the Commissioner of Income Tax, Delhi and Rajasthan v. M/s. National Finance Ltd.

Judgment

2 9.C.R. THE COMMISSIONER OF INCOME TAX, DELHI Al\fD RAJASTHAN M/S. NATIONAL FH{ANCE LTD. (S.K. DAs, M. HIDAYATULLAH and J.C. SHAH, JJ.) Income Taa:-OapUal WBB or trading /,ass-Dealer in sparea-Acquisition . of shares tc get agency of company -Sublequent sale of share& incurring loas-Whetlier trading loss -Application to Tribunal dismissed as ba"ed by limitati01&- Reference to High Court dismissed-Appeal by Special Leave against Trtbunal's decision-Maintainability. The respondent was a company dealing in . shares and securities and belonged to a group of companies all controlled by the same persons. In the year of account, corresponding to the assessment year 1951-52, the respondent sold the shares relating to Madhusudan Mills Ltd., which it had acquired sometime earlier, suffering a loss for which it claimed a set-off against the profits in that year.

The Income-tax Officer found that the shares in question had been purchased by J, a company belonging to the group, at a price which wa1 almost double the current market price, that it was so done with a view to removing the sellers from their managing agency and to securing for the respondent the purchasing and selling agency of the Mills, and that after the purchase J achieved the purpose in view of its controlling interest and the purchasing and selling agency of the Milla was given to the respondent, though the latter had done no more than give a loan to J. It was aim found that soon after the plll'Chasc the shares in question came into the possession of the respondent and that when the shares were sold it ~ not in the market but at a loss to another company belonging to the same group. The Income tax Officer came to the conclusion that in getting the shares the respondent did not deal with them as stock-intrade but was acquiring a capital asset of an enduiing nature.

Accordingly, he disallowed the claim holding the loss to be a a capital loss. The Appellate Tribunal, however, held in favour of the respondent on the view that a distinction must be made between the respondent company and J. The Commissioner of Income·tax moved the Tribunal for a reference to the High Court, but it was dismissed on the ground that though it was barred only by one day and there was no negligence on the part of the Commissioner, the Tribunal had no power to extend time. An application to the High Court was also dismissed. The Commissioner of Incomctax then applied for and got special leave to appeal against J.....,, 29 n, C-iJsU... of lltl#trla, Dtllti ad Rajaslhan M/1. ~ati.ruJl FiJUllfci Ltd. the order passed by the Tribunal. When the appeal came on for hearing in due coune the respondent raised an objection that the appeal was not maintainable bec.ause no appeal was filed against the order of the High Court, and relied on the decision in Chandi PrMad Chokani v. State of Hihar, ( 1962)

2 S.C.R. 276. Held, that the appeal was maintainable because there was no question of by·passing the order of the High Court which only related to the correctness of the decision of the Tribunal on the question of limitation which was not the subj.ct of the prrsent appeal. Held, further, that there were special circumstances which justified the grant of special leave. RalJ.v Si7111h v. Commissioner of Income-tax ( 1960), 4-0 I.T.R. 605, applied. Chan di Prasad ChoH111ni v. State of Bihar ( 1962), 2 S.C.R. 276, distinguished. l/elrl, al~n. that, on the facts, the object was tn purchase a largr block rof shares at a much larecr price than the market value to acquire certain agenries of a profitable character, that the purchase of the shares by J was mf'rely a device but the controllinl( interest wa• acquirerl by the respondent, and that the tranc;action must be regarded as one on the capital side. R~mnarain Sons (P.)l.td v. Commi•sioner of Tnwme-taz, (1961) 2 S.C:.R. 904- and Oriental lnvutment Co. lid. v. Commi•.<ioner nf Income-taz, (1958)

S.C.R. 49, applied. Salomon v. Salomon & Co. Ltd. (lll97) A.C. 22, distin. guished. C1v1L APPELLATE Jr.RISDICTION : Civil Appeal No. 559 of 1960. Appeal by special leave from the judgment and ord1>•dated May 1/14, 1957, of the Income Tax A ppella•c Tribunal of India (Delhi Bench) in I.T.A. ~o. 2070 of 1956-57. K.S. Ra,ia.gopal Saslri and D. Gupta, for the appellant. Rodhey J,al Aaarwal and P.C. Aaanml. for the respourleuts. 2 s.c.R. SUPREME COURT REPOHTS 1962. January 29. The Judgment of the Court was delivered by HrnAYATULLAH. J.-This is an appeal against the order of the Income-tax Appellate Tribunal, Delhi Bench, dated May I/ 14, 1957, by which the tribunal, reversing the order of the A pvellate Assistant Commissioner, held that a loss arising from the sale of certain shares by the respondent Company was a capital loss.

