1969 PLP 167 (PTD)
COMMISSIONER OF INCOME‑TAX, BOMBAY CITY‑I Versus TRUSTEES OF LADY WADIA
| Citation | 1969 PLP 167 (PTD) |
| Forum / Court | Bombay (India) |
| Bench Members | Y. S. Tambe and Y. S. Desai, JJ |
| Parties | COMMISSIONER OF INCOME‑TAX, BOMBAY CITY‑I Versus TRUSTEES OF LADY WADIA |
| Primary Law | Business, STATEMENT OF CASE |
Q1: What are the key laws and sections cited in 1969 PLP 167 (PTD)?
This judgment primarily cites: Business, STATEMENT OF CASE as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 1969 PLP 167 (PTD)?
The case was heard and decided by the Bombay (India) bench comprising: Y. S. Tambe and Y. S. Desai, JJ.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 1969 PLP 167 (PTD) (COMMISSIONER OF INCOME‑TAX, BOMBAY CITY‑I Versus TRUSTEES OF LADY WADIA). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Laws Cited
Headnotes / Summary
‑Will‑Trustees‑Power to invest and 'vary invest ments‑Sale of shares‑Whether trustees dealers in shires‑Sale within three years of purchase‑Beneficiary dealer in shares- Effect. W executed a will in 1929 under which she left three properties solely for her grandson, J. By a codicil to the will she gave power to the trustees to sell the properties and invest the proceeds in shares and securities. Under clause 24 of the will power was given to the trustees to invest and to vary the investments from time to time. W died in 1930, In pursuance of the powers conferred upon them the trustees realised the properties and invested the moneys and also varied the investments from time to time. In 1954 the trustees sold four blocks of shares one of which they had held since 1945 and the other three since 1951. J, the beneficiary, himself had some dealings in shares. The Appellate Tribunal held that the surplus realised by the trustees on the sale of the shares was not income but a capital gain as there was no proof that the trustees had an intention to make profit when they purchased the shares and that all that the trustees did was merely to change the investments. On a reference : Held, that the Tribunal was right in its conclusion that the trustees could not be held to be dealers in shares and that the surplus realised by the sale of the four blocks of shares was not income. The mere circumstance that three out of four blocks of shares were disposed of within a period of three years was not sufficient to characterise the action as dealing in shares. The circumstance that J had himself some dealing in shares and might have influenced the trustees in varying the investments was inconclusive. By this application, the Commissioner of Income‑tax requires the Tribunal to refer to the High Court certain questions of law which are said to arise out of the Tribunal's order in I. T. A. No. 8648 of 1958‑
59. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order, we hereby draw up an agreed statement of the case and refer it to the High Court of Judicature at Bombay under section 66(1) of the Indian Income‑tax Act, 1922.
2. The material facts are as follows By a will executed by Lady Aimai Wadia, wife of Sir Hormusji Ardeshir Wadia, on January 26, 1929, the relevant extract from which is annexed hereto as Annexure "A" and forms part of the case, Messrs J. B. Wadia and four others were appointed executors and trustees of the will. Lady Wadia died on April 14, 1930, and the will took effect on that date. By clause 7 of the will Lady Wadia left three properties solely for her grandson, J. B. Wadia. Though the trustees were prohibited under this clause from selling the properties, by clauses 12 and 13 of the codicil dated September 25, 1929, she gave power to the trustees to sell these properties and invest the proceeds in shares and securities. Clause 24 of the will gives the trustees power to invest the moneys in their names in certain investments with power to vary the same from time to time.
3. In pursuance of the powers conferred under the will, the trustees realised the properties and varied the investments from time to time. During the calendar year 1954, which is the previous year relevant for the assessment year 1955‑56, they sold some of the shares held by them and realised a sum of Rs. 27,811 as surplus. The details regarding the shares sold during the year are as follows : Shares Sold Sale Price Cost Difference Date of acquisition Rs. Rs. Rs. 180 A. C. C. shares 34,200 25,544 8,656 April 1951. 650 New India shares 38,025 28,529 9,496 February1951. 10,000 B. B. Petrol Shares 35,084 30,081 5,003 1946. 800 Indian Cable shares 15,550 10,894 4,656 November 1951. 27,811
4. In making the assessment for 1955‑56, the Income‑tax officer included the said sum of Rs. 27,811 treating the trust. as a dealer in shares. The assessment order is annexed hereto as Annexure "B" and forms part of the case.
