1971 PLP 125 (PTD)

KOTVAL, C. J.‑The following question has been referred under section 66(1) of the Indian Income‑tax Act for our decision : "Whether the inference of the Tribunal that the profits of Rs. 52,075 and Rs. 29,035 are only capital gains and not trading profit of the respective assessment years 1953‑54 and 1954‑55 is in accordance with law?" The assessee is Messrs Ramnarain Kapur & Co. (Private) Ltd. in which at the material time the members of the family of Ramnarain Kapur held the controlling shares as indicated below: Ramnarain Kapur 3,700 Ramnath Kapur (son) 400 K. S. Srinivasa 400 Miss Lakshmi Kapur and Master Chandra Kapur by their father and guardian R. N. Kapur 400 Air Lines Hotel Ltd. 100 5,000 The company was by its memorandum of association empower ed to carry on in India and elsewhere the business of "agency in all its branches and to act as managing agents for other companies in India or in any other country or place" (clause 1), to carry on and transact every kind of agency business (clause 2) and "to act as managers or managing agents of any corporation whether limited or unlimited"(clause 3). The company was also authorised by clause 6 of its memorandum of association "to invest and deal with the money of the company not immediately required upon such securities and in such manner as may from time to time be de termined by the directors and to place any such moneys on deposit with bankers or financial or mercantile houses or companies" and by clause 7 " . . . . . Jo hold, dispose of and deal in Government securities and stock`, shares and securities of any other company". Thus, the company had authority, inter alia, to act as managing agents of other companies and to carry on and transact every kind of agency business and, on the other hand, to deal in stocks and shares. Acting under these powers the company bought and sold shares of two companies (1) the New Glen Morgan Estates Ltd. and (2) Amalgamated Coffee Estates Ltd. and subsequently sold them resulting in income to the assessee‑company. The assessee claimed that this income from the sale of the shares was not liable to the tax as it was merely in the nature of capital gains. It showed the said amounts as profit from capital gains in its returns. On the part of the Department the case made out is that the assessee‑company was merely dealing in stocks and shares as they were empowered to do under clauses 6 and 7 of the memorandum of association and these were merely business profits in the course of their dealing in stocks and shares. Before we proceed to state the details relating to the purchase and sale of shares of each of these two companies, some other facts mentioned in the statement of the case need to be recounted. The assessee‑company was incorporated on 14th November 1949, with a paid‑up capital of Rs. 50,000 of which Rs. 37,000 was subscribed by its Chairman R. N. Kapur. With the aid of this capital and borrowings the assessee‑company commenced to purchase shares of various companies, particularly of the Arthala Tea Estates Ltd. By purchasing a controlling interest it also acquired the managing agency of this company on the 19th April 1951. On the 30th April 1951, the total share holdings of the assessee‑company as shown in its balance‑sheet stood at Rs. 5,02,790‑10‑

0. From 1953 onwards the assessee also commenced the purchase of shares in Poonmddi Tea & Rubber Co. Ltd. for and on behalf of Arthala Tea Estates Ltd. The shares of Poonmudi Tea & Rubber Co. Ltd. held by Arthala Tea Estates Ltd. along with the shares purchased by the assessee‑company enabled the assessee‑company to acquire the managing agency of Poonmudi Tea & Rubber Co. Ltd. The assessee‑company also held 10,000 shares of a company known as Alagappa Textiles (Cochin) Ltd. acquired at Rs. 9‑3‑0 per share. The assessee sold 800 of these shares in December 1951, and in January 1952, at Rs. 9 per share. The assessee showed that it had incurred a loss as a result of these sales of Rs. 6,646‑12‑0 in the account year ended 30th April 1952, and claimed it as a business loss. These facts are merely relied on as indicative of the nature of the assessee's business by one or the other party. The facts relating to the transactions which are the subject -matter of the question referred are as follows : We have already shown how the control of the Arthala Tea Estates Ltd. was obtained and its managing agency acquired by the assessee -company by 9th April 1951. On the 12th April 1951, the board of directors of the assessee‑company passed the following resolu tion (we reproduce only the material part): .