Subsequent to the order of the Tribunal impugned here, the Commissioner of Income-tax, New Delhi, who is the appellant before us, had moved the Tribunal for a reference to the High Court on certain questions of law said to arise out of the order of the Appellate Tribunal. That application was found to be barred by one day, and since, under the law, the Tribunal had no jurisdiction to extend the time, the application was dismissed. Against the decision of the Tribunal, an application was filed in the High Court under s. 66(3) of the Income. tax Act; but the High Court dismissed the application, agreeing with the Tribunal that the application to the Tribunal for a reference was barred bv time. The Commissioner of Income-tax then applied for special leave against the order passed by the Tribunal in ~he appeal before it, and the present appeal, with special leave, has been filed.

Before we examine the merits of the case, we shall deal with a preliminary objection raised on behalf of the respondent that the appeal is income· petent, in view of the decision of this Court in Ohandi Prasad Chokhani v. State of Bihar (') where it was held that this Court would not entertain an appeal directly from an order of the Tribunal bypassing the decision of the High Court, except in very exceptional circumstances. The appellant relies upon th~ decision of this Court in Baldev Singh v. Commissiunrr·of Inrome tax (2 ', and contends (I) [1962] 2 S.C.R. 2iG. (2) [1960] 40 l.T.R. 605. The Co111mi.uianer of Jmome-tlx, Dtlhi and RcjOJth!ln Mfr. Notional Finance :.td. Hida-vatttUah J. TAIO-UriMdof r--.IHllli ""' a.;.,,,_ JIA~:.·tt Bilo!lo"""'""' J. that the exooptional circumstances existing in the latter case and adverted to in the former, govern the present oaae. The fsoti:i relating to the filing of the a.pplioa.tion for reference together with the relevant dates are these:

The Tribunal's order was pa.seed by two learned Members, who signed their respective orders on different dates. The Aooountant Member signed his order on May 1, 1957, and the Judioia.I Member, on May 14,1957. The notice of the order was sent to the CommiBBioner of Incometax, Now Delhi, and reached his office by registered post on July '15, 1957. It was received by one Motilal Pathak, a clerk in the office of the Commissioner. Motilal's affidavit shows that he suddenly fell ill, and had to take casual ieave for the day. He returned to the offioe the next day, and dealt with tho notice received from the Tribunal. By a mischanoe, which is easy to appreciate, the date stamp of the receipt of the ·papers was affixed on the 16th, and bore that date instead of the real date, viz., the 15th, on which the papers had actually been received. Relying upon the date stamp, everybody took it for granted that limitation would expire on the 60th day, counting time from July 16, 1957.

The application was filed on the last day of limitation on that supposition. Actually. the application was barred by a day. The Inoometax Tribunal, therefore, dismissed the application on Deoomber 4, 1957. The decision of the Tribunal waa unsuooessfully challenged before the High Court. It is evident that the decision of the Tribunal was quite correct, and the Tribunal had no option but to diamiss the application, since the law gives no jurisdiction to the Tribunal to extend limitation, as is done under s. 5 of the Indian Limitation Act. This Court then granted special leave against the order of the Tribunal passed in the appeal before it, and the question is whether the appeal should be heard or the leave revoked, in view of the decision in Clwkhani's case (1).

In Chokha.ni's case (I), the attempt was to bypass the decision of the High Court on a question referred to the High Court for decision and also another decision of the High Court that no other point of law arose from the order of the Tribunal. It was held that this Court would not allow the High Court to be bypassed, and that an appeal from the decision of the Tribunal in the circumstances was incompetent. A similar view was again expressed in two other cases, viz., ln®an Aluminium Co. Ltd. v. Commissioner of Income-tn.x ('}and Kanhaiyalal Lohia v. The Commissioner of Income-W.x ('). In all the three cases, reliance was placed by the appellants therein upon the decisions of this Court in Dha.kes· wari Cotton Mills, Ltd. v, Commissioner of Incometn.x (4) and BaUlev Singh v. Commissioner of Incometax (') It was pointed out in the judgments of this Court that the two cases relied upon were decided on t.he special circumstances existing there.

