COMMISSIONER OF INCOME TAX, NAGPUR versus SUTLEJ COTTON MILLS SUPPLY AGENCY LTD.

Citation: [1976] 1 S.C.R. 126 · Decided: 25-07-1975 · Supreme Court of India · Bench: A.N. RAY · Disposal: Appeal(s) allowed
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Judgment (excerpt)

1is 
COMMISSIONER OF INCOME TAX, NAGPUR 
v. 
SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. 
July 25, 1975 
[A. N. RAY C. J., K. K. MATHEW, V. R. KRISHNA IYER AND 
S. M. FAZAL ALI, JJ.] 
lncome~tax-Jurisdiction of a High Court on reference-Scope of-.4 3ingle 
adventure-Tests for determining whether in the nature of business. 
The asses.see acquired shares in a newly floated sister concern 
and 
later 
sold a part of its stock at a profit. The Income-tax Officer assessed the profit 
to tax on the basis that i~ was profit accruing to the assessee from an adventure 
in the nature of business, and the order was confirmed by the Appellate 
AMistant Commissioner. 
On appeal the Appellate Tribunal 
held 
that 
tho 
U'an!action was in the nature of business adventure; that the assessee by itl 
Memorandum of Assoc:ation was authorised to buy anct sell shares; that there 
was a specific resolution to buy and sell shares; that the assessee included the 
profit on the sale of shares in _its profit and loss account without showina 
it in any reserve account, that the shares were purchased from borrowed fund! 
and not with ready cash; that the sales were not on account of any pressiq 
necessity; that it kept the profit in cash in a bank and that the assessee had 
in the past dealt with shares as a business transaction. 
On reference, the High Court held that there was no provision in the 
Memorandum of Association which authorised the carrying on of the businesa 
of purchasing and selling shares; that the inclusion of the profit in the profit 
-and loss account. was not conclusive of the question whether it was capital asiCt 
or revenue receipt; that the nature and character of the money !hould bo 
determined by its inherent character; that there was no evidence that the sharct 
were purchased out of borrowed funds; that a solitary transaction could not 
A 
B 
c 
D 
be taken as conclusive of the fact that the sale of shares was an adventure in 
E 
the nature of trade and that in any case the dominant intention of the asseSiCO 
in acquiring the shares was to boost the shares of a sister concern and when 
•nee that was achieved the assessee started seiling the investments. 
On appeal to this Courl' it was contended by the respondent that the profit 
can be taxed only if the dominant int.ention of the assessee was to carry on an 
-adTenture in the nature of business and not otherwise. 
Allowing the appeal, 
HELD : The Tribunal found, after taking into account all 
the relevant 
circumstances, that the dominant intention of the assessee was to make profit 
by resale of the shares and not to make an investment. [134F] 
(1) (a) The finding that Joss or profit is a trading loss or profit is primarily 
a finding of fact though in reaching that finding the Tribunal h&s to apply 
tho correct test laid down by law. 
When the Tribunal bas considered the 
evidence on record and applied the 
correct test, there 
is no scope for any 
interference with the finding of the Tribunal. [134Gl 
C.I.T. v. Aslwka MarketinR Co. [1972] 83 I.T.R. 439. referred to. 
(b) The whole conclusion of the High Court was based on an unw3rranted 
aunmption of facts. 
The danger of falling to recognise that the jurisdictioa 
of the High Court in these matters is only advisory and that conclu~ion of 
fa.eta are conclusions on which the High C.ourt is to exercise the adviiorY 
juriadiction is illustrated by this case. At no time had the assessee a ca~ that 
t~ shares were purchased with a view to help a sister concern. Nowhere 
ia- the statement of the case or the supplementary statement of case nreoared 
by tho Tribunal and filed in the High· Court waa there a finding on tho questfon. 
[134E; DJ 
F 
H 
+ 
• 
.. 
, 
I 
I 
)' 
• 
' 
C.I.T. v. SUTLEJ COTTON MILLS LTD. (Mathew, J.) 
127 
A 
(2) The tests for the purpose of ascertaining whether profits made upon a 
sale or an article are taxable profits are : 
B 
c 
D 
E 
F 
G 
(i) if a transaction (is in the as.sessee's ordinary line of bwineM it is in the 
nature of. trade. [131Jl......C] 
(ii) it is not necessary, to constitute trade, that there should be a !eriea of 
transactions, both of purchase and sale. 
A single transaction of purchaso and 
-sale outside the asscssce's line of business may constitute an adventure in the 
nature of trade; [!31C-D] 
Venkataswami Naidu & Co. v. C.l.T. [1959] 35 I.T.R. 594, followed. 
I. R. v. Reinhold 34 T. C. 389, 392. referred to .. 
(iii) whore the purchase of any artide or of any capital i
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