RAMESHWAR PRASAD BAGLA vs. COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW

CIVIL APPEAL No. 1718/1969Supreme Court[1973] 2 S.C.R. 45227 September 1972Bench: 4 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, I.D. DUA, HANS RAJ KHANNA8 pages
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What were the facts?

The assessee, Rameshwar Prasad Bagla, a partner in Agarwal & Co., purchased 62,500 shares in India United Mills Ltd. This acquisition was part of a larger deal where Agarwal & Co. purchased the managing agency of the mill from E.D. Sassoon & Co. Ltd. The assessee's contention was that the surplus realized on the sale of 43,700 of these shares, amounting to Rs. 1,51,927, represented capital gains. The Income Tax Officer (ITO) held it to be taxable profit from sale of shares under Section 10. The Tribunal, after a remand, found that the shares were purchased for securing the managing agency and control, not as stock-in-trade, and thus the surplus was not taxable under Section 10. The High Court, on a reference under Section 66(2), reversed the Tribunal's findings, holding the shares to be stock-in-trade and the profit not capital gain under Section 12-B.

What did the Supreme Court hold?

The Supreme Court held that the High Court was not justified in interfering with the Tribunal's finding of fact. The Court reiterated that in a reference under Section 66, the High Court's jurisdiction is advisory, and it cannot go behind the Tribunal's findings of fact unless such findings are not based on relevant evidence, are based on conjectures, or are unreasonable. The Tribunal had sufficient material, including the fact that shares were from the lot sold by Sassoons to Agarwal & Co. at the original price, and represented the assessee's portion of the total purchase, to conclude that the shares were acquired for managing agency and control, not as stock-in-trade. The Court also noted that borrowing money for purchase and subsequent sale of some shares does not, by itself, convert a capital acquisition into stock-in-trade, citing Ramnarain Sons (Pvt.) Ltd. v. Commissioner of Income-tax. Therefore, the Court found that the profit made on the sale of shares constituted capital gain chargeable to income tax under Section 12-B, which was also the assessee's prayer. The appeal was accepted, the High Court's judgment set aside, and its answers discharged.

What were the issues?

1. Whether there was material for the finding that the shares in question were purchased by the assessee with a view to acquire the managing agency and the control of the company, or whether the shares constituted his stock-in-trade (Section 10, Section 12-B)? - Assessee's contention: The shares were purchased to acquire managing agency and control, and the profit on sale constitutes capital gains, not taxable income under Section 10. The Tribunal's finding supports this. The High Court erred in interfering with this finding of fact. - Revenue's contention: The shares constituted stock-in-trade, and the profit was taxable as business income under Section 10. The High Court correctly found that there was no material for the Tribunal's finding and that the shares were stock-in-trade. 2. Even if the shares in question did not constitute the stock-in-trade of the assessee, whether the profit made on the sale of shares did not constitute capital gain chargeable to income tax under Section 12-B of the Act? - Assessee's contention: If not stock-in-trade, the profit is capital gain under Section 12-B, as prayed by the assessee. - Revenue's contention: Not explicitly recorded, but implicitly against capital gains treatment if shares are stock-in-trade.

Which sections of the Income-tax Act were involved?

Section 10,Section 12-B,Section 66(2)

AI-generated summary — verify with the full judgment below

4 52 RAMESHW AR PRASAD BAGLA v. COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW September 27, 1972 (K. S. HEGDE, P. JAGANMOHAN REDDY, I. D. DUA AND H. R. KHANNA, JJ.] Indian Jncon1e Tax Act, 1922, Sec. 66(2)-Powt•rs of High Court and Supren1e Court nut appellate hut 011/y advisory.

Sec. 10, Sec. 12, (b) ll'hctlu•r surplus realised on the sale of shares originally hou;.:ht for the contrul of the Co111pany and obtaining nianaging· axency, is lit1hle to tax ar _apital Rains or as profit ott sale of shares.

The appcllant-a<Sessec is a partner in A. & Co. Managing Agency oi one textile Mill was assigned by the Managing Agents (S. & C9.) to A. & Co. for consiJcration of huying large nun1bcr of shares and cash. ·rhc appellant bought 31,250 shares.

An equal nurnhcr of shares \\'as iransfcrrcd in his favour by h.s hrothcr.

In 1946, the appellant sold 43,700 shares resulting in the profit of Rs. 1,51.927. Before the income Tax Officer the appellant's content:on was that the surplus Y.'as in the natur~ of capital gains.

The J.T.O. hoY.·cver, held that the amount y.·as liable to taxation u/s 10 of the Act as profits on the sale 0f share~. The tribunal remanded the case to t

The order continues below.

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