LexCOMMISSIONER OF INCOME TAX, BOMBAY versus H. HOLCK LARSEN
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A B c D E F G H 1072 CXJlfISSIOllER OF IN<Xl4E TAX, BOIBAY v. H. HOLCK LARSF.11 M.\Y 8, 1986 [R.S. PATHAK AND SABYASACHI MUKHARJI, JJ,] Income, exlglbllity to tax - Purchase and sale of Right shares acquired under section 81 of the Companies Act, 1956 - Whether the asses see ls a "dealer" /"trader" or "invegtor" - _._ Question of law, fact or both explained - Whether trade or investment ls a question of law - Whether the intention of the assessee relevant Assessee's intention ls to nurse investments by acquiring and selling shares - Whether could be_L treated as "plunging in the waters of trade". r The Respondent-assessee was a partner in the firm of t Larsen and Toubro, upto 1946. On 7th/8th February 1946 that firm was converted into a private limited under the same name. In consideration of his interest in the firm, the assessee was allotted 53,486 Right shares of the company, as per section 81 "'"" of the Companies Act, 1956. During the next few accounting years upto the financial year 1953-54 during which the company became a public Ltd. company, the assessee acquired 2, 994 shares of the said company and sold 1550 shares. The purchases ~ and sales of shares of the said company were few and far between upto the financial year 1953-54 but these became larger in number and at close intervals in the next few - succeeding financial years ending between 31.3.55 and 31.3.60. During the aforesaid period, the assessee had acquired 29,969 r· shares of the said company and sold 37366 shares thereby making a profit of Rs. 1,65,581. Besides purchasing and selling equity shares of the said company, the assessee had ) also dealt in preference shares of the said company. The r assessee had sold shares of Andhra Cement Co. in the financial year 1954-55, made purchases of shares of s.c.c. and I.c.c. in the years 1955-56, 1956-·57 and 1958-59 and also of shares of India Cement Co. and National Carbon in 1955-56 and also sold shares of Guest Keen Williams and Indian Cement Co. in i.._ 1958-59. During all these years the purchases and sales of 1-- equity shares of the said company were more marked than the purchase and sale of other shares. Besides the sale of equity shares of the said company and shares of other companies, the C.I.T. v. H. HOLCK IARSEN 1073 fassessee had also sold some of his original shares of the said company held by him. For all the accounting years upto the '-» year ending March 31st, 1958 he was assessed as an investor. The Income Tax Officer on a reconsideration of the findings in earlier years took the view that the assessee was an investor only till March 31st, 1954 but that from the financial year 1954-55 the assessee was a dealer in shares and therefore, profits made by him during such years are Hable to tax. The - +.first Appeal before the Appellate Commissioner was rejected. The assessee therefore, filed a second appeal. In such an appeal before the Tribunal, the assessee contended that (l) the assessee never purchased equity shares of the said company from any outsider or any stranger except in a few cases from l-Close friends or from members of the staff just to accom- ! D'.>date them; (2) that the shares that were acquired by the -t asses see were only right shares issued by the company to its existing shareholders; (3) that the assessee had to meet huge personal expenses and tax liability in the relevant accounting periods; (4) that the assessee had an overdraft account and he wanted to keep the said overdraft account within reasonable limit; (5) that the assessee wanted to nurse his investments in the company; 1'"'1 ( 6) that the assessee had to and was forced and compelled by circumstances to sell some of the \." shares acquired by him. In the premises, the assessee 's con- tention was that the sales of the said shares were neither effected voluntarily nor with- a view to make any profit nor under a profit making scheme, but were effected under compell- ing circU11Btances and as no assessee could be a trader by compulsion, the assessee was not a trader in respect of these • ~shares. Two members namely Judicial Member as well as Accountant Member gave separate but concurrent opinions and came to the conclusion that the assessee was a dealer in \-shares and not an investor. The Tribunal held : (1) The 1 assessee was the Chairman of the Board of Directors of the said company. (2) The said company had ever si
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