5. When the matter came in appeal before the Appellate Assistant Commissioner he observed as follows : "According to the Tribunal's decision in a case the difference is capital gain if the interval between the sale and purchase is more than three years, otherwise revenue profit. On going through the detailed statement of purchases and sales of shares filed by the appellant before me, I find that the interval between purchase and sale in the case of New India and Indian Cables is three years. The profit of' Rs. 14,152 made in the sale of these shares is, therefore, a revenue profit. The interval between the purchase and sale of shares in the case of the other two companies is more than three years. The difference of Rs. 13,659 in these two cases is, therefore, capital gain. The Income‑tax officer is directed to treat the total difference of Rs. 27,811 in the manner indicated there." Thus the Appellate Assistant Commissioner confirmed the assessment to the extent of Rs. 14,152 after eliminating the surplus realisation on the sale of shares in Associated Cement Company Ltd. and B. B. Petroleum Co, Ltd., which had been held for more than three years. The order of the Appellate Assistant Commissioner is annexed hereto as Annexure "C" and forms part of the case.
6. The trustees came in appeal to the Tribunal against the decision of the Appellate Assistant Commissioner while the Department accepted the decision of the Appellate Assistant Commissioner. It may be appropriate at this stage to mention that there is no dispute about the position that the administration of the estate is complete and that the executors have shed their executorial character and have become trustees. It was contended for the trustees before the Tribunal that they were not carrying on any business, that the variation of the investments was only a normal act of the trustees in pursuance of the powers conferred on them and that the sale of shares ought to be treated as that of a capital asset. It was also contended for the trustees before the Tribunal that, even if the contention of the Appellate Assistant Commissioner was accepted, then the profits on only one investment, i.e., the Indian Cables, could be considered as trading, being held for less than three years. Even in the case of the Indian Cables, it was contended by the trustees that, if he trading income of the trust was to be considered as assessable in the hands of J. B. Wadia under section 41 of the Act, then the interval between sale and purchase applicable to Mr. Wadia should apply. Here it may be stated that in the case of Mr. Wadia the interval has been laid down at two years. The Indian Cables were sold after two years and two months.
7. The Departmental Representative on the other hand contended that the trustees had been given power to make the investments, that there was nothing in the trust to show that the trustees should set apart the excess realised by change of the investments and add it to the capital, and that the period between the purchase and sale which is the criterion for determining the assessability was so short that an inference of an intention to make profit could reasonably be drawn.
8. The Tribunal, for the reasons set out in its order annexed hereto as Annexure "D" and forming part of the case, held that there was no proof of the trustees having had an intention to make a profit when they purchased the said shares and that all that they did was to change the investments in the best interests of the trust as directed by testator.
9. On the above facts, the question of law that arises is : "Whether, on the facts and in the circumstances of the case, the trustees could be treated as dealer in shares for the assess ment year 1955‑56 ?"
10. In the application for reference, there is another question that is sought to be raised and that runs as follows : "If the answer to the above question (i.e., the question as framed by the Department in its application for reference) is in the negative, whether the Department would be justified in taxing the impugned profit in the hands of the sole beneficiary, viz., J. B. Wadia, for the assessment year 1955‑56 under section 41 of the Act ?"
11. The above question raised the point as to whether the beneficiary can be directly assessed on the surplus realised on the sale of the shares, even if such surplus is not assessable in the hands of the trustees. In this reference the trustees are the respondents. The determination of the question is not relevant for the assessment of the trustees. Further, as capital gains were riot liable to be taxed during the relevant year, this point was considered to be purely academic. This is what the Tribunal observed in paragraph 7 of its order : "As capital gains are not taxable for the year 1955‑56 the question whether it is to be taxed in the hands of the assessee or of its beneficiary is only academic and requires no decision." The question framed by the Department does not, therefore, arise out of the Tribunal's order. The Tribunal has given no finding thereon. Hence, in our opinion, this question cannot be referred to the High Court especially after the recent pronouncement of the Supreme Court in Kusumben D. Mahadevia v. Commissioner of Income‑tax ((1960) 39 I T R 540). We accordingly decline to refer the same to the High Court. G. N. Joshi with R. J. Joshi for the Commissioner. N. A. Palkhivala with B. A. Palkhivala for the Assessee.
