# THE ORIENTAL INVESTMENT CO., LTD v. THE COMMISSIONER OF INCOME-TAX

- **Citation:** [1958] 1 S.C.R. 49
- **Court:** Supreme Court of India
- **Decided:** 1958
- **Case number:** Civil Appeal No. e omm 'Sioner · of lnoo--tax, 153 of 1954
- **Bench:** Bhagwati, s. K. DAS, J. L. Kapur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-oriental-investment-co-ltd-v-the-commissioner-of-income-tax-1476
- **Pages:** 16

## Headnote

Income-tax-Reference
to High Court-Questions of lawInvestment companv-Dealer or lm·estor-Mi'xed question of law
and fact-Legal effect of facts found, a question of law.
The appellant company
was incorporated as an investment
company which by its memorandum of association enabled it,
inter alia, to deal in investments and properties. For the purposes
of assessment to income-tax the appellant claimed, for the assessment year in question, to be treated as an investor and not as a
dealer on the ground that it did not carry on any business in the
purchase or sale of shares, securities or -properties. The Incometax Appellate Tribunal held that according to. the company's
memorandum of association and its own assertions made all along
in the past, it should be. treated as a dealer in investments and
properties and that its income arising from the sales of shares
and properties should be taxed as business profits. The appellant's
applications for a reference to the High Courts were rejected on
the ground that no question of law arose out of the order of the
Tribunal.
Held, that the question whether the appellant's business
amounted to dealing in shares and properties or to investment, is
a mixed question of law and fact and that the legal effect of the
facts found by the Tribunal as a result of which the appellant
could be treated as a dealer or an investor, is a que~tion of law.
Accordingly, the order of the High Court was set aside and
· the case remitted to the High Court for directing the Tribunal to
state a case.
(1)(1944) 12 I.T.R. 393.
1957
May22
50
SUPREME COURT REPORTS
[1958J
1957
Meenakshi Mills, Madurai v. Con11nissioner of lnco1ne Tax,.
The Oriental
Madras, (1956) S.C.R. 691, applied.
Investment Co., Ltd
Case law reviewed.
Th
Cv.
1s.
C1v1L APPELLATE JURISDICTION : Civil Appeal No.
e
omm 'Sioner
·
of lnoo--tax, 153 of 1954.
Bombay
Appeal by special leave from the judgment and
KapurJ.
order dated January 15, 1952, of the Bombay High
Court in Income-tax Application No. 54 of 1951.
R. J. Ko/ah, J. B. Dadachanji, S. N. Andley and
Rameshwar Nath, for the appellant.
C. K. Daphtary, Solicitor-General of India, G. N. Joshi
and R. H. Dhebar, for the respondent.
1957. May 22. The Judgment of the Court was
delivered by
KAPUR J.-This is an appeal by the assessee by
special leave and the question for decision is whether
questions of law, if any, arise out of the order of the
Appellate Tribunal.
The facts giving rise to the appeal are that the
petitioner company was incorporated on July 29, 1924,
as an investment company, the objects of which. are
set out in cl. III of the memorandum of association
and more particularly in sub-els. I, 2, 15 and 16 of
that clause. The assessment years under review are
1943-44 to 1948-49,
excepting the year 1947-48.
According to its petition made in the High Court of
Bombay, the petitioner company dealt with its assets
as follows:
"The Petitioner Company purchased during the
period !st July 1925 to 30th June 1928 shares of the
value of Rs. 1,86,47,789/- major portion of which was
comprised of shares in the Sassoon Group of Mills.
During the year ended 30th June 1929 the Petitioner
Company promoted two companies known as Loyal
Mills Ltd. and Hamilton Studios Ltd. and took over
all their shares of the value of Rs. lOt lacs. In the
year 1930, the Petitioner Company purchased shares of
Rs. 1,33,930. During the period of 9 years from 1st
July 1930 to 30th July 1939 no purchases were made
with the exception of a few shares of Loyal Mills Ltd.,
•
'
S.C.R.
SUPREME COURT REPORTS
51
taken over from the staff of E. D. Sassoon & Co. Ltd.,
1957
who retired from service. In the year ended 30th
The oriental
June 1940 reconstruction scheme of the Appollo Mills Investment Co., Ltd.