2. Since we will be shortly taking over the managing agency of the Arthala Tea Estates Ltd. to make it more remunerative to us as managing agents; Resolved to purchase some other South Indian tea company's shares with a view to take over the managing agency as and when possible.

3. Resolved further that the company hereby authorise the directors to buy as many shares as possible of‑the New Glen . Morgan Tea Estates Ltd. now appearing attractive at a discount in pursuance of the above object of securing managing agency of this company once a majority is obtained.

4. Further resolved that the directors be authorised to buy these shares from time to time as and when available, at a rate not exceeding Rs. 1‑12‑0 per share." Pursuant to this resolution the assessee purchased first 97,300 shares of Rs. 2 each fully paid in the New Glen Morgan Estates Ltd. on the dates and at the rates quoted below: Date No. Rate Rs. As. Ps. 19-4-1951 45,500 1 10 0 25-4-1951 45,000 1 7 0 27-4-1951 6,806, 1 8 0 The assessee also entered into a contract with a broker to purchase further 45,500 shares at Rs. 1-7-0 per share for a total sum of Rs. 68,

408. This contract was made in the 20th May 1951. thus these shares were all purchased between the 19th April 1951 and the 20th May 1951, i.e., within one month. Between these dates the ruling market quotation of the share of the New Glen Morgan Tea Estates Ltd., it has been found was between Re. 1 and Rs. 1-4-0 per share. Shortly after the said shares were sold by the assessee-company to a certain broker by name Lalbhai Hirachand. The details of the sales are as follow; Date No. of shares sold Rate Gross amount Net cost Profit Rs. Rs. Rs. Rs. 25‑5‑51 97,300 2‑3‑9 2,17,404‑11‑0 1,48,825‑0‑0 44,255 5‑7‑51 45,500 1‑9‑9 73,226‑ 9‑0 65,406‑4‑0 7,820 Profit : 52,075 As regards the first item of sale of 97,300 shares on the 25th May 1951, Ramanarayan Kapur the principle shareholder of the assessee‑company, received a commission for himself of Rs. 24,

324. It does not appear that he received any commission on the second item of sale of the shares. The assessee showed the figure of Rs. 52,075 arrived at as shown above in his return for the year ended 30th April 1952, being the previous year for the assessment year 1953‑54, but he declared that the gain was a gain on capital account on the ground that it was earned only in the course of the attempt to secure the managing agency of the company and not from any regular trade in shares. The claim which it had made in regard to the loss sustained in the sale of the shires of Alagappa Textiles (Cochin) Ltd. of Rs. 6,646‑12‑0 as a business loss, was made in the same return but was later on withdrawn as an erroneous claim made by the assessee. The facts regarding the transactions of another company, which is also the subject‑matter of the question referred, viz. the Amalgamated Coffee Estates Ltd., are as follows: On 25th January 1952, the board of directors of the assessee -company passed the following resolution: "Shri R. N. Kapur brought to the notice of the board that with a view to acquire the managing agency of the Amalgamated Coffee Estates Ltd. he had a talk with H. H. General Mrighendra Shum Shere Jung Bahadur Rana at Bombay during his visit a week back to acquire his holdings in the above company. He states that the Rana said that he would be interested to sell his holdings of Amalgamated Coffee Estates, that is to say, 6,000 ordinary and 6;000 preference and Rs. 60,000 face value debentures on the advice of Mr. K. U. Advani, Share Broker, Bombay. Resolved to authorise Mr. R. N. Kapur to arrange to buy the above lot in full for the company at Rs. 5‑8‑0, Rs. 6‑8‑0 per share and Rs. 93‑8‑0 for debentures, being the minimum reported acceptable to the holder, with a brokerage of Rs. 6,000 to the broker Mr. Advani..." Pursuant to this resolution, the assessee bought 6,000 ordinary and preference shares of each class and debentures of the face value of Rs. 60,000 of the Amalgamated Coffee Estates Ltd. on 31st January 1952. The assessee also began negotiations with one A. R. Davar of Delhi for the purchase of further shares and debentures of the value of Rs. 35,500 in the same company. These negotiations were carried on by correspondence, but the negotiations failed. We shall presently refer to that correspon dence separately. The shares purchased from H. H. General Mrighendra Shum Shere Jung Bahadur Rana were sold off by the assessee on the 7th August 1952, pursuant to a resolution of the board of directors dated 8th May 1952. The resolution was: "considered the position arising in respect of the holdings in the Amalgamated Coffee Estates by the suspension of the Auditor of that company as appearing in The Hindu. In view of the risk in attempting to secure more shares and obtaining the managing agency due to fraud, etc., as disclosed by the news in The Hindu resolved to arrange of the sale of the company's entire investments in the Amalgamated Coffee Estates at the earliest opportunity at the best price." As a result of the sale of the entire holdings of the Amalgamated Coffee Estates Ltd., the assessee made a profit of Rs. 29,035 after deducting the commission paid for the sale of the shares. The assessee showed the figure of the above profits also as a gain on capital in its return for the year ended 30th April 1953: being the previous year for the assessment year 1954‑

