Law: Income Tax Act, 1922

Section: 12B

Income-tax Act (XI of 1922)---S. 12-B--Assessee, a limited company and derived income inter alia from gains arising from sale of capital assets--Investment holding company--Functions--Activity of investment holding company cannot be treated as trading in shares on commercial scale, unless it is positively proved that company dealt commercially in shares--Where company sold part of its capital assets, resultant gain/loss was to be dealt with under S.12-B--[1979 PTD (Trib.) 12 overruled]. A company who invests substantial capital in the purchase of shares of a subsidiary company in order to control the operations of the latter is called an Investment Holding Company. Sometimes the whole share capital of such a Holding Company is employed in this manner and no direct trading operations are undertaken. Control of the subsidiary company is secured by acquiring majority of the shares, carrying investing rights, which empower the investment holding company to control the composition of the Board of Directors of the subsidiary company. A company may be authorised to deal in shares and securities. If, therefore, the company buys and sells shares it may amount to carrying on the business in shares and securities. But, if the company is also authorised to invest in shares and securities and, therefore, acts as an investment holding company, in addition to investment dealing company, it will have to be shown that its activity amounted to dealing commercially in shares before profit therefrom is made taxable. If the shares and securities were purchased as investment, it will, notwithstanding the Memorandum that it may deal in shares, will not amount to trading in shares. Activity of assessee as investment holding company cannot be treated as trading in shares on commercial scale, unless it is positively proved that they deal commercially in shares. 1979 P T D (Trib.) 12 overruled. Since company sold part of its capital assets hence the resultant gain/loss is to be dealt with under the provisions of section 12-B of the repealed Act. 1979 P T D (Trib.) 12; I T A No. 2631/LB of 1979-80; case of PICIC 1980 P T D 322; I.T.A. No. 7281 of 1971-72 and In re: Miss Shirin Ayub Khan…

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