Ltd., took place under which debentures held by the rite eo,';;;,,issioner
Petitioner Company in the Appollo Mills Ltd., were
0! lnixzme-tax,
redeemed and the proceeds were reinvested in the new
om Y
issue of shares made by the Appollo Mills Lt

## Text

•
)
S.C.R.
SUPREME COURT REPORTS
49
These observations do not help the respondent in any
1957
way; nor do they lay down any rule contrary to the Raghllha-;Mandal
rules laid down in Seth Gurmukh Singh's case(1).
Horihor Mtmdal
For these reasons we hold.that the High Court was TlitSta~·o/Bihar
in error in answering the question referred to it. The
appeal is accordingly allowed and the judgment and
s. K. Das J.
order of the High Court are set aside. The answer to
the question referred to the High Ceurt is in the
negative. The appellant will be entitled to its costs
both in this Court and in the High Court.
Appeal allowed .
THE ORIENTAL INVESTMENT CO., LTD.
v.
THE COMMISSIONER OF INCOME-TAX,
BOMBAY.
(BHAGWATI, s. K. DAS, and J. L. KAPUR JJ.)
Income-tax-Reference
to High Court-Questions of lawInvestment companv-Dealer or lm·estor-Mi'xed question of law
and fact-Legal effect of facts found, a question of law.
The appellant company
was incorporated as an investment
company which by its memorandum of association enabled it,
inter alia, to deal in investments and properties. For the purposes
of assessment to income-tax the appellant claimed, for the assessment year in question, to be treated as an investor and not as a
dealer on the ground that it did not carry on any business in the
purchase or sale of shares, securities or -properties. The Incometax Appellate Tribunal held that according to. the company's
memorandum of association and its own assertions made all along
in the past, it should be. treated as a dealer in investments and
properties and that its income arising from the sales of shares
and properties should be taxed as business profits. The appellant's
applications for a reference to the High Courts were rejected on
the ground that no question of law arose out of the order of the
Tribunal.
Held, that the question whether the appellant's business
amounted to dealing in shares and properties or to investment, is
a mixed question of law and fact and that the legal effect of the
facts found by the Tribunal as a result of which the appellant
could be treated as a dealer or an investor, is a que~tion of law.
Accordingly, the order of the High Court was set aside and
· the case remitted to the High Court for directing the Tribunal to
state a case.
(1)(1944) 12 I.T.R. 393.
1957
May22
50
SUPREME COURT REPORTS
[1958J
1957
Meenakshi Mills, Madurai v. Con11nissioner of lnco1ne Tax,.
The Oriental
Madras, (1956) S.C.R. 691, applied.
Investment Co., Ltd
Case law reviewed.
Th
Cv.
1s.
C1v1L APPELLATE JURISDICTION : Civil Appeal No.
e
omm 'Sioner
·
of lnoo--tax, 153 of 1954.
Bombay
Appeal by special leave from the judgment and
KapurJ.
order dated January 15, 1952, of the Bombay High
Court in Income-tax Application No. 54 of 1951.
R. J. Ko/ah, J. B. Dadachanji, S. N. Andley and
Rameshwar Nath, for the appellant.
C. K. Daphtary, Solicitor-General of India, G. N. Joshi
and R. H. Dhebar, for the respondent.
1957. May 22. The Judgment of the Court was
delivered by
KAPUR J.-This is an appeal by the assessee by
special leave and the question for decision is whether
questions of law, if any, arise out of the order of the
Appellate Tribunal.
The facts giving rise to the appeal are that the
petitioner company was incorporated on July 29, 1924,
as an investment company, the objects of which. are
set out in cl. III of the memorandum of association
and more particularly in sub-els. I, 2, 15 and 16 of
that clause. The assessment years under review are
1943-44 to 1948-49,
excepting the year 1947-48.
According to its petition made in the High Court of
Bombay, the petitioner company dealt with its assets
as follows:
"The Petitioner Company purchased during the
period !st July 1925 to 30th June 1928 shares of the
value of Rs. 1,86,47,789/- major portion of which was
comprised of shares in the Sassoon Group of Mills.
During the year ended 30th June 1929 the Petitioner
Company promoted two companies known as Loyal
Mills Ltd. and Hamilton Studios Ltd. and took over
all their shares of the value of Rs. lOt lacs. In the
year 1930, the Petitioner Company purchased shares of
Rs. 1,33,930. During the period of 9 years from 1st
July 1930 to 30th July 1939 no purchases were made
with the exception of a few shares of Loyal Mills Ltd.,
•
'
S.C.R.