55. Now, as to both these items of Rs. 52,075 and Rs. 29,035, the Income‑tax Officer rejected the assessee's contention that these represented the gains in the nature of capital gains and on the other hand held that they were profits from business pure and simple. The Income‑tax Officer stressed the fact that the assessee had shown the loss on the sale of the shares of Alagappa Textiles (Cochin) Ltd. as a business loss, but, so far as the profit on sale of shares of the above two companies, it had treated them as capital gains. He rejected the contention of the assessee based upon the opinion of counsel, which appears to have been filed, that even a company which has the power under its memorandum and articles of association to deal in shares or securities and turn its investments to account can still hold particular investments on capital account, that the realisations of such investments would not be in the course of business and the resultant profits would not be taxable as income. So far as the New Glen Morgan Estates Ltd. was concerned, he pointed out that, even after acquiring 1,42,800 shares of that company, the assessee had only acquired 44 % of the total capital of that company and it had no control over that company. He also pointed out that the me morandum of association permitted the company to deal in shares and that these transactions were made pursuant to that power. He concluded : "Therefore, the turning of investment to account was not merely incidental but was the essential feature of the business, dealings in shares being among the appointed means of the company's gains. On going through the transactions relating to the assessee‑company in the purchase and sale of shares, it is clear that the company was interested in buying large blocks of shares not exactly with a view to obtain a controlling interest in the company's management, but the real purpose of such transactions was to dispose of the blocks of shares to intending purchasers whose intention was to get a controlling interest in such companies." He also remarked that there was no proof whatsoever to indicate that the assessee‑company had intended to get the managing agency of the New, Glen Morgan Estates Ltd. or any other company. The assessee carried the matter in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner considered the facts and circumstances relating to the transactions and held that the Income‑tax Officer was in error in saying that there was no proof whatsoever to indicate that the assessee‑company had intended to get the managing agency of the New Glen Morgan Estates Ltd. or any other company. He pointed out the resolution of the board of directors of the assessee‑company to indicate that the shares were purchased by the assessee only with a view to acquiring a controlling interest in the New Glen Morgan Estates Ltd. He also referred to the following facts : That in the previous years the assessment record shows that there were practically no dealings in shares by the assessee‑company ; that the assessee‑company had in fact acquired the managing agency of Poonmudi Tea & Rubber Co. Ltd. after a long time and of the Arthala Tea Estates Ltd. Taking all these circumstances into account the Appellate Assistant Commissi4oner held : "It is my view that the appellant had purchased the shares of New Glen Morgan Estates Ltd. as part of a scheme of acquiring the managing agency of this company." As regards the shares of the Amalgamated Coffee Estates Ltd. the Appellate Assistant Commissioner referred to the resolution passed by the board of directors on the 25th January 1952, pursuant to which the shares were purchased and pointed out that the Income‑tax Officer was not again correct in holding that there was no evidence to show that the shares and debentures were purchased with a view to getting a controlling interest in the company. Then he referred to the considerable correspon dence carried on with A. R. Davar for the purchase of further shares of the same company and pointed out that while these negotiations were going on, the directors of the assessee‑company came to‑know that the balance‑sheets of the Amalgamated Coffee Estates Ltd. did not represent the real state of affairs and that disciplinary action wag also taken against the auditors who had certified these balance‑sheets. Therefore, the directors decided to dispose of the entire holdings in the Amalgamated Coffee Estates Ltd. He held that the minutes of the board of directors and the other circumstances show that the shares were purchased not with a view to trading in them, but with a view to acquiring a controlling interest in that company and that the record also showed that the assessee