what in view thereof should be taken as
the sale price of each of the ordinary shares and each
fo the preference shares sold by the assesscc in calculating its income arising therefrom ?"
By its judj!ment dated April 21, 1964 the High Court answered
the first two questions against the appellant and held that in view
of the answer to the seconJ question the third question did not
survive and therefore need not be answered.
The present appeal
is brought to this Court on a certificate granted by the High Court
under s. 66(A) of the Indian Income Tax Act, I 922.
The distinction between investment and stock-in-trade, between
fixed capital and circulating capital is well-known. In Californian Copper Syndicate (Limited and Reduced) v. Harris(') Lord
Justice Clerk observed :
"It is quite a well settled principle in dealing with
questions of assessment of Iilcome Tax,
that
where
the owner of an ordinary investment chooses to realise
(I) l Ta< Cas. t59, t6l-6Q.
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NEW ERA AGENCIES V. C.l.T. (Ramaswami, J.)
487.
it. and obtains a oreater price for it than he originally
acquired it at, th; enhanced price is not profit in the
sense of Schedule D of the Income Tax Act of 1842
assessable to Income Tax.
But 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 tealisation or change of
investment, but an act done .in what is truly the carrying
on, or carrying out, of a business.
The simpl~st case
is that of.a person or association of persons buying and
selling lands or securities speculatively, in order to make
gain, dealing in, such investments
as a business,
and
thereby
seeking
to make profits.
There are many
companies which in their very inception are formed for
such a purpose, and in these cases it is not do,ubtful that,
where they make a gain by a realisation the gain they
make is liable to be assessed for Income Tax.
•
What is the line which separates the two classes of
cases may be difficult to define, and each case must be
considered according to its facts; the question to be
determined being-Is the sum of gain that has been
made a mere enhancement of value by realising a security, or is ft a gain made in an operation of business
in carrying out a scheme for profit-making?"
The principle stated in this case was approved in
Commissio~er
of Taxes v. Melbourne Trust Ltd., (') in Rees Roturbo Development Sy11dicate Ltd., v. Ducker(') and in Venkataswami Naidu
and Co. v. Commissioner of !11come-tax(').
With regard to the first question, Mr. Sanat P. Mehta appearing
on
behalf of the
appellant
argued that the sum of
Rs. 2,34,230/- was a capital accretion on the. sale of shares and
did not represent income from the business in shares of the appelJan,t.
rt was stated that though the appellant was a dealer in
shares it was not acquiring the shares of Elphinstone Mills as its
stock-in-trade.
The argument was put forward that the appellant
was a controlled concern of Mulraj Kersondas and it was a shareholder also of the Managing Agency Company and therdore it
was interested in the Managing Agency.
The appellant had purchased the shares of the Elphinstone Mills not with a view to deal
with them as a dealer. in shares but with a view to support the
Managing Agents of the Elphinstone Mills.
In oμr opinion there
is no justification for the argument put forward on behalf of the
appellant.
It is admitted that the appellant is a dealer in shares
.
(I) [1914] A.C. 1001.
( 2)
13 Tax Case, 366_
(lJ 35 1.T.R. 594.
..
488
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SUPREME CQURT REPORTS
[1968] 2 S.C.R
and. tha.t it had actually dealt 'with the shares of.Elphinstone Mills
during its busmess from the year~ 1943 to 1948. The appella:it
had carried forward its profits and losses in the entire sha·re business carried on by it to ns revenue account including the business
in the Elphinstone Mills shares.
During the years from 1943 to
I 948 the appellant purchased shares of the Elphinstone Mills and
also sold them.
It is true that at the end of the year 1948 the
appellam was possessed of as many as 5137 ordinary shares and
1131 preference shares of the Elphinstone Mills
but it is also
apparent that in 1944 the appellant had sold 2,000 shares and in
1947 and 1948 the appellant had sold 1,000 shares in each year.
During all these years the profits and losses in these shares have
been treated on the same footing as the profits and losses in other
shares by the appellant.
An alternative argument was presented
by Mr. Sanat P Mehta that at least from the year 1948 the holding in the shares of the Elphinstone Mills was regarded by the
appeilant not as a stock-in-trade but as an investment.
It was
contended that the circumstance that the appellant had been
a
dealer in shares for some years did not preclude it from being an
mvcstor in shares in subsequent years.
It is no doubt true that
a person who has been a dealer in shares in some years can be
an investor in shares in subsequent years.
It is also true that it
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is possible for a dealer in shares to convert a part of its stock-intrade into investment.