SUPREME COURT REPORTS
51
taken over from the staff of E. D. Sassoon & Co. Ltd.,
1957
who retired from service. In the year ended 30th
The oriental
June 1940 reconstruction scheme of the Appollo Mills Investment Co., Ltd.
Ltd., took place under which debentures held by the rite eo,';;;,,issioner
Petitioner Company in the Appollo Mills Ltd., were
0! lnixzme-tax,
redeemed and the proceeds were reinvested in the new
om Y
issue of shares made by the Appollo Mills Ltd. Out of
Kapur!.
the purchases of the value of Rs. 2, 794 made by the
Petitioner Company during the year ended 30th June
1941 Rs. 2,000/- was the value of shares of the Loyal
Mills Ltd., taken over from the retiring staff In the
year ended 30th June 1943 the Petitioner Company
took over from the David Mills Co Ltd., shares of The
Associated Building Co., of the value of Rs. 56,700/-
After this there were no purchases at all to this date
excepting purchases of the value of Rs. 34,954 during
the year ended 30th June 1946."
The sales are contained in para 3(b) which may be
quoted :
"In relation to the purchases made by the Petitioner Company as stated above no appreciable sales
of shares were made during the period 29th July 1924
to 30th June 1942, the sales made in the year ended
30th June 1929 of the value of Rs. 1,29,333 included
shares of the value of Rs. 45,000 in the Loyal Mills
Ltd., sold to the members of the staff and shares
of the value of Rs. 83,833 representing sterling
investments handed over to the creditors of the Petitioner Company in part repayment of the loan taken
from them in the year ended 30th June 1931, shares of
the value of Rs. 7,48,356 were handed over to the
creditors in payment of the loan granted by them.
From the year ended 30th June 1943 E. D. Sassoon &
Co. Ltd., started relinquishing the managing agencies
of the various Mills under their agency and the shares
held by the Petitioner Company in the Sassoon Group
of Mills were handed over to the respective
purchasers of the Mills agencies."
This gives the history of the acquisition and disposal of shares and also how the various transactions
were entered into and why.
Prior to 1940 the assessee
company made a claim every year for being treated as
52
SUPREME COURT REPORTS
[19581
1957
a dealer in investments and properties but this contenInvcstment co., Ltd. tion was consistently repelled and up to the assessment
v. . .
year 1939-40 the assessee company was assessed on the
The Comm<Sstoner b ·
f b ·
·
b
·
h
,.
h
of Income-tax,
as1s o
emg an mvestor ut It appears t i1:t 1or t e
Bombay
assessment year 1940-41 and the two followmg years
Kapur J.
1941-42 and 1942-43 the Department accepting the
plea of the assessee company treated it as a dealer in
shares, securities and immovable properties and assessed
it on that basis. For these years and for the assessment year 1943-44 the company made its Return on
that basis. But after the Return had been filed for the
year 1943-44 the assessee company withdrew its Return
and filed a revised Return on March 7, 1944, contending that it was not a dealer but merely an investor.
Along with the Return it filed a letter dated March 6,
1944, in which inter alia it stated :
"The Return of Total Income which was submitted
wit!I the Company's letter of 25th May 1943 was
prepared in conformity with the ruling of the Incometax Officer in the 1940-41 assessment that the company
was to be assessed as a dealer in investments.
Since
that Return was submitted the Central Board
of
Revenue has decided that the Company is an Investment Holding Company and accordingly an amended
Return of Total Income under Section 22(1) of the
Indian Income-tax Act is submitted herewith on which
the assessment for 1943-44 may be based, as on this
particular question the company obviously cannot have
one status for Excess Profits Tax and another for
Income-tax." ·
It was also contended that it never carried on any
business in the purchase or sale of shares, securities or
properties and therefore prayed that in view of the
order of the Central Board of Revenue made on its
application under s. 26(1) of the Excess Profits Tax
Act it should be assessed for income-tax purpose as an
investor and not as a dealer.
The Income-tax Officer rejected this plea and "held
the investments as the stock-in-trade of its business
therei.n which it carried on during the 'previous year'
also". The company took an appeal to the Appellate
Assistant Commissioner which was dismissed and the
.y
r
..
S.C.R.