cannot be considered as a dealer in shares. The Department appealed against this order to the Income‑tax Appellate Tribunal at Bombay and they have substantially upheld the order of the Appellate Assistant Commissioner. So far as the shares of the New Glen Morgan Estates Ltd., they held: "From its inception (the assessee‑company) till April 12, 1951, when it acquired its first managing agency in Arthala Estates, it had no business at all. It had no doubt borrowed, but such borrowing has been for the purpose of purchasing shares with the sole object of exploring for (sic) managing agencies. It is but natural that in some cases it may fail to achieve its object. In the acquisition of shares in New Glen Morgan Co. Ltd., it cannot be denied that it had set out with this object. The directors' resolu tion and the higher prices paid are all pointers in this; direction. When it found that it could not attain this object, it had exploited the situation and got its prices from the other party. The ultimate profit it was able to realise is just incidental to its main object and is capital in its nature." They followed the decision of this Court in Commissioner of Income‑tax v. Ramiarain Sons Ltd. ((1957) 31 I T R 17). As regards the purchase and sale of shares of the Amalgamat ed Coffee Estates Ltd., the Tribunal held : "On the facts of the case as set out by the Appellate Assistant Commissioner in his order, it is clear that this is only one more instance of an infructuous attempt of the assessee in its quest of more and more managing agencies." Now, the principal attack against the order of the Tribunal has been against the findings on the first of the two transactions with which we are concerned, namely, the purchase of the shares of the New Glen Morgan Estates Ltd. Mr. Joshi on behalf of the Department has in this respect contrasted the position of the assessee‑company, in regard to the shares of the Amalgamated Coffee Estates Ltd. He has pointed out that, when the shares of the Amalgamated Coffee Estates Ltd. were purchased and sold, the company passed a clear resolution to sell the shares and gave its reasons for disposing of the stock of the Amalgamated Coffee Estates Ltd. That is clear from the resolution of the board ‑of directors passed on the 8th May 1952, but counsel says that it is remarkable that there was no such resolution passed when the shares of the New Glen Morgan Estates Ltd. were sold off, nor, says he, were the reasons which induced the sudden sale of so large a block of shares and in such a short time after their purchase, given. There is no evidence, moreover, to support the finding that they sold off the shares because they had failed to get the managing agency of the company. Now, it is no doubt true that the 97,300 shares of the New Glen Morgan Estates Ltd. were all purchased between the dates 19th April 1951, and 27th April 1951, and that the same shares were sold, by the assessee-company on the 25th May 1951, and similarly the block of 45,500 shares of the same company were purchased on 20th May 1951, and sold on the 5th July 1951. This is clear from the facts we have stated above. When examining the transaction from the point of view whether the purchases of the shares were made with a view to acquiring the managing agency of a company, or whether they were merely purchased and sold with a view to dealing in these shares, we do not think that the question of the length of time during which the assessee held those shares is at all decisive, so long as the intention of the assessee in dealing with those shares is established or clear and the reason impelling the sale of those shares within that time is clear. It is not correct to say in the present case that, though those shares were sold within, say, a month and a half after they were purchased, there is ho evidence to show that they were sold off because the assessee‑company failed in its object of securing the managing agency of the new Glen Morgan Estates Ltd. The whole transaction was initially entered into pursuant to the resolution of the board of directors dated 12th April 1951. That resolution is sufficiently clear and indicates what was the intention of the company. It was not alleged at any time that this resolution was passed as a mere device or a cloak to cover business operations nor was that the argument before us. On the contrary, counsel for the Department based his argument on the assumption that the resolution was a normal resolution passed by the company. Now the resolution itself recites the fact that the company had previously taken over the managing agency of the Arthala Tea Estates Ltd. and then proceeds to say that in order to make that managing agency "more remunerative to us as managing agents", the company "resolved to purchase some other South Indian tea company's shares with a view to take over the managing agency as and when possible" and with specific reference to the New Glen Morgan Estates Ltd. "resolved further that the company hereby authorise its directors to buy as many shares as