In the first, there was a question of breach of the principles of natural justice, which could not be raised otherwise than by an appeal with the special leave of this Court. In the second case, it was pointed out that limitation was lost by the party ~hrough no fault of his, inasmuch as a letter was unduly de'.J.yed in post. In our opinion, in the present case also, special circumstances which justified the grant of special leave in Balde'V Singh's case ('), exist. There was a combination of cireums~ances which Jed to the filing of the application a day late, but in circumstances showing that the default was not due to any negligence on the part of the Commissioner of Income-tax. The receipt of the notice on July 15 is admitted; but the affixing of the date stamp on the 16th was due to the failure of the ( l) [1962] 2 S.C.R. 276. (2) C.A. No. 176of1959, decided on April 24, 1961. (3) [1962] 2 S.C.R. 839. 141 (1955] l S.C.R. 941. (5) (1960] 4-0 l.T.R. 605.

1116S TM C....issiolur •/ 1neo..,.tax,D.W and Rajtu'h°" MJs. NatNruil Finone1 Ltd •. Hidoyotulloh J. 1!132 n. c....,;,,;.,.., of 1 M11111-l4c, D1l.Ai ai Rajoslh .. M/1. Notidcl i'u-u LJd, H~rJ.IJll J. 870 SUPREME OOURT REPORTS [1962) SUPP. clerk to dea.I with the notice on the 15th because be fell ill and ba.d to lea.ve the office. It is com· mon knowledge tba.t da.te stamps a.re altered every da.y in the offrne, and this is done mostly by a very junior employee. The affixing of the date stamp on Ute Jtith a.nd tho notice consequently bearing tha.t d~te went uunoticed, a.nd relying upon the date starnp, the appeal was filed, though on the la.st day of limitation but within time. In these circumstances, it is difficult to say that the Commi· ssioaer of Income-tax was negligent. and the negl!- gence, 1f any, on the part of the clerk in affixing a wrong date st11.mp is oxousa.ble, if one considers his illness and bis absence from the office on the 15th.

In our opinion, this ca.se comes within the rule of llaldev Singh's case (1) and an appeal direct to this Court from the Tribunal's order is justified by the special circum~ta.nces. By this appeal, no decision of the High Court can be said to be bypa.ssed, because the decision of the High Court rela.ted to the correctnesa of the decision of the Tribunal on the question of limitation, which is not a question which is sought to be raised in an indirect way by the pre&lnt appeal. We, therefore, overrule the preliminary objection. The tMllleesee Company is the National Finance Ltd., New Delhi. It is a public limited Company which was incorporated in 1943. It deals in shares and securities and also u financiers. The preaent oase a.rises from a. deal in 3,000 aha.res of the Ma.dhusuda.n Mills Ltd., Bombay, by the 8.88essee Company.

In the year of a.ooount, May I, 1949, to April 30, 1950, corresponding ·to the a.ssessmen•year, 1951-52 the 8.88eBBee Company sold these shares ~uffering a 1088 of Rs. 5,48, 712 8-0, whioh it claimed as one on the ea.le of it.I stock'in·trade. The Inoome·tax OffitJer and the Appellate Allllistant Commissioner held it to be a capital losa. The (I} [l!HiOJ 40 l.T.R. 605. 2 S.C,R. Appellate Tribunal, Delhi Dench, reversed the decision, and held iu favour of the a.ssessee Company. The only question in this appeal is whether the decision of the Tri buna.l is right. The assessee Company belongR to a group of Companies controlled by m,e Lala Y odh Raj Bhalla. and certain perso11s associated with him. It is convenient to describe these persons as the 'Yodh Raj Bhalla group'. These Companies are (I) Jaswant Sugar Mills Ltd., (2) Jaswant Straw Boards Ltd., (3) National Finance .i.,td., ( 4) National Con· struction and Development Corporation Ltd., ( 5) G.>nesh Finance Corporation Ltd., and (6)

Raghunath Investment Trust Ltd. The interrelation .of these Companies is very intimate, and they are practically owned by the 'Yodh Raj Bhalla group ' To understand this, the following analysis of the shareholdings of these Companie!; must be sufficient : (1) Jaswant Sugar Mills Ltd. 2,00,000 shares (i) Jaswant Straw Board Ltd. (ii) NationalFinance Ltd. (iii) National Construction and Development Corporation Ltd. 44,845 67,390 47,800 l,60,035 (i.e. over 80 per cent) (2) Jaswant Straw Board Ltd. · 6,176 shares; ( i) National Finance Ltd. 4, 783 (ii) Na.tional Construction and Development.Corporation Ltd. iiOO 5,:!00 odd (or nearly 84 per cent) Tltt CommissioMr of Income .. tax, Dtlln and Rajasthan Mis . .Na1icmal Finance Ltd. Hi~a.atrdl . .n J, .1161 n.r-~o/ 1-T•, DtlAt .WR,,.,,,._ Jl/1. Nttlw-l ,-.,JM, H~IMJ. 872 SUPREllIE COURT REPORTS [1962) SUPP. (3) National Finance Ltd. (aeaeesee Company) 50,000 sha.res. Ganesh Finance Corporation Ltd. 48,000 (or over 96 per oent) (4)