SUPREME COURT REPORTS
53
order of the Income-tax Officer upheld. It
then
1957
appealed to the Income-tax Appellate Tribunal,
Tlte Oriental
Bombay, where the same contentions were raised but Investment Co., Ltd.
were repelled. The Tribunal said :
The co"::imissioner
"The company having itself raised the point in of Income e-tax,
.
.
•
.
Bombay
all the prior years that it was a dealer m mvestments
and properties, it would appear to be difficult to underKapur J.
stand why the company now seeks to get the position
changed and desires the Income-tax Officer to treat it
as if it was not dealing in shares, securities and
immovable properties."
The Tribunal after holding that the company was
under no misapprehension when it claimed to be a
dealer in investments in the earlier years because it
was then always incurring losses and that the present
contention ·was raised because it made "substantial
profits" said :
"but we have no doubt that, according to the
company's memorandum of association and its own
assertions made all along in the past, the assessee company is a dealer in investments and properties and
the income arising to it on the sale thereof has been
rightly held by the Income-tax Officer to be business
profits liable to tax under the ordinary provisions of
the Income-tax Act."
Thus the grounds on which the case was decided
against the assessee were (1) that ·the assessee claimed
to be a dealer or an investor according as it incurred
losses or made profits and (2) that because of the
objects contained in the memorandum of association
and because of its assertion made in the past as being
a dealer the assessee could not be held to be · an
investor.
The company then applied to the Appallate Tribunal
under s. 66(1) of the Indian Income-tax Act for a
reference of the following questions for the opinion of
the High Court :
"(1) Whether on the facts and in the circumstances
of the case the assessee company can rightly be treated
as a dealer in investments and properties; and
54
SUPREME COURT REPORTS
(1958]
1957
(2) Whether the profits and losses arising from
The Oriental
the sale of shares, securities and immovable properlnvestment Co., Ltd. ties of the assessee company can be taxed as business
v.
fi
"
The Commissioner pro ts.
of f/:,';;b:;tax,
This prayer was rejected because in the opinion of
the Tribunal no question of law arose out of its order.
Kapur J.
It said :
"The Tribunal did not decide this point merely
because the company's memorandum of association
gave power to the company to deal in investments
and properties, but it was actually found that the
company had dealt in investments and properties
throughout and had also all along in the past asserted
that it was a dealer in investments and properties."
This was more than it had said in its appellate order.
The assessee company then made an application
under s. 66(2) of the Indian Income-tax Act for requiring the Appellate Tribunal to state the case and refer
it to the High Court but this applicaton was dismissed,
and then the company obtained special leave to appeal
to this Court.
Counsel for the assessee company contends that the
questions of law arise out of the order of the Tribunal
because the Tribunal has ignored the documentary
evidence produced before it, has based it decision on
irrelevant matters, has failed to consider crucial facts
and has misdirected itself by assuming that the petitioner was a dealer from the very beginning which was
contrary to the documents produced before it.
Section 66(1) of the Income-tax Act (hereinafter
termed the Act) provides that any assessee may require '
the Appellate Tribunal to refer to the High Court any
question of law arising out of its appellate order and
it is the statutory duty of the Appellate Tribunal to
draft the statement of the case and refer the question
of law arising out of such order to the High Court but
the primary requirement is that there must be a question of law arising out of the order. Should the Tribunal refuse to state the case as required under s. 66(1)
of the Act on the ground that no question of law
arises, the assessee has the right to apply to the High
\ ..
S.C.R.
SUPREME COURT REPORTS
55
Court requiring the Appellate Tribunal to state a case
1957
and refer it to the High Court but again the essential
The Oriental
consideration is the existence of a question of law Investment Co., Ltd.
arising out of the order.
.
The cov,,;missioner.
T d
1.
b
h
.
.
f l
of Income-tax,
o raw a me etween w at is a quest10n o aw
Bombay
and what is a question of fact is not always easy. It
is difficult to define this distinction which has given
Kapur J.
rise to a number of decisions, which it will be useful
to discuss at this stage.
16 Stanley v. Gramophone and Typewriter, Limited(1)
the Master of the Rolls discussed this question as
follows:
.