possible" as the shares appeared attractive and at a discount "in pursuance of the above object of securing managing agency of this, company once a majority is obtained". In paragraph 4 of its resolution, the directors were also given the ceiling price of Rs. 1‑12‑0 per share above which they could not go. Now, all the subsequent dealings of the company in connection with the shares of this company indicate that the object stated in this resolution was the object with which the shares were acquired. Even the price which the board itself had fixed shows that it could not be a business deal as ordinary business deals in shares would go, for, upon the statement of the case, the ruling market quotations for these shares in April and May 1951, ranged between Rs. 1 to Rs. 1‑4‑0 per share, and yet the board gave the directors the power to buy these shares up to Rs. 1‑12‑0 per share. Surely, businessmen do not, were they to buy shares only for making a business profit out of them, buy them at such a high premium. The very fact that the board was prepared to go to such lengths and offer a much higher price than the ruling market price for these snares shows their anxiety to buy these shares even at a considerable premium only with an eye to some other advantage, namely, the acquisition of the managing agency. If' it were a purely business deal, we do not see the reason why the board should not have ensured that this purchase was made at the prevailing market rate which on that day was much lower. In purchasing the shares also, the finding is that the price actually offered for the purchase of the two lots of shares of 97,350 and 45,500 was considerably in excess of the market price. The bona fides of these transactions has not been challenged and therefore the extra rate sanctioned and the extra rate per share actually offered would, in our opinion, clearly indicate an object other than the mere object of making profit in the way of business from these shares. To commence with, therefore, it is clear that the intention of the company was to buy these shares only with a view to acquiring the controlling interest in the New Glen Morgan Estates Ltd. shares and thereby acquiring its managing agency. The question then arises whether at any time the company appears to have changed its intention and to have intended to deal in these shares only by way of business. In this respect, Mr. Joshi, on behalf of the Department, strongly stressed the absence of any resolution of the board of directors sanctioning the sale of these shares and he urged that by contrast the same company had passed a resolution when it decided to sell off its shares of the Amalgamated Coffee Estates Ltd. Why then should it not have passed a similar resolution in regard to these shares ? He urged that that fact has not been taken into account by the Tribunal, nor has due weight been given to it by the Appellate Assistant Commissioner. He also stressed that that was the principal point which the Income‑tax Officer made when he decided against the assessee and that was the correct view, having regard to the circumstances of the case. Now, it is not correct to say that there was no resolution passed authorising the sale of New Glen Morgan Estates Ltd. shares when they were sold on the 25th May 1951 and 5th July 1951, nor is it correct to say that the reasons which impelled the company to sell them off have not been disclosed or established. Before the Appellate Assistant Commissioner, the assessee had attacked the order of the Income‑tax Officer by pointing out that the finding of the Income‑tax Officer that there was no evidence on record to support the contention of the assessee that it had intended to get the managing agency of the New Glen Morgan Estates Ltd. or of any other company, was incorrect. The Appellate Assistant Commissioner in deciding this issue, it appears, went through the records before the Income‑tax Officer and allowed some evidence to be produced before himself and it appears that the assessee produced the minutes book of the meetings of the board of directors, certain copies of which certified by the assessee were allowed to be filed before him. This is clear from paragraph 4 of the Appellate Assistant Commis sioner's order for the assessment year 1953‑54: "I have gone through the evidence produced before me and also the evidence already available on the records. It is not clear whether the minutes of the meetings were gone through by the Income‑tax Officer, but certified copies of the minutes of the meetings relevant to the transactions in question were filed before me. From these minutes it is clear that the shares in question were purchased by the appellant-company only with a view to acquiring a controlling interest in New Glen Morgan Estates Ltd." Though this is only a reference, we have looked into these extracts from the minutes book because they were allowed to be filed by the Appellate Assistant Commissioner and because they form part of the record having regard to the above passage from the order of the