National Construction and Development Corporation Ltd. 1,30,504 shares. Ganesh Finance Corporation Ltd. 1,30.l>OO (abn011t all) ( 5) Ganesh Finance Corporation Ltd. 00,000 shares. Raghunath Investment Tl'Wlt Ltd. 49,795 (99.6 per cent of the capital) (6) Raghunath Investment Trust Ltd. 10,000 shares. (i) Mr. Yodh Raj Bhalla 1,500 (ii) Mrs. Bhalla 1,000 (iii) Mr. N. C. Malhotra (brotherin-Ja.w) 1,000 (iv) Mr. Ra.m Prasad (father-in-law) 1,000 (v) Mr. Dina.Nath (Secretary) 1,000 (vi) National Finanoe Ltd. 3,499 (vii) Mr. Piyare Lal Saha l 9,000 (90 per cent). The resulting pOBition may be etated thus : Ganesh Finace Corporation Ltd. pr&etioally owne the we•ee Company and National Uonatruotion and Development Corporation Ltd., Raghunath Investment Trust Lt<l. praotioall.} owns the Ganeeh Finance Corporation Ltd., and •Yodh Raj Bhalla group' practically owns Raghunath Investment Truet Ltd. 2 S.0.R. Ja.swant Sugar Mills Ltd. is practically owned by Ja.swant Straw Board Ltd., National Finance Ltd., and N ~tion"l Construction and Development Corporation Ltd., and Ja.swa.nt Straw Board Ltd. is pra.otically owned by National Finance Ltd., and National Construotion and Davelopment Corporation Ltd. Thus, the entire group is owned by a consortium, and there is no doubt a.bout it.

The shares of Madhueudan Mills Ltd. were acquired in the following circumstances : In July 1948, Mr. Yodh Raj Bhalla, who was in a position by re&aon of his holdings in these six Companies to influence decisions of the Board of Direo· tors, arranged to purohase 26,54 7 shares of the }:tills from Messrs. .Bhada.ni Brothers, Ltd., who were the managing agents of the Mills. This block of shares represented about 80 per cent of the total issued capital of the Mills. The purchase was made at Rs. 400 per share, when the price in the market, was a.bout Rs. 250 per share, Out of the remaining shares which were on the market 200 shares were purchased at Rs. 252-8-0 per share, which was then the quoted price. Now, these shares were purchased by Jaswant Sugar Mills Ltd., but the money for the purchase of the shares was obtained by borrowing it from some of the other concerns. These Companies, as has been shown above, were completely under the control of 'Yodh Raj Bhalla group'.

The arrangement for the money was as follows : Re. 14, 75,000 - borrowed from the a.ssesee Company. Rs. 5,00,000 - from National Construction and Development Corporation Ltd. Rs. 55,00,000 - from the assessee Company but advanced by Ganesh Finance Corporation Ltd. Thi Com?1ission1, of lncam1 Tax, Delhi and Rajutlwi Mjs. National Finanet LtrJ. · HidllJalu/lah J. J9G2 TJt1 Commi;ntmr of ltccomt·lax, D1l.U tvJtl Raj•sth.an M /s. J'ratiOMl Fin4t1&1 Ltd. B i41ctwllali J. 8i4 SVPREME COCRT REPORTS [1962] SUPP. The bhares "ere registered as follows : I 0,500 shares registered in the name of the aEsessee Company. 5,400 shares in tho n"1Ile of the National Construction and Development Corporation Ltd., and the balance in the names of the nominees of Jaswant Sugar Mills Ltd., which meant, largely, persons belonging to the 'Yodh Raj Bhalla.group'. On October 9, 1949, the assessee Company purchased 15,54 7 sha.r~s at Ra.