"It is undoubtedly true that, the Commissioners
find a fact, it is not open to this court to question that
finding unless there is no evidence to support it. If,
however, the Commissioners state the evidence which
was before them, and add that upon such evidence
they hold that certain results follow, I think it is open,
and was intended by the Commissioners that it should
be open, to the court to say whether the evidence
justified what the Commissioners held."
These observations were explained by Hamilton J.
in The American Thread Co. v. Toyce (2) as implying
that by giving the material on which their finding was
based the Commissioners were inviting the court to
determine whether on that material they could reasonably arrive at the conclusion on which they did arrive.
The House of Lords on appeal categorically confirmed
that the Courts had no jurisdiction over conclusions of
fact except to see whether there was evidence
to
justify them and that proper legal principles had~t>een
applied.
Lord Clerk in Californian Copper Syndicate v.
Harris (3) has laid down the test in the following
words :
"the question to be determined being-ls the sum
of gain that has been made a mere enhancement of
value by realising a security, or is it a gain made in an
(1) (1908) 5 T.C. 358, 374.
(2) (1911) 6 T.C. I.
(3) (1904) 5 T.C. 159, 166.
56
SUPREME COURT REPORTS
(1958)
1957
operation of business in carrying out a scheme for
The Orienta/
profit-making."
Investment Co., Ltd. J
h
h
b"
.
h
d
v.
n t at case t e o ~eels set out m t e memoran um
The Commissioner of association pointed distinctly to a highly speculative
of lncome·tax,
.
Bombay
business and the mode of actual procedure of the comKapur J.
pany was also directed in the same direction. Taking
into consideration the course of dealing of the shares
by the company and also that the turning of investment to account was not merely incidental but was an
essential feature of the business, speculation being
among the appointed means of the company's business
the court came to the conclusion that the company
·was carrying on a· business.
The Lord President in a Scottish case Cayzer, Irvine
& Co., Ltd v. Commissioners of Inland Revenue'
stated the grounds on which the court can interfere
with the finding of the Commissioner as follows :
"I think we have jurisdiction to entertain the
question at law, which is whether the majority of the
Commissioners were warranted on the evidence in
determining as they did. At the narrowest it is always
open to this Court in a "Stated Case to review a finding in fact on the ground that there is no evidence to
support it."
Lord Parker in Farmer v. Trustees of the Late
William Cotton(') after referring to the difficulty of
distinguishing between a question of fact and a question of Jaw observed :
"Where all the material facts are fully found, and
the only question is whether the facts are such as to
bring the case within the provisions properly construed
of some statutory enactment, the question is one of
law only."
But this statement of the law was considerably modified in Inland Revenue Commissioners v. Lysaght(')
where it was held that if the issue before the court
could be described as a "question of degree" the conclusion must be a question of fact.
(1) (1942) 24 T.C. 491, 501.
(2) (1915) A.C. 922, 932.
(3) [1928] A.C. 234.
•
/
4
' ..
S.C.R.
SUPREME COURT REPORTS
57
The Commissioners of Inland Revenue v. The Korean
1957
Syndicate, Ltd. (1) was a case where a syndicate was
TheOriental
registered for the purpose of acquiring and working I11vestme1'.1 Co., Lrd.
concessions and turning them to account, and of The co1~1;111:rsioner
investing and dealing with monies not immediately of Income-tax,
required The syndicate acquired part of a right to a
Bombay
concession in Korea and then under an agreement
Kapur J.
described as a "lease", in consideration of receiving
sums of money termed "royalties" but which were
really percentages of profits made by assignee company,
assigned the lease to a development company. Some
moneys which were received from sale of certain shares
obtained by the syndicate in exchange for shares
originally acquired in the mining company were
deposited in a bank. The activities of the company
were during the relevant period confined to receiving
the bank interest and royalties, distributing the amount
amongst its shareholders as dividend. The question
for decision was whether the syndicate was carrying
on a business and was therefore liable to excess profits
duty. From these facts it was concluded that they
were carrying on a busine~s.
·
Atkinson L.J. pointed out at p. 204 that merely
because a company is incorporated it does not necessarily follow that it is carrying . on business. Its
memorandum only shows that the company was incorporated for a particular purpose but taking into consideration the surrounding circumstances and facts of
the case it was concluded that the company was carrying on a business.