Appellate Assistant Commissioner. In the minutes of the board meeting held on the 18th May 1951, it has been stated that the Chairman, R. N. Kapur, reported to the board that there was no scope of the assessee‑company getting the managing agency "since the managing agents and their friends were found to hold over 50% of the shares of New Glen Morgan Estates Ltd." The minutes also record that R. N. Kapur brought to the notice of the board that with a fortnight's offer, a firm of Bombay brokers had promised him to secure a good price for the 97,300 shares and the company resolved "to authorise R. N. Kapur to negotiate on the above basis". In doing so, no doubt, R. N. Kapur stipulated that a commission be paid to him at the rate of annas 4 per share, but that is neither here nor there. It is not a fact which is relevant for consideration in determining what was the intention of the company in relation to its dealing with these shares. The resolution not merely furnishes authority for the sale of the shares of the company so far as the first lot is concerned, but what is more, it gives the reason why they were sold. The reason was that it was impossible for the assessee‑company to acquire the managing agency of the New Glen Morgan Estates Ltd., because their then existing managing agents themselves were already holding more than 50% of the capital of that company. In the face of this impossibility it was futile to continue to hold the shares of New Glen Morgan Estates Ltd. This disposes of the principal argument advanced on behalf of the Department that the amount of the profits from the first transaction should be held to be business profits and not capital gins. Then we turn to the second transaction and the facts pertaining to the second transaction are that 6,000 ordinary and preference shares and debentures of the face value of Rs. 60,000 of the Amalgamated Coffee Estates Ltd. were purchased on 31st January 1952. They were purchased pursuant to the resolution dated 25th January 1952, which we have already reproduced above. The resolution itself in clear terms states that this purchase was authorised "with a view to acquire the managing agency of the Amalgamated Coffee Estates Ltd." Therefore, the intention at the time, of acquisition was clearly made out on the resolution itself. The subsequent dealings with these shares also show that that was the intention, not only during the time that negotiations were carried on for the purchase of further shares .of the Amalgamated Coffee Estates Ltd., but at the time when they were disposed of. After the initial purchase of 6,000 ordinary and preference shares and debentures of the face value of Rs. 60,000, the company carried on negotiations through correspondence for the purchase of shares and debentures with one A. R. Davar, a party from Delhi, and considerable correspondence with this party has been placed on record. It appears that R. N. Kapur had met A. R. Davar at Madras some time in March 1950, and some conversation had taken place regarding the Amalgamated Coffee Estates shares. Considerable time elapsed thereafter, no doubt, but on the 28th April 1952, the Chairman of the assessee‑company, R. N. Kapur, wrote to Davar confirming a telegram sent by him informing Davar that he had purchased Rana's 12,000 shares and Rs. 60,000 worth debentures and was negotiat ing for the purchase of' the interest of one Narayan Aiyar in the Amalgamated Coffee Estates. The "Rana" referred to in the telegram is H. H. General Mrighendra Shum Shere Jung Bahadur Rana of Nepal. The letter confirms these facts and further says that "since I understand that you have a big holding in the above company, will you kindly let me know if 5 you are interested in selling off your holdings and if so please favour me with your firm offer at your earliest convenience." Davar promptly replied by a letter dated the 30th April 1952, reminding Kapur of the earlier telegrams exchanged between them. The last telegram sent by Davar to Kapur was categoric : "Thanks yesterday's offer without prejudice based actual cost : regret no bargaining possible, A. R. Davar." Davar did not go back upon this telegram in the letter dated April 30, 1952, nor did he express his willingness to sell the shares on any other terms. On the other hand, in this letter Davar informed Kapur that the company was in a bad way and that their managing agents, Messrs Viramani and Viswanathan, had mismanaged the whole company and had swindled over Rs. 50 lakhs and hoped that as soon as Kapur took over the company, he would be able to finance it liberally and manage it efficiently. At the same time he indicated that the door was still open for negotiations because in the final paragraphs he has stated that he was sending his son to Bombay to discuss matters with Kapur. It appears that Davar had set on foot proceedings whereby the mismanagement in the company had been exposed and the auditors of the company, Messrs Krishnaswami and Jaganathan, were dealt with for misconduct and were ordered by the High Court of Madras