Law: Income Tax Act, 1922

Section: 2(4)

Section 2(13) of the Income-tax Act, 1961 [Corresponding to section 2(4) of the Indian Income-tax Act, 1922] - Adventure in nature of trade - Assessment year 1956-57 - Assessee-company, which carried on business of managing agency of tea companies floated new public company in order to purchase certain tea estate in which it got itself allotted nearly 80 per cent shares - Shortly thereafter, assessee managed to sell most of its shareholding, realising substantial profits which Tribunal held as assessable to income-tax, being derived from adventure in nature of trade - Whether in view of facts that there was very small time gap between transfer of estate to new company and sale of its shares to third parties and assessee already had managing agency of said tea estate even before sale, it could not be said that assessee had to acquire of necessity large number of shares for purpose of securing capital asset, viz., managing agency - Held, yes - Whether on facts, it could be concluded that even at time of acquisition of shares, assessee had intention of selling them - Held, yes - Whether therefore, inference reached by Tribunal that it was an adventure in nature of trade which yielded profit in question was amply supported by adequate material - Held, yes FACTS The assessee was a private limited company. Its principal business was to act as managing agents of tea companies. It had the managing agency of an estate called the B Estate from 1949 onwards. The owner of the estate wanted to sell the estate. The assessee entered into an agreement with the owner on 20-10-1954, by which it undertook to purchase the estate for a consideration of Rs. 7½ lakhs. After payment of the sale consideration, the possession of the estate was taken over on 1-1-1955. Thereafter, the assessee floated a new company with an issued capital of 5 lakhs of rupees of 50,000 shares of Rs. 10 each. This company was registered on 18-7-1955. Out of the 50,000 shares issued and allotted, the assessee obtained an allotment of 39,798 shares. Simultaneously with the formation of this company, the assessee offered to part with the shares in its possession at a price at Rs. 13 per share as against the…

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