In Great Western Railway Company v. l3ater (2) the
question for decision was whether a clerk held a public
office to fa11 within Sch. E. It was held that the determination by the Commissioners of questions of pure
fact are not to be disturbed unless it should appear
that there was no evidence before them upon which
they, as reasonable men, could arrive at the conclusion
which they came to. Lord Atkinson said :
"What I have many times in this House protested
against is the attempt to secure for a finding on a
mixed question of Jaw and fact the unassailability
58
SUPREME COURT REPORTS
[1958]
1957
which belongs only to a finding on questions of pure
The Oriental
fact. This is sought to be affected by styling the findt11ves1menr Co., Lrd. ing on a mixed question of law and fact a finding of
v.
.f'.
"
The Co1nmissioner1act.
of J;~/,';;-rax, ;\ccofrdingh toe the dictum of Lord Wre}1bur~ thedquesdt10n or t e ourt was whether on the .acts ioun an
Kapur J.
stated by the Commissioners the clerk held the office
within the meaning of the Act which was a question of
law.
In Lysaght
v.
The
Commissioners of Inland
Revenue (') the question for decision was whether the
assessee was a resident and ordinarily resident in
United Kingdom in the year of assessment. Lord
Buckmaster said :
"The distinction between questions of fact and
questions of law is difficult to define, ............... .
It is, of course, true that if the circumstances found by
the Commissioners in the Special Case are incapable of
constituting residence their conclusion cannot be protected by saying that it is a conclusion of fact since
there are no materials upon which that conclusion
could depend. But if the incidents relating to visits
in this country are of such a nature that they might
constitute residence, and their prolonged or repeated
repetition would certainly produce that result, then the
matter must be a matter of degree; and the determination of whether or not the degree extends so far
as to make a main resident or ordinarily resident here
is for the Commissioners and it is not for the Courts to
say whether they would have reached the same
conclusion."
Jones v. Leeming (2) was a case where the respondent
with three other persons obtained an option to purchase a rubber estate in the Malay Peninsula. That
estate along with another was sold at a profit. The
Commissioners found that the respondent had acquired
the property with the sole object of turning it over
again at a profit and at no time had he the intention
of holding it. This transaction was held not to be in
the nature of trade nor the profits arising therefrom in
the nature of income but they were accretions to
(1) (1928) 13 'I'.C. 51.1, 533, 534.
(r) [1930] A.C. 415
..
•/
'
-I
S.C.R.
SUPREME COURT REPORTS
59
capital and therefore not subject to tax under·case VI
1957
of Sch. D.
The Oriental
In Cameron v. Prendergast (1) the following test was lnvestmen;, Co., Ltd.
laid down by Viscount Maugham :
The Commissioner
•
of lnoome·tax,
"Inferences from facts stated by the CommtsBombay
sioners are matters of law, and can be questioned on
•
Kapur J.
appeal. The same remark is true as to the construction of documents. If the Commissioners state the
evidence .............................. it is open to
the court to differ from such holding."
In Bomford v. Osborne (2) a farm was working_ as a
mixed farm but as a single unit. The question for
decision was whether the assessment could be apportioned one part being assessed as a farm and the other
as a nursery. Viscount Simon laid down the test in
the following words :
"No doubt there are many cases in which Commissioners_, having had proved or admitted before them
a series of facts, Il\ay deduce therefrom further conclusions which are themselves conclusions of pure fact.
In such cases, however, the determination in point of
law is that the facts proved or admitted provide
evidence to support the Commissioner's conclusions."
It was also held that this question was a mixed question of law and fact.
Du Parcq J. in J. H. Bean v. Doncaster Amalgamated Collieries Ltd. (3) held the following to be the test
for determining whether the question in. one of fact or
law:
"Unless the Commissioners, having found the
relevant facts and put to themselves the proper question, have proceeded to give the right answer, they
may be said, on this view, to have erred in point of
law. If an inference from facts does not logically·
accord with and follow from them, then one must say
that there is no evidence to support it. To come to a
conclusion which there is no evidence to support is to
make an error in law."
(r) [rq.to] 2 All E.R. 35, 40
(2) r1941] 2 All E.R. 426, 430.
'3) [ r 944] 2 All E.R. 279, 284.
60
SUPREME COURT REPORTS
[1958]
1957
In Edward v. Bairstow (') the respondent embarked
The Oriental
upon a joint venture to purchase a spinning plant with
Invmm<•t co., Ltd. the object of holding it for quick resale and at a profit.