400 per share from Jaswant Sugar Mills Ltd., and the amount paid by the a.ssessee Company was adjusted tow>\rds the purchase pric{> and the balance was paid. On the same day, the remaining 11,000 shares were sold by Jaswa.nt Sugar Mills Ltd. to National Construction and Development Corporation Ltd., at Rs. 400 per share. Thus, on that date Jaswant Sugar Mills Ltd. ceased to have any connection with the present matter. It may be pointed out that on the date on which the two transactions took place, the price ruling in the market was about Rs. 217-8-0. Before Jaswant Sugar Mills Ltd. parted with the shares, they had appointed a new Board of Directors of tho Madhusudan Mills Ltd., and these new Directors also belonged to the same group. The managing agency of Messrs. Bha.dani Brothers Ltd. was terminated, and on the same day on which the aha.res were purchased from these managing agents, the asseBBee Company was appointed as the purchasing and selling agent of the Mills.

Tho a.sseBBce Company ma.de enormous profit from the acquisition of thesP shares by way of dividend and commiBBion as the purchasing and selling a.gent. Jn October and November, 1948 they, however, sold 6,525 shares to Da.lmia Cement and Marketing Company Ltd. at Rs. 400 per share. These shares subsequently oame back to the same group ; but that is not a matter with which we are immediately concerned. On April 7, 1949, 4,500 shares were sold by the assessee Company to the National Investment Trust Ltd. at Rs. 181 per share resulting in a loss of Rs. 8,80,000, and on June 1, 1949, another block of 3,000 shares was sold to the National Investment Trust Ltd., at Rs. 180 per share, resulting in a loss of Rs. 5,86,312. We are not concerned with the loss arising from the first sale which was considered in the assessment year, 1950-51, and in respect of which a reference is pending in the High Court of · Punjab.

We are concerned with the loss in thesecond year relating to the assessment year, 1951-52. In that year, the loss on the sale of the shares was sought to be set off against the profits made, and the loss practically cancelled the profits. The shares which were sold by the assessee Company on the two occasions were sold to one Ail).rit Bhushan (a relative of Mr. Yodh Raj Bhalla) who sold then the same day to Messrs. National Investment Trust Ltd., at tjie slender profits of 8 aunas per share, which was brokerage. Thus, at the beginning and at the end, though numerous transactions had taken place, the shares continued to be the property of the 'Yodh Raj Bhalla group'. The question is whether the loss on the sale of the shares be set off' against the profits in the year in which the sales and profits were respectively made. The assessee Company was assessed for the assessment year, 1950-51, by the Income-tax Officer, Meerut. In that year, the loss of Rs. 8, 78,062-8-0 arising from the sale of Rs. 4,520 shares of Madhusuda1i Mills Ltd. was set off against the profits of the assessee Company. .The case of the assessee Company for the a.ssessment year, 1951-52, was considered by the Income-tax Officer, Central Circle V, New Delhi, to whom the cases of the other Companies abovenamed were also transferred.

By looking into the rne Cornmission1r of Income-tax, Dtlhi and Rajasthan M /s. National Finaru1 Ltd. Hidayotullah J; 196Z n1 C1m11ttJlio1llr of lnc011tt·l4x, Ddlli ad Raja.Iilwl M {s. Notional 1'1-Lld. 876 SUPREME COl:RT REPORTS [1962] St:PP. affairs of these Companies, he ca.me to learn, that the share11 of the M!idhusuda.n Mills Ltd. were purchased at a price, which was almost double the current market price, by the 'Yodh Raj Bhalla group,' and were transferred at the same price to the &BSe· ssce Company. He found that this was done with a view to removing Jlessrs. Bhadani Brothers, Ltd. from their managing agency and to securing for the a.88e88Ce Company the purchasing and selling agency of the Mills. On the date of the purchase from Me88rs. Bhadani Brothers, Ltd., Ja.swant Sugar Mills Ltd. achieved this purpose in view of their controlling interest.

Bhadani Brothers, Ltd. ceased to be the managing agents from that date, and the purchasing and selling agency of tho Ma.dhusudan Mills, Ltd. was given to the asscBSee Company, though it had, on that day, done no more than give a loan to Jaswant Sugar Mills Ltd. In the &88easment year, 1951-52, the loss of Rs.5,86,312-8-0 on the sale of 3,000 shares was, then.fore, disallowed holding it to be a capital 1088. The order of tho Income-tax Officer, Central Circle V, New Delhi was confirmed on appeal by the Appellate Assistant CommiRSioner. On further appeal by tho &88essee Company, the Inoome-tax Appellate Tribunal, Delhi, reversed the order of the Appellate Assistant Co=i88ioner, and h11ld that the 1088 wo.s a trading loss. Whether a particular loss is a trading loss or a loss on the capita.I side undoubtedly depends upon the fa.ots of ea.ch case.