Judgment & Decree
V. S. DESAI, J.‑This is a reference under section 66(1) of the Income‑tax Act at the instance of the Commissioner of Income‑tax and the question which arises for consideration on the reference is "Whether, on the facts and in the circumstances of the case, the trustees could be treated as dealer in shares for the assessment year 1955‑56 ?" On the 26th January 1929, Lady Wadia executed a will, under clause 7 of which she left three properties solely for her grandson, J. B. Wadia. Under the said clause, the trustees appointed under the will were prohibited from selling the properties. On the 25th September 1929, Lady Wadia executed a codicil, under which she gave power to the trustees to sell the properties and invest the proceeds in shares and securities. Under clause 24 of the will, power had been given to the trustees to invest moneys in their names in certain investments with power to vary the investments from time to time. Lady Wadia died on 14th April 1930, and the will took effect on that date. The trustees, in pursuance of the power conferred upon them under the will, realised the properties and invested moneys in investments which they also varied from time to time. During the calendar year 1954, which was the previous year relevant for the assessment year 1955‑56, they sold some of the shares held by them and the sale resulted in a surplus of Rs. 27,
811. Now, these sales which were effected in the year 1954 were of four blocks of shares held by the trustees‑one of the four blocks was held by them since the year 1946 and the other three were acquired in the year 1951. At the date of the sale, two of these three blocks acquired in 1951 had been sold within three years of their purchase and the third a little beyond three years. In making the assessment for the year 1955‑56, the Income‑tax Officer included the entire surplus of Rs. 27,811 as taxable income treating the trustees as a dealer in shares. In the appeal which was filed by the assessee against the assessment order to the Appellate Assistant Commissioner, the surplus realised on the two blocks of shares which were sold within a period of three years, of their acquisition was treated as income from dealing in shares and the surplus on the other two .blocks was considered as capital gain, relying on a decision of the Appellate Tribunal in a certain other case, in which the Tribunal had taken the view that if the interval between sale and purchase was more than three years, it should be considered as capital gain, but if it was less than three years, it should be regarded as a profit. The Appellate Assistant Commissioner accordingly held that an amount of Rs. 14,152 out of the surplus was only assessable to tax, the balance being in the nature of capital gain. Against this decision of the Appellate Assistant Commissioner, the assessee took a further appeal to the Tribunal. The Tribunal on the facts and in the circumstances of the case took the view that there was no proof of the trustees having had an intention to make a profit when they purchased the shares and that all that they did was to change the investments in the best interests of the trust as directed by the testator. According to the Tribunal, the entire amount of Rs. 27,811 was a capital gain and no part of it was income liable to tax in the assessment year 1955‑
56. It accordingly allowed the appeal of the assessee. Then, at the instance of the Commissioner, it drew up the statement of the case and referred to this court the question which we have already stated. In our opinion, the view that the Tribunal has taken is on the conclusions that it has arrived at on the facts of the case and no error of law has been committed by it in arriving at the said conclusions. Under the will, the trustees were directed to make investments in any of the investments specified and they had also been given power to vary the investments in the best, interests of the trust. In pursuance of this power the trustees have made the investments and they have also varied them from time to time as they deemed fit in the interests of the trust. It is no doubt true, that simply because the will directed the trustees to make investments, it would not follow that the dealings, indulged, in by the trustees were necessarily investments and not dealings in shares and the question whether activity of the trustees was to make investments or to deal in shares will still have to be determined in the light of the facts and circumstances of the case. It was urged by the learned counsel for the revenue that the frequency of the transactions would be a circumstance indicating that the dealings were with a view to make profit by way of business and he has pointed out that three blocks of shares have been disposed of within a period of three years after their acquisition. Investments by trustees, says the counsel, will be for a long period and, although they live power of varying the investments, the power will ordinarily not be very frequently exercised. On the record in the present case, we have variation in respect of only four blocks of shares. One block of shares had been held by the trustees since the year 1946 and the rest from the year 1951. The mere circumstance that the investments in three of the four blocks were disposed of within a period of three years or so would not, in our opinion, be sufficient to characterise the action as dealing in shares. It is next pointed out that the beneficiary has some dealings in shares himself and since he is also one of the trustees and the investments are for his benefit, variations of the investments in the present case by the trustees may have been influenced by the advice given by the beneficiary with a view to making profit by dealing in share business. The circumstance pointed out is again of an inconclusive character and does not warrant a necessary inference such as is suggested on behalf of the Department. Moreover, both of these circumstances were pointed out to the Tribunal and it has taken the view that they are not sufficient to come to the conclusion that ‑the intention of the trustees in varying the investment was to, deal in shares. Since neither of the circumstances is such as taken by itself or along with other a conclusion contrary to that arrived at by the Tribunal must necessarily follow, no error of law can be said to have been committed by the Tribunal in arriving at its decision. In our opinion, therefore, our answer to the question is in the negative. The Commissioner will pay the costs of the assessee. Question answered in the negative.