Rut, as has been observed by the Appellate
Tribunal there is nothing in the books of the appellant or in its
resolutions to show that it had changed its attitude towards the
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'hares of the Elphinstone Mills from the year 1948 .. The on_ly _
circumstance pointed out by the appeilant is that from the year
1949 onwards the appellant had not sold the shares of the Elphinstonc Mills but on the other hand had added to its holding.
But
this circumstance in itself is not sufficient to reach an inference
that the appellant had treated its holding in the shares as investment.
It is apparent that during the years 1949·53 the shares
of the Elphinstone Mills had slumped in price and this may be
the reason why the appellant did not effect any sales during this
period. It was pointed out that during this period the appellant
had also made further purchases of the shares.
But it is not unreasonable to think that the appellant who was a dealer in shares
was making further purchases and accumulating its holding when
the market was falling so as to be in a position to sell the shares
to its advantage when a suitable opportunity occurred.
The argument was further stressed on behalf of the appellant that it had
purchased the shares of the Elphinstone Mills with a view to support the Managing Agents of the Mills since the appellant itself
had an interest in the Managiag Agency Company, being one of
its shareholders.
It was therefore contended that the holdin~ of
the appellant in the shares of Elphinstone Mills must be treated
a' a holding on capital account and the sale thereof must also b~
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NEW ERA AGENCIES v. C.I.T. (Ramaswami, I.)
489
~,, .·regarded as on capital account.
We do not think there is any
, ,...,,
warrant for this argument.
As pointed out by the Appellate
--~
Tribunal there is no material on the record to suggest that the
main object of the appeJlant in acquiring the shares of the Elphinstone Mills was to give support to the Managing Agents.
The
conduct of the appellant in disposing of large number of shares
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of Elphinstone Mills during the years 1943-48 is not consistent
with the theory that the appellant was acquiring shares for the
purpose of supporting the Managing Agents. There is also nothing
on the record to show that during the years 1949-53 when no sales
were effected it was necessary to cons.erve the holding
in
the
shares of the Elphinstone Mills because the Managing Agency was
in any way threatened. It also appears that at the tim" when
the Managing Agency was acquired there was no need to make
any use of the holding of the appellant in the shares of the
Elphinstone Mills because the appellant at that time had hardly
ar.y shares.
Subsequent to the acquisition of the Managing
Agency until it was relinquished in 1953 there is nothing on the
record of the proceedings to show that at any time the Managing
Agency had felt its existence either precarious or in need of support.
We therefore reject the argument of the appellant on this
aspect of the case and hold that the profit made by the appellant
on the sale of the shares was its business income and the first
question was rightly answered by the High Court against the
appellant and in favour of the Income Tax Department.
We proceed to consider the next question. viz., whether the
entire amount of Rs. 10,42,990/- which the appellant received for
its ordinary and preference shares represented
exclusively the
price of the shares or whether it constituted a composite p~yment
for the price of the shares and certain other valuable rights.
The
case of the appellant is that the transaction entered into by Mulraj
Kersondas with K. D. Jalan which involved the sale of 25,000
ordinary shares and 10,000 preference shares of the Elphinsione
Mills was not merely a transaction for the sale of the shares. The
offer which Mulraj Kersondas made on September 25, 1953 consisted of four items, viz., (1) the sale of 25,000 ordinary shares
and 10,000 preference shares, (2) procuring the resignations of
the present Directors of the Elphinstone Mills, (3) securing the
appointment of persons of the choice of K. D. Jalan as Directors
of the Mills, and ( 4) obtaining the resignation of the present
Managing Agents of the Elphinstone Mills. It was contended for
the appellant that the copsideration of Rs. 45 lakhs for this offer
was a composite consideration for all the four items.
Aftet· the
offer was accepted by K. D. Jalan and the payment of Rs. 45
lakhs was made by him to Mulraj Kersondas, the latter appropriated Rs. 10 Jakhs of the consideration to one of the four items.
viz., relinquishment of Managing Agency.
He paid the amount
to the Managing Agents Chidambaram Mulraj and Co.
Ltd.
490
SUPREME OOURT REPORTS
[1968] 2 S.C.R.
Deducting the amount of Rs. 10 lakhs from the total considera·
tion of Rs. 45 lakhs, the balance of Rs. 35 lakhs was distributed
by Mu!raj Kcrsondas among the 25,000 ordinary shares and 1 O 000
preference shares.
It was pointed out for the appellant th~t at
the material time when the transaction had gone through the market price for Elphinstone Mills shares was Rs. 37 /- per ordinary
share and Rs. 88/- per preference share, but when Mulraj Kersondas distributed Rs. 35 Iakhs aJ)lOng the ordinary and preference
shares each ordinary share was paid at the rate of Rs. 80/- and
each preference share was paid at the rate of Rs. 150/-.