But it has been held, over and over again, that the question is not one of pure fa.ct, and _that a mixed question of fa.ct and law is always mvolved. The cases to which we shall make a reference presently, have la.id down this proposition, and those oa.808 have also indicated how the matter is to be viewed in the context of facts. In Gomrnissioner of lncome-f,ax v. Ramnarain Sons Ltd. (1), the Company was a dealer in shares (1) [1957J 31, !.T.R. 17. and also carried on the business of acquiring managing agencies of other Companies. The Company acquired the managing agency of a. Textile Mill from Messrs. Sassoon J. David and Co. Ltd., and also agreed as part of the same transaction to buy 2,507 shares of the Mills. 1.507 shares were purchased at Rs. 2,321-8-0 per share, and the remam1ng 1,000 shares were purchased at Rs. 1,500 per share. These shares were quoted on the market at Rs. 1,610. Later,4,000 shares were sold at a loss of Rs. 1, 78,000.

This was shown in the books of the Company as a business loss, but was disallowed, as the shares were not held to be the stock-in-trade of the business of the Company as share dealers. On a reference to the High Court of Bombay, a. Divisional Bench upheld the view of the Tribuna]; Chagla,C. J., in delivering the judgment of the Court, observed that a managing agency being an asset of an enduring nature, the way to look at the matter was to enquire what wa• the primary intention in acquiring the Hhares. The learned Chief Justice then referred to a judgment of this Court reported in KishanPrasad & Co. Ltd. v. Cmnmissioner of Income-tax (1), where it was observed:

"It seems that the object of the assessee Company in buying shares was purely to obtain the managing agency of the third mill which no doubt would have been an asset of an enduring nature and would have brought them profits but there was from the inception no intention whatever on the pa.rt of the a.ssessee Company to re-sell the shares either at a profit or otherwise deal in them." The learned Chief Justice then considered the argument that a block of shares might have to be bought, if at all, ~t a higher price, and observed as follows: "A dealer in shares may succeed in getting a large number of shares at a prim~ less than 'l) (1955] 27 I.T.R. 49.53. Tht Commisdorier of lnt0me Tax, D1lhi and Rajasthan M/s. National Finance Ltd. Hidayatulloh J. Thi Commi.J•iontr of l11&omt Tax, Delhi 1nd Rajusthun Alts. JVat~nal F1~ltd.

HidayaJullah J, the market price if the seller is in diffioultiee and wants to jl'et rid of his shares and to get liquid assets, Ent we have not heard of a. dealt>r in shares purchSBing a. large num her of shares at a hi1Zher value than the market value. The other circumstance which is equally strong in this caile is that the she.res were purchased for the acquisition of the managing agency. Therefore the real object of thE' asseBSee company W88 not to do business in these shares, not to make profit out of these shares, but to acquire a capita.I asset out of which it would earn managing agency commission and make profit." ME'BBre. Ramnarain and Sons. Ltd. then appealed to this Court, and the decision of the Bombay High Court was upheld. The ,Judgment of this Court is rP-portPd in Ramnarain Smis (Pr.) Ltd. v. Commi.ssiomr of lncome·la.T (').

It waR laid down by this Court that in considering whether a transaction .was or was not an adventure in the nature of trade, the problem must be app1·ochcd in the light of the intention of the assessee, ha vine regard to the "legal requirements which a.re. a11soci11ted with the concept of trade or business"· Dealing with the price a.hove the market price which was pa.id in that case, it was observed: "Even assuming that the appellants acquired the entire block of 2,507 shares from M/e. SB.1<Soon J. David & Co. Ltd.-the shares transferred to the names of the directors being held by them merely 88 nominees of the appellants-the price per she.re was considerably in exceSB of the prevailing market rate. The only reason for entering into the tramacticn, which could not otherwise be regarded as a prudent busine81' transaction, was the acquisition of the \I) [1%1I2 S.C.R.9(H. managing agency.

If the purpo~e of the acquisition of a large block of shares at a price which eicceeded the current market price by a million rupees was the acquisition of the managing agency, the inference is inevitable that the intention in purchasing the shares was not to acquire them as part of the trade of the appellants in shares." The above two decisions are merely the application of a principle of long standing, which has been stated over and over again in the past. In Orie:ntal Inve,stment Co. Ltd. v. Commi.~sioner of Income-tax (1), that principle was reiterati'ld, and it was that the object for which a company was formed did not invest the deal with the characteristics of a trade in shares, but that other circumstances along with that fact must be considered to find out the real object of a particular venture. Before we dflal with the present case, one other case of this Court may be noticed. In Rajputana Textile,s v. Commissioner of Income-tax (2), the converse conclusion was rPached.