to be struck off the rolls for a period of two years. This is clear from a cutting from The Hindu of Madras dated 23rd April 1952, which had been filed before the income‑tax authorities in the present case. Now all this seems to have alarmed the assessee. They had already invested a large sum of money in the purchase of the share holdings of the Rana and when they commenced negotiations regarding Narayan Aiyar's shares and Davar's shares, they got information that the Amalgamated Coffee Estates Ltd. was in a bad way. Their managing agents were under a cloud and their auditors had been struck off the rolls for two years. Obviously, if the assessee was to acquire the managing agency of such a company, it would not redound to their credit nor would they be able to manage the company to their advantage or make profits. Therefore, on 8th May 1952, the board of directors passed a resolution wherein they expressly referred to the position arising in respect of the holdings of the Amalgamated Coffee Estates Ltd. by the suspension of the auditor of the company as appearing in The Hindu and then resolved, "in view of the risk in attempting to secure more shares and obtaining the managing agency due to fraud, etc., as disclosed by the news in The Hindu . . . . . . . to arrange for the sale of the company's entire investments in the Amalgamated Coffee Estates at the earliest opportunity at the best price." Accordingly the shares were sold on 7th August 1962, and‑yielded a profit of Rs. 29,

035. Now, no doubt in both the above cases, the shares were purchased and sold within a short time, but that they were sold within a short time may equally be compatible with the shares being sold in the ordinary course of business as being sold on capital account because the assessee‑company failed to attain its main objective, namely, the acquisition of the managing agency of the company whose shares they had purchased. It all depends upon the circumstances established. Therefore, we do not think that much can be made of the fact that these shares were sold away within a short time after their purchase. The intention of the assessee‑company in purchasing the shares in both the cases is, to our mind, clear beyond doubt. It is the intention which appears on the face of the resolutions passed by the board of directors in each case. The dealings of the company with those shares after the purchase clearly indicate that their whole intention was to purchase the shares with a view to acquiring the managing agency and not with a view to dealing with those shares in the way of business. At the time of sale also, we have shown that in the case of the first lot of shares of New Glen Morgan Estates Ltd. as well as the second lot of the Amalgamated Coffee Estates Ltd., appropriate resolutions were passed by the board of directors and each resolution clearly explains the reason why those shares were being sold so abruptly. In the case of New Glen Morgan Estates shares it was clear that the objective failed because the then managing agents already had held more than 50 % of the shares of the company and it was impossible for the assessee company to get hold of the managing agency. The main objective having failed, these shares were naturally sold off. So far as the Amalgamated Coffee Estates shares are concerned, it is clear not only from the resolution authorising their sale, but also from the correspondence to which we have adverted and the alarming reports in The Hindu that the company was in a very bad way and acquiring the managing agency of such a company would not only reflect adversely upon the assessee, but cause them difficulty at the time of resale. Conceivably the assessee would also be involved in the misfeasance or misconduct of the erstwhile managing agents. Therefore, one can well understand that the assessee‑company desired to sell off those shares also, although they had purchased them only a month or a month and a half before. In all these dealings the principal objective of the assessee‑company throughout was the acquisition of the managing agency of both the companies and there was no intention to deal with the shares of these two companies in the way of business. The prime objective was not to earn profits by the purchase and sale of the shares, but the prime objective of the assessee was to acquire the managing agency of both the companies, which objective having failed, the shares were sold away. There are several other circumstances to which the authorities have referred, which also support this manner of dealing with the shares by the assessee‑company: A little prior to their operations leading to the purchase of New Glen Morgan Estates shares, they had already purchased the shares of Arthala Tea Estates Ltd. and were enabled thereby to acquire the managing agency of that company on the 19th April 1951. Taking advantage of the shareholdings of the Arthala Tea Estates Ltd., the assessee -company, by putting in some finance, was enabled to acquire the shares of Poonmudi Tea & Rubber Co. Ltd. and' ultimately