The co,;:;,,;,,;oner The General Commissioners found that there was no
of J"'~me-tax, venture in the nature of trade but the court held that
om ay
the facts. found led inevitably to the conclusion that
K1tp,,, 1.
the transaction was a venture in the nature of trade
and that the Commissioners inference to the contrary
was erroneous.
Lord Simonds observed at p. 54 that :
"To say that a transaction is, or is not,
an
adventure in the nature of trade is to say that it has,
or has not, the characteristics which distinguish such
an adventure. But it is a question of law,. not of fact,
what are those characteristics ...... "
At p. 55 Lord Radcliffe pointed out :
"I think that it is a question of law what meaning is to be given to the words of the Income Tax Act
"trade, manufacture, adventure or concern in the
nature of trade" and for that matter what constitutes
"profits or gains" arising from it. Here we have a
statutory phrase involving a charge of tax, and it is
for the courts to interpret its meaning, having regard
to the context in which it occurs, and to the principles
which they bring to bear on the meaning of income.
and then at p. 57 laid down the test in the following
words :
"When the case comes before the court, it is its
duty to examine the determination having regard to
its knowledge of the relevant law. If the case contains
anything ex facie which is bad law and which bears on
the determination, it is, obviously, erroneous in point
of law. But, without any such misconception appearing ex facie, it may be that the facts found are such
that no
person acting judicially and properly
instructed as to the relevant law could have come to
the determination under appeal."
The dicta of Warrington L.J. in Cooper v Stubbs(')
that intervention by a court is proper only :
(1) [1955) 3 All E.R. 48.
(2) [1925) 2 K.B. 753, 768, 772.
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.,.i
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S.C.R.
SUPREME COURT REPORTS
61
'' .... in a very clear case, where either the Com1957
missioners have come to their conclusion without The oriental
evidence which should support it, that is to say, have Investment Co., Lrd.
come to a conclusion which on the evidence no reason- The co;:,"missioner
able person could arrive at, or have misdirected of Income-tax,
themselves in point of law."
Bombay
and of Atkin L.J. that :
Kapur J.
" .... there may be a state of facts which can only
lead to one conclusion of law."
were quoted with approv .ll by Lord Radcliffe at pp. 56
and 57.
A review of these authorities shows that though the
English decisions began with a broad definition of
what are questions of law, ultimately the House of
Lords decided that a "matter of degree" is a question
of fact and it has also been decided that a finding by
the Commissioners of a fact under a misapprehension
of law or want of evidence to support a finding are
both questions of law.
The Privy Council in Commissioner of Income-tax v.
Laxminarain Badridas (1) said :
"No question of law was involved; nor is
it
possible to turn. a mere question of fact into a question
of law by asking whether as a matter of law the officer
came to a correct conclusion upon a matter of fact."
Bose J. in Seth Suwallal Chhogalal v. Commissioner
of Income-tax (2) stated the test as follows :
"A fact is a fact irrespective of the evidence by
which it is proved. The only time a question of law
can arise in such a case is when it is alleged that there
is no material on which the conclusion can be based or
no sufficient material."
Sufficiency of evidence was explained to mean whether
the Income-tax authority considered its existence so probable that a prudent man ought under the circumstances
of the case to act upon the suppos~tion that it exists.
The question for decision in Dhirajlal Girdharilal v.
Commissioner of Income-tax, Bombay (3) was whether a
Hindu undivided family was carrying on business in
shares and it was held that this was a question of fact
(1) [1937] 5 I.T.R. 170, 179.
(2) ]1949] 171.T.R. 269,2n.
(3) [1954] 26 l.T.R. 736.
62
SUPREME COURT REPORT
1957
but if the Appellate Tribunal decided the question by
The Oriental
taking into consideration materials which are irrelevant
111vestme•t co., Ltd. to the enquiry or partly relevant and partly irrelevant
The co;;,,,tssioner or based its decision partly on conjectures then in such
of Income-tax,
a situation an issue of law arises, which would be subBombay
ject to review by the court and the finding given by
Kapur J.
the Tribunal would be vitiated.
The result of the authorities is that inference from
facts would be a question of fact or of law according
as the point for determination is one of pure fact or a
mixed question of law and fact and that a finding of
fact without evidence to support it or if based on
relevant and irrelevant matters is not unassailable.