There, on the facts and circumstances of the case, it was held that a particular deal in shares was a commercial venture and had all the attributes of an adventure in the nature of trade. In that case, the transaction was r: .>t a single or an undivided one with a slump p:wment,, because for the managing »gency, RH. 12;.50,000 were paid separately and for the sh:i,re~, .:. mm of Rs. 83,98,000 was paid. The two acquisitions being different, the profit 011 the sale of SOllit3 of the shares was considered to be a gain on the revenue side. There is no doubt, whatever, that the shares of the Madhusudan Mills Ltd. were acquired at a price considerably higher than the market price. In fact, that the price paid was almost double. Such a deal, from the business point of view, was not prudent, unless the purchaser stood t.o gain in some (I) [l<i5UJ S.C.iU9. (2) [1961] 42 !.T.R .743. The Commissioner o J Incame-tnx, Delhi and Rajasth-1n M {•. N'ational Finance Ltd. Hidayatullah J. TA, Commiuimi<r of !tttOfltl-tu, D1lA>i w Rajasth ..

M /s. Jv•tional Finame Lld. HidayaJul/ah J. other wa.y. It was contended before us that this was a speculative deal in the hope that the price of the Rharcs would firm up, when the textile indua· tries would revive. rr thi1 was the intention, then it might possibly be argued that the purchasers miscarried in their calculations, and euffered a 1088 in a business transaction. But, was this the inten· tion of the Directors of Jaswant Sugar Mills Ltd. T Those who sold the shares were not only in posaes· sion of the shares but also of the managing agency of the Madhusudan Mills Ltd., and the intention of the Directors of Jaswant Sugar Mille Ltd. was to removo tho eellors from their po1ition as managing a.gents and to get the entire benefit of euoh or other agencies for themselves. The assessee Company has urged that that might have been the intention of tho ,Jaswa.nt Snga.r Mills Ltd. but not of the aseesseo Co,npany which had, on that day, merely given a loan to Ja.swa.nt Sugar Mills Ltd. Curiously enough, however, the immediate benefit of the deal was the acquisition of the selling and purchasing agency of tho Mills, and that was obtained not in favour of Jaswant Su11:ar Mille Ltd. but of the aeaeseoo Company, even though on July 15, 1948 (the date of purcha~oi the aeeeseee Company had obta.inod registration of ;

0 ,mo shares by way of security in its own name. Why the &118eSsee Company was favoured in this way ia not far to seek. It mattered not whether Ja.swa.nt Sugar Mills Ltd. acquired ti.tat agency or the assePsee Company; the benefit thereof went to the same group of persone. The transaction of sale of the shares was also made within three months of their purchase, and the assessee Company not only bought the 10,500 sharN1 which stood in its name but 15,547 shares, whioh gave the a'!llessee Company a controlling voioe in the affairs of the Mills. The a.sseBBCe Company continued to retain the selling and purchasing agency, whioh was very profitable. Indeed, on its investment in the first year of Rs. 14 lakhe odd, it 2S.C.R. ma.de a profit of about Rs. 7 lakhs. The question, therefore, would be whether the a.ssessee Company in purchasing the shares merely wished to deal in shares as stock-in-trade, or was acquiring a capital asset of an enduring nature.

This question is not one of fact, pure and simple, but one of an inference in law from the proved circumstances of the case. The Income-tax Officer, in deciding this question against the assessee Company, pointed out numerous circumstances, which showed clearly that thia was not a mere purchase of shares as shares by a speculator, who, buying a big block, 11omet,imes pays slightly more than the market rate. Bhadani Brothers Ltd., owned not only the shares but also the managing agency, apd it is obvious that they would not part with the shares without charging for the managing agency. The price of Rs. 400 per iihare was eo out of proportion to the market price that it indicated, by itself, the acquisition of something more than the mere shares. According to the Income-tax Officer, the real intention was to acquire lucrative agencies of the Mills, and this intention, whether it was held by Ja.swant Sugar Mills Ltd. or the a.sse11ed Company or both, was of the same body of persons.

