STAR COMPANY LIMITED vs. COMMISSIONER OF INCOME TAX (CENTRAL) CALCUTTA

CIVIL APPEAL No. 1635/1968Supreme Court[1970] 1 S.C.R. 77207 August 1969Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER8 pages
AI SummaryDismissed

What were the facts?

The assessee, Star Company Limited, a public limited company dealing in shares and securities, incurred a loss of Rs. 1,11,816 on the sale of 1,575 preference shares of Fort William Jute Company Ltd. These shares were purchased on May 22, 1952, at Rs. 186 per share (significantly above the market price of Rs. 119) and sold on December 23, 1953, at Rs. 115 per share. The purchase occurred shortly after an agreement on May 21, 1952, where Kettlewell Bullen & Co. agreed to sell their entire shareholding in Fort William Jute Company Ltd. to Mugneeram Bangur & Co. or their nominees, with Mugneeram Bangur & Co. becoming the new managing agents. The Income-tax Officer and Appellate Assistant Commissioner rejected the assessee's claim that the loss arose in the ordinary course of business, viewing the purchase as a contribution to the acquisition of managing agency. The Appellate Tribunal, while finding no evidence of the assessee being a pawn, rejected the claim based on the treatment of the loss as an investment loss. The High Court, on reference, also ruled against the assessee, though it noted the Tribunal had not fully considered primary facts indicating the assessee acted at the bidding of Mugneeram Bangur & Co. to help them.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal. Regarding the first issue, it held that the question referred to the High Court was general and not limited by the Tribunal's specific reasons. A question of law for reference must arise from the Tribunal's order. Although the Tribunal rejected some reasons of the lower authorities, its final conclusion that the loss was not in the course of the appellant's share dealing business was material, and the reference was framed based on this conclusion. The department was not required to seek a reference on the Tribunal's supporting reasons. Concerning the second issue, the Court held that even if the High Court's conclusion on the assessee's role in the managing agency transfer scheme was disregarded, the referred question had to be answered against the assessee. Based on admitted and proved facts with extraordinary features, the irresistible conclusion was that the shares were not bought and sold in the ordinary course of the appellant's share dealing business. These facts included the purchase price being significantly higher than the market price, the timing of the purchase relative to the managing agency agreement, the sale back to the same company at a loss, the minimal nature of other share dealings, and the financing of the purchase through an overdraft. The Court affirmed the High Court's answer to the question in the negative, against the assessee.

What were the issues?

1. Whether the High Court was entitled to reverse the findings of fact of the Tribunal, which were in favor of the appellant, when the department had not challenged these findings through appropriate proceedings? (Question of law and fact, turning on the scope of High Court's power on reference). 2. Whether, where a question is one of mixed facts and law, the facts as found by the Tribunal must be accepted as correct, especially when the Tribunal had negatived the finding that the preference shares were acquired as a pawn in the scheme of transfer of managing agency? Assessee's contentions: - The High Court could not reverse the Tribunal's findings of fact without appropriate proceedings by the department. - In cases of mixed law and fact, the Tribunal's findings on facts must be accepted; the Tribunal had negatived the finding of the assessee being a pawn, and the High Court could not reach the same conclusion by disregarding the Tribunal's findings. Revenue's contentions: - Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 66(1)

AI-generated summary — verify with the full judgment below

~ ... 'I 'J - STAR COMPANY LIMITED v. COMMISSIONER OF INCOME TAX (CENTRAL) CALCUTTA August 7, 1969 [J.C. SHAH, ACT!SG C.J., V. RAMASWAMI A A. N. GROVER, JJ.] Income-Tax-Loss arising in the ordinary course of business-Assessee carrying on business of buying and selling shares-Buying certain shares of a company at well above market price as nominee of associate who acq11ired management of company-Selling shares later to a.rsociate al 111arkrt price-Loss on transaclion if in normal course of business.

The K company, \\'ho \\'ere the managing agents of the F Company, entereU into an agreement on f\.fay 21, 1952, with the M Company, where- by the entire share-holding of the K Company consisting of certain prefer- ence and ordinary shares were to be sold to the ~1 Company or their non1inees.

The appellant was a public limlted company carrying on the businc!>s of dealing in shares and securities. Some of the preference shares v.·crc pu'rchascd, amongst others by the appellant at Rs. 185 per share and f0r this ourposc the appellant had to overdraw on its bank account. The m:nket price of the preference shares at the time was about Rs. 119. After the agreement \Vas im

The order continues below.

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