COMMISSIONER OF INCOME TAX, NAGPUR vs. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD.

CIVIL APPEAL No. 1877/1970Supreme Court[1976] 1 S.C.R. 12625 July 1975Bench: 4 JudgesAuthor: A.N. RAY, KUTTYIL KURIEN MATHEW, V.R. KRISHNA IYER, S. MURTAZA FAZAL ALI COMMISSIONER OF9 pages
AI SummaryAllowed

What were the facts?

The assessee, Sutlej Cotton Mills Supply Agency Ltd., acquired shares in a newly floated sister concern and later sold a portion of these shares at a profit of Rs. 2,13,150. The Income-tax Officer and the Appellate Assistant Commissioner assessed this profit as arising from an adventure in the nature of business. The Appellate Tribunal upheld this view, citing the assessee's Memorandum of Association authorizing share dealings, a specific resolution to buy and sell shares, inclusion of the profit in the profit and loss account, purchase with borrowed funds, and past dealings in shares as business transactions. The High Court, on reference, disagreed, holding that the Memorandum of Association did not authorize such business, the profit and loss account inclusion was not conclusive, there was no evidence of borrowed funds, and a solitary transaction couldn't establish trade. The High Court also assumed the dominant intention was to boost a sister concern's shares.

What did the Supreme Court hold?

The Supreme Court held that the Tribunal's finding that the dominant intention of the assessee was to make a profit by the resale of shares, and not to make an investment, was a finding of fact. The Court emphasized that when the Tribunal considers the evidence and applies the correct legal tests, its findings of fact are not subject to interference. The High Court's conclusion was based on unwarranted assumptions of fact, particularly the assumption that the shares were purchased to help a sister concern, a case not set up by the assessee. The Tribunal's reasoning, including the fact that the shares were purchased with borrowed funds on which interest was paid, and that the proceeds were kept as cash in the bank rather than used to liquidate debts, were relevant circumstances pointing to a business character. The Court reversed the High Court's judgment, allowing the appeal.

What were the issues?

1. Whether the profit of Rs. 2,13,150 arising from the sale of shares is assessable as business profit, turning on the determination of whether the transaction constituted an adventure in the nature of trade under the Indian Income Tax Act. Assessee's contentions (as inferred from the High Court's reasoning and the Supreme Court's observations): The purchase of shares was an investment, and the sale was necessitated by creditor pressure. The dominant intention was not to carry on an adventure in the nature of business. The High Court's finding that the dominant intention was to boost a sister concern's shares was an unwarranted assumption not supported by the facts presented to the Tribunal. Revenue's contentions (as inferred from the Tribunal's findings and the Supreme Court's reasoning): The transaction was an adventure in the nature of business, supported by the assessee's Memorandum of Association, specific resolutions, inclusion of profit in the P&L account, purchase with borrowed funds, and past dealings in shares. The dominant intention was to make a profit by resale.

Which sections of the Income-tax Act were involved?

Section 66(1)

AI-generated summary — verify with the full judgment below

1is COMMISSIONER OF INCOME TAX, NAGPUR v. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD.

July 25, 1975 [A. N. RAY C. J., K. K. MATHEW, V. R. KRISHNA IYER AND S. M. FAZAL ALI, JJ.] lncome~tax-Juri iction of a High Court on reference-Scope of-.4 3ingle adventure-Tests for determining whether in the nature of business.

The asses.see acquired shares in a newly floated sister concern and later sold a part of its stock at a profit. The Income-tax Officer assessed the profit to tax on the basis that i~ was profit accruing to the assessee from an adventure in the nature of business, and the order was confirmed by the Appellate AMistant Commissioner.

On appeal the Appellate Tribunal held that tho U'an!action was in the nature of business adventure; that the assessee by itl Memorandum of Assoc:ation was authorised to buy anct sell shares; that there was a specific resolution to buy and sell shares; that the assessee included the profit on the sale of shares in _its profit and loss account without showina it in any reserve account, that the shares were purchased from borrowed fund! and not with ready cash; that the sales were not on account of any pressiq necessity; that it

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 66(1)

All 184 judgments and leading authorities on Section 66(1) →

Recent GST High Court judgments

Search GST case law →