The Appellate Assistant Commissioner endorsed the view of the Income-tax Officer; but the Tribunal made a distinction between one Colllpany and another, and that distinction has been pressed upon us by the assessee Company. Relying upon the well-known case of Salo.man v. Salomon & Co. Ltd. (1), it was argued before us that each company 111ust be viewed as a separate entity, and that the intention of one company could not be attributed to another company, even though the proprietorship of the companies might be same. As a propoeition affecting com· p<\nies, it cannot be gainsaid; but we are not con· oerned with a theoretical qut>stion as to the assessee Company being a separate legal entity, but with the (I) [1897JA.C.22. 19•1 Tlit Commis1ionl" o j Inc0me-ta'C, Udhi arid Rajaatlrt111 M/s. Nation•I Fina~: Ltd. H id'!Yatulld J. n. o...,,,;..;- of /neortU-14Jf, ll1lhi oflll Rajasrllan JI /s. N.i;o .. 1 F;..-. Lid.

Hi41willolt .J. question whether a particular loss made by the assessee Company is a capital or a revenue loss. The two Companies, i. e., Jaswant Sugar Mills Ltd. and the e88e88ee Company, were directed by the same set of persons, and tho facts show that even though Jaswant Sugar Mills Ltd. temporarily acquire tho shares, they conferred all the benefits of the acquisition upon the assessoo Company from the very first day. The assesscA Company also ultimately ca.me into posseSBion of all the shares a.long with another Company, which was also directed hy the 8ame persons, and Jaswant Sugar Mills Ltd. went out of the picture within three months. In these circumstances, it is easy to see that the interposition of Jaswant Sugar Mills Ltd. was merely a device to secure the benefit of the English caae, to which we have referred.

It was never intended that Ja.swant Sugar Mills Ltd. would hold the shares or the benefits arising from the acquisition of a block of shares, givmg to the holder a decisive voice in tho affairs of Madhusudan Mills Ltd. That controlling interest was acquired by the 'Yodh Raj Bhalla group' for the benefit of the ll.SSP.SSco Company, and it was an !!. ~quisition of an interest of an enduring nature. Re(erence was made, in this connection, to the transactions with thP- Dalmia Cement and Marketing Co. Ltd. in which the latter paid the same price namely. Rs. 400 per share. Perhaps, the Da.lmia Company was after the controlling interest in its own way, and it. is significant to note that within a short time, those shares again found their way in the hands of the same ·P.'roup .. Similarly, the shares changed hands even within this group through th:i agency of Amrit Bhushan, no doubt a broker but also a relative of :\fr.

Yodh Raj Bhalla, who profited only to the extent of 8 annas per share, and bought and sold the shares from one Company to another on the same day. All this show that the affairs of these Companies were centrally arranged, and the intention was to benefit the assessee Company by the acquisition of a large blook of shares at a very much larger price than obtaining in the m'l.rket, to acquire certain agencies of a profitable character. In our opinion, this transaction must be regarded as one on the capital side. Shares were never treated as part of the stock-in-trade. Tb.ey were not sold in the market, but were sold at a loss to another Company belonging to the same group, with the obviouR intention of setting off the losses against the profits, thus cancelling the profits, and saving them from taxation. In the result, the appeal is allowed with costs on the respondent. Appeal all(JWed. EMPLOYERS IN RELATCON TO THE BHOWRA COLLIERY THEIR WORKMEN (P. B. GAJENDRAGADKAR, A. K. SARKAR and K. N. WANCHOO, JJ.)

Indualrial Di1pute-Bonua-Mali1 Working in ~fficers bungalowa_:Whether entiUe~Ooal Mines Provident Fund and Bonus 8cheme1 Act, 1948 (46 of 1948) •· 5. In exercise of the power conferred by s. 5 of the Coal Mines Provident Fund and Bonus Schemes Act, 1948, the Central Government frame.d a Bonus Scheme for the payment of bonus to employees of coal mines. Paragraph 3 of the scheme made every employee in a coal mine eligible for a bonus except, inl<ir alia, "a mali on domestic and persorn~I work". The question for consideration was whether under thi< paragraph the malis workin' in the officers' bungalows had any right to bonus Held, that these malis were not entitled to any bonus under tho Bon·tS Scheme. Paragraph 3 contemplated malis who were emplovces of thf'.: colliery owners and were yet on domestic work. D1.nestic meant as of the home. The malis The CommiasiontJ of lncome~,ax, Dflhi and RajaJthan .1.\1 f°J. Na 1io'lal Finance Ltd. H 1d1J1alullah J. Jc..,,,,,y30.