M/S. RAMNARAIN SONS (PR.) LTD. vs. COMMISSIONER OF INCOME TAX, BOMBAY

CIVIL APPEAL No. 698/1957Supreme Court[1961] 2 S.C.R. 90405 December 1960Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH SONS7 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. Ramnarain Sons (Pr.) Ltd., a private limited company dealing in shares and securities, purchased shares of Dawn Mills at a price significantly higher than the market rate to acquire its managing agency. Subsequently, the assessee sold some of these shares, incurring a loss of Rs. 1,78,438. The Income-tax Officer disallowed this loss, viewing it as capital in nature. The Appellate Assistant Commissioner upheld this decision. The Income-tax Appellate Tribunal, however, held that while the shares were not stock-in-trade, the loss was incidental to the business of acquiring managing agencies and thus allowable as a revenue loss. The Bombay High Court, on reference, ruled that the shares were a capital asset and the loss was of a capital nature. The assessee appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the High Court had taken the correct view. The Court reasoned that the intention of the assessee in purchasing the shares was to acquire the managing agency, which was a capital asset, and not to trade in those shares as part of their share dealing business. The fact that the shares were purchased at a price significantly above the market rate, solely to gain controlling voting rights for the managing agency, indicated a capital investment rather than a trading transaction. Merely because the managing agency could be utilized for earning profits did not convert the shares into stock-in-trade. The Court found it difficult to appreciate the Tribunal's reasoning that the loss was incidental to the business of acquiring managing agencies when the shares themselves were not stock-in-trade. The Court affirmed that the acquisition of the managing agency was an acquisition of a capital asset, and the loss incurred on the sale of the shares was of a capital nature. The appeal was dismissed.

What were the issues?

1. Whether the acquisition of the managing agency of Dawn Mills Co., Ltd. was in the nature of a "business" carried on by the assessee company, as per Section 66(1) of the Indian Income Tax Act, 1922? 2. If the answer to the first question is affirmative, whether the loss of Rs. 1,78,438 suffered by the assessee company on the purchase and sale of 400 shares of Dawn Mills Co., Ltd., being incidental to its business of acquiring the managing agency, was a loss of a revenue nature? Assessee's Contentions: The assessee argued that the acquisition of the managing agency was part of its business activity and the shares were purchased in the regular course incidental to this business. Therefore, the loss incurred on the sale of these shares should be treated as a revenue loss. The assessee also contended that the High Court erred in its interpretation of the facts and the law. Revenue's Contentions: The revenue contended that the shares were acquired as a capital asset with the intention of obtaining the managing agency, not for trading purposes. Consequently, any loss incurred on the sale of these shares was of a capital nature and not deductible as a revenue loss.

Which sections of the Income-tax Act were involved?

Section 66(1)

AI-generated summary — verify with the full judgment below

904 SUPREME COURT REPORTS [1961] 1960 the result that there will not be any evidence ta.ken Sh . -.;: Oth by the committing Magistrate which could be used as mam v. "'substantive evidence under s. 288 of the Code. Even The state of if the prosecution takes that risk, the Magistrate shall Bombay exercise a sound judicial discretion under the second part of sub-s. (4) of s. 207A in forming the opinion Suhba Rao J. whether witnesses should be examined or not, and . any perverse exercise of that discretion can always be rectified by a superior court. But there may be a. case where the Magistrate can make up his mind definitely on the documents referred to in s. 173 without the a.id of any oral evidence and in that event he would be within his rights to discharge or commit the accused, as the case may be. In this view, it is not necessary to express our opinion whether even if the Magistrate acted illegally in committing an accused without tak- ing any evidence, the said illegality is cured either by x960 December 5. s. 537 of the Code or any other section thereof.

In the result, the appeals fa.ii and a.re dismissed.

Appoola dismisse,d. M/s. RAMNARAIN SONS (

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 →