According to the appellant therefore the excess amount paid by the purchaser over and above the market price was paid by him for the
controlling interest which was being transferred along with the
shares. In other words, the contention of the appe'lant was that
the profit on the sale of the shares made by the appellant must be
calculated on the basis of what it got for the sale-price of the
shares only and not on the basis of the
entire
consideration
received by it which was a composite payment received for the
price of the shares and for parting with the controlling interest.
We arc unable to accept this argument as correct.
It may be
that in the total disposal of the entire block of shares i~ favour
of K. D. Jalan the latter may have acquired certain amount of
.:ontre>l\ing power apart from mere acquisition of shares.
It is
also conceivable that M ulraj Kersondas,
in going through the
transaction with K. D. Ja!an, mi~ht have given to K. D. Jalan
not only the shares but also certain other advantages.
But the
question must be examined from the view-point of the appellant
and what we have to sec is what the appellant parted with and
what the appellant got in return. It should be Jltlticed that the
appellant itself h~d no controlliug interest in the Elphinstone
Mills.
It was not the Managing Agent of the Elphinstone Mills
and its holding in the shares of the Elphinstone Mills was onls
to the extent of 13 per cent which could not give it any controlling
power. Mr. Sanat P. Mehta said that though the appellant had
not a sufficiently large holding to give it any controlling power, it
was a member of the Mulraj Kersondas group and it was working in· close concert with Mulraj Kersondas who had considerable
controlling power and interest. It was argued that the transaction entered into by Mulraj Kersondas with K. D. Jalan, although
emcred
into
by
Mulraj
Kersondas
alone,
should
be
treated as the transaction on behalf ·of the entire group of Mulraj
Kersondas including the appellant.
What was therefore being
offered by Mulraj Kcrsondas to K. D. Iatan was an offer on behalf
of the entire group which had a built-in power which
it was
proposing to transfer to K. D. Jalan in the scheme proposed by
~ulraj Kersondas who was the representative of the group. It
was therefore argued on behalf 9f the appellant that it would not
be correct to say that the appellant had not parted with anythin~
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NEW ERA AGENCIES v. C.I.T. (Ramaswami, J.)
491
more than the block of its shares in the present transaction.
It
is not possible to accept this argument put forward on behalf of
the appellant. There is nothing ·on the record of the case to support the theory that the transaction with K. D. J alan '."'as not a
transaction by Mulraj Kersondas himself but a transactmn of the
entire group.
As appears from the letter of Mulraj Kersondas
dated September 25, 1953, the offer was on bel:).alf of Mulraj
Kersondas alone.
His letter to the Managing Agents was a direction given by him asking them to do certain things to suit his
convenience and, as it appears from the record, the direction was
promptly obeyed by ~em. As pointed out by the High Court,.
the circumstances of the case indicate that Mulraj. Kersondas was
by reason of his influence and power, in a position to command
obedience of his wishes· from his nominees and associates concerned. When Mulraj Kersondas .decided to enter into a transac- ·
tion for the sale of the shares to K. D. Jalan he called upon the
appellant to keep at his disposal the holding which the appellant·
had in its shares of the Elphinstone Mills. No controlling power
was held by the appellant itself in the Elphinstone Mills and it was .
not in a position to procure the resignation ·of the Directors or
to bring about the appointment of the persons of the choice of
K. D. Jalan as Directors.
Nor was it in a position to call upon
the Managing Agents to relinquish their office. All theso;1 things
w€re, however, possible to Mulraj Kersondas because of the influence and power which he possessed.
The part taken by the appellant in the transaction with K. D. Jalan was merely a passive part
viz., keeping at the disposal of Mulraj Kersondas its holding in
Elphinstone Mills shares which it had held in its business as a
dealer in shares.
So far as the appellant is concerned, what it
parted with was the shares which it held and what it received wa5
the payment for those share5.
It follows therefore that the entire
sum received Ly the appellant from Mulraj Kersondas was the
price of the share' disposed of- by Mulraj Kersondas and conse-·
quently the .whole of the excess over the cost price of the shares
was the profit of the appellant.
We accordingly hold that no
part of the amount of Rs. 10,42,990/- received by the appellant
from Mulraj Kersondas can be regarded as consideration for any
other valuable right excepting the price of the shares sold by it.
The second question was therefore rightly answered by the High
Court against the appellant
For the reasons expressed we hold that the judgment of the
High Court is right and this appeal must be dismissed With costs.
Y.P.
Appeal dismissed.