The limits of the boundary dividing questions of
fact and questions of law were laid down by this court
in Meenakshi Mills, Madurai v. Commessioner of
Income-tax, Madras(') where the question for decision
was whether certain profits made and shown in the
name of certain intermediaries were in fact profits
actually earned by the assessee or the intermediaries.
Taking the course of dealings and the extent of the
transaction and the position of the intermediaries and
all the evidence into consideration the Tribunal came
to the conclusion that the intermediaries were dummies
brought into existence by the appeUant for concealing
the true amount of profits and that the sales in their
name were sham and fictitious and profits were actually
earned by the assessee. The test laid down by this
Court is to be found in the various passages in that
judgment. At p. 701 Venkatarama Ayyar J. pointed
out that questions of fact are not open to review by
the court unless they are unsupported by any evidence
or are perverse. At p. 706 it was observed :
"In between the domains occupied respectively
by questions of fact and of law, there is a large area
in which both these questions run into each other
forming so to say, enclaves within each other. The
questions that arise for determination in that area are
known as mixed questions of law and fact. These
questions involve first the ascertainment of facts on
the evidence adduced and then a determination of the
(1) [1956) S.C.R. 691.
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SUPREME COURT REPORTS
63
rights ,of the parties on an application of the appropriate
1957
principles of law to the f ~cts ascertained."
The Oriental
The law was thus summed up at p. 720 :
I11vestment Co., Ltd.
(1) When the . point for determination is a pure The co;:,;,,issioner
question of law such as construction of a statute or
01 /,,":::,,me-tax,
document of title, the decision of the Tribunal is open
° ay
to reference to the court under s. 66(1).
Kapur J.
(2) When the point for determination is a mixed
question of law and fact, while the finding of the
Tribunal on the facts found is final· its decision as to
the legal effect of that finding is a question of law
which can be reviewed by the court.
(3) A finding on a question of fact is open to
attack under s. 66(1) as erroneous in law if there is no
evidence to support it or if it is perverse.
(4) When the. finding is one of fact, the fact that
it is itself an inference from other basic facts will not
alter its character as one of fact.
In the instant case the Appellate Tribunal in its
appellate order has set out the amount of profits made
by the assessee company in the years of assessment
1943·44 to 1948-49. It has also mentioned the
inconsistent positions taken up by the assessee in first
claiming to be a dealer and then to be an investor
which according to the Tribunal was due to the fact
that it was incurring losses in the earlier year and had
begun making profits when the claim of being an
investor was put forward. But the two basic facts on
which the Tribunal has based its findings are :
(I) the objects set out in the memorandum of
association of the assessee company ;
(2) the previous assertion by the assessee company that it was a dealer in investments and not
merely an investor.
Counsel for the assessee relies on the decision of
Kishan Prasad & Co., Ltd. v. Commissioner of Incometax, Punjab (1) 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 contendetl that the Tribunal has
(1) [1955) 27 l.T.R. 49·
1vl2SC/61-5
64
SUPREME COURT REPORTS
(1958}
1957
relied upon an irrelevant circumstance. Counsel for
17re Oriental
Revenue on the other hand refer to the judgment in
/nvestmentCo.,Ltd.£akshminarayan Ram Gopal v. Government of Hydera17re co;:;;,.1ssioner bad (') where the objects of an incorporated company
of Income-tax, were held not to be conclusive but relevant for the
Bombay
purpose of determining the nature and scope of its
Kapur J.
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. Whether in the instant
case it will have any relevance
because of other
materials on which the assessee company was relying
in support of its case that it was merely an investor
and not a dealer will have to be considered when the
suggested questions of law are answered.
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.
The questions of Jaw that arise out of the order of
the Tribunal are :
(1) Whether there are any materials on the record
to support the finding of the Income-tax Officer that
the assessee company was a dealer in shares, securities
and immoveable property during the assessment year
in question ?
(2) Whether the profits and losses arising from the
sale of shares, securities and immoveable properties of
the assessee company can be taxed as business profits ?
We would therefore allow this appeal, set aside the :
order of the High Court and remit the case to the
High Court for directing the Tribunal to state a case
on the aforesaid two questions. The appellant will
. have its costs in this Court and in the High Court for
the proceedings so far taken. Further costs will be in
the discretion of the High Court.
Appeal allowed.
Case remitted.
(>) [1955) 1 S.C.R. 393; [1954) 25 !.T.R. 449•