Law: Income Tax Act, 1961

Section: 66(1)

Section 2(13) of Income-tax Act, 1961 - Business - Adventure in nature of trade - Assessment year 1956-57 - Assessee company purchased shares and sold part of it - Assessee claimed that shares were purchased by way of investment and profit amount to capital gains - Tribunal found as of fact that assessee purchased shares out of borrowed fund and did not make sale on account of any pressing necessity - Whether on facts dominant intention of assessee being to make profit by resale of shares and not to make investment Tribunal was correct in holding that transaction was adventure in nature of trade - Held, yes FACTS The assessee was a public limited company and it was controlled by the Birlas. The assessee applied for certain shares of the Gwalior Rayon, also a company controlled by the Birlas. The assessee which was interested in the rayon company and which had already purchased 1,000 ordinary shares, subscribed for 3,49,000 shares of the new issue and paid an amount as application money on the 25-2-1951 and 27-2-1951, and paid an amount as final call money on 10-8-1951. These purchases were authorised by a resolution of the assessee dated 7-2-1951. The assessee sold a part of its stock, viz., 1,58,200 shares at a profit of Rs. 2,13,150. For the relevant assessment year (accounting year ending on 31-3-1956), the ITO sought to assess the amount on the basis that it was profit accruing to the assessee from an adventure in the nature of business. The assessee contended that the amount represented capital gain as the shares were purchased by way of investment and that the same could not be taxed as revenue receipt. The ITO rejected the contention. The assessee filed an appeal before the AAC. He confirmed the order. The Tribunal came to the conclusion, after considering all the circumstances, that the transaction was in the nature of a business adventure and that profits were liable to be taxed. The reasons which induced the Tribunal to come to this conclusion were : the assessee was authorised by clauses 12, 13, 28 and 29 of paragraph 3 of its memorandum of association to buy and sell shares; there were specific resolutions of the company authorising a director of…

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