its managing agency too. These are merely instances to show that the company was making full use of its powers under the memorandum of association, particularly those in clauses 1, 2 and 3 and the power to transact every kind of agency business. The transaction with reference to the purchase and sale of shares of Alagappa Textiles (Cochin) Ltd. was strongly relied upon on behalf of the Department to urge that really the company was dealing in the other shares of the New Glen Morgan Estates Ltd. and Amalgamated Coffee Estates Ltd., in the way of business. Regarding the Alagappa Textiles (Cochin) Ltd., the facts are that 10,300 of these shares were held by the assessee‑company. They were acquired at Rs. 9‑3‑0 per share and, out of those shares, 800 shares were sold between December 1951 and January 1952, at Rs. 9 per share, that is to say, at a loss of annas 3 per share. On the date of their return, the shares were even of lesser value and the assessee claimed Rs. 6,646‑12‑0 loss on its holdings of Alagappa Textiles (Cochin) Ltd. When this was pointed out to the assessee, the assessee, however, promptly withdrew this claim admitting that the claim as to the loss on the sales of these shares was incorrectly made. That withdrawal was allowed. We can see no reason why this correction of their return by the assessee should not be accepted at its face value. It was allowed and acted upon by the Department, but apart from that, we may also point out that the question as to the dealings with the shares of Alagappa Textiles (Cochin) Ltd. cannot affect the issue as to the dealings of the assessee‑company with the shares of the New Glen Morgan Estates Ltd. or the Amalgamated Coffee Estates Ltd. The assessee‑company had under its memorandum of association ample authority both to act as managing agents and acquire managing agencies us well as to buy and sell shares or deal in shares by way of business. Therefore, it may be that the shares of Alagappa Textiles (Cochin) Ltd. were purchased by way of business ‑‑we do not hold that‑but we fail to see how it can necessarily be said that the shares of the other two companies were also purchased by way of business. In our opinion, this fact cannot lead to any positive conclusion upon the issue before us. At any rate, even assuming that this circumstance is against the assessee, the fact remains that both the Appellate Assistant Commissioner as well as the Tribunal have considered that fact and weighing it against a number of other facts and circumstances in favour of the assessee, held that the purchase and sale of these shares of New Glen Morgan Estates Ltd. and Amalgamated Coffee Estates Ltd. were made with the object or intention of acquiring their managing agencies only and not with the object or intention of dealing in them by way of business. We think we have said enough to show that this finding was the only correct finding having regard to the facts and circumstances. No doubt, it has been pointed out by the Supreme Court in Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income‑tax ((1961) 41 I T R 534 (S C)), that the question whether the assessee's transactions amounted to dealing in shares or merely to investment with a view to acquiring the managing agency is a mixed question of law and fact, but even so, having regard to the facts and circumstances which we have set forth, ‑we cannot but hold that the conclusion reached by the Appellate Assistant Commissioner and the Tribunal was the only proper conclusion to be drawn. It is now settled law that where shares in a company are purchased as a part of the transaction of acquiring the managing agency of the company, the shares purchased for that purpose would themselves be of a capital nature and any profit or loss resulting from the purchase or sale of such shares cannot be treated as a revenue loss or profit, but must be treated as a profit or loss on capital account. This was decided by this Court in Commissioner of 'Income‑tax v Ramnarain Sons Ltd., which has now been affirmed by the Supreme Court in Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income‑tax. In the decision of this Court in Commissioner of Income‑tax v. Ramnarain Sons Ltd., a distinction was drawn between acquiring managing agencies and dealing in managing agencies; (see pages 24 and 25). In the present case,‑it is unnecessary to go into that distinction because it was not the case of the Department that the business of the assessee‑company was to deal in managing agencies. The sole object and intention of the dealings in shares of the assessee in question before us was the acquisition of the managing agencies of the companies whose shares they had purchased and the managing agency itself would undoubtedly be a capital asset. Therefore, whatever gain accrued as a result would be on capital account. For these reasons, we are in agreement with the findings of the Tribunal and answer the question referred in the affirmative. The Commissioner will pay the costs of the assessee. Question answered in the affirmative.