COMMISSIONER OF INCOME-TAX, U.P. versus M/S. MADAN GOPAL RADHEY LAL

Citation: [1969] 2 S.C.R. 7 · Decided: 06-09-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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COMMISSIONER OF INCOME-TAX, U.P. 
v. 
M/S. MADAN GOPAL RADHEY LAL 
September 6, 1968 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] 
7 
Jncome-tax-Assessee, dealer in srocks and shares-Receipt of bonus 
shares in proportion to equity holding-Sale of bonus shares-Whether 
sale proceeds profits of business or capital. 
Practice-No 
application 
under 
Income-tax Act, 1922, s. 66(1), 
challenging finding of fact of Tribunal-Challenge of Tribunal's conc/u. 
sion-Jurisdiction of High Court to examine whether findings on which 
conclusion was based are supported by evidence. 
The assessee, a dealer in shares and securities, held as part of its 
stock-in-trade, shares of certain companies. The assessee received from 
those companies, at different times, bonus shares proportionate to its equity 
holding. 
On the question whether the sale proceeds of such bonus shares 
are liable to be included in the assessee's total income as profits of the 
share-dealing business, the Tribunal found that the sale proceeds of the 
bonus shares were received by the assessee in the course of and as- part 
of it• business in shares, and held that the proceeds were, on that account, 
taxable as income. The High Court, on reference, held in favour of the 
asses see. 
In appeal to this Court, 
HELD: (l) A trader may acquire a commodity in which he is deal· 
ing, for his own purposes, and hold it apart from the stock-in-trade of his 
business. There is no presumption that such an acquisition, even i'.f it is 
an accretion to the stock-in-trade of the 'bminess, is an acquisition for the 
purpose of his business : in each case the question is one of intention to 
be gathered from the evidence of conduct and dealings by the acquirer 
with the commodity. Bonus shares given by a company in proportion to 
the holding of equity capital by a shareholder are, under the Income-true 
Act at the relevant time (194&---50), liable to be treated as capital and 
not as income. Therefore, the bonus shares received by the assessee did 
not become part of its stock-in·trade merely because they were accretion 
to its stock-in-trade. (10 C, F, G] 
C.l.T. Central Bombay v. Maneklal Chunilal, 
I.T. Ref. No. 16 of 
1948 (Bombay High Court), disapproved. 
C.l.T., 
Bengal v. Mercantile Bank of India, 
4 I.T.R. 
239(P.C.), 
applied . 
Commissioner of Inland Revenue v. John Blott, 8 T.C. 
101 (H.L.) 
referred to. 
( 2) In the present case, however, the Tribunal found that the bonus 
shares, received as capital, were converted by the assessee into its stock-
in-trade and were not retained as a capital asset. 
The question posed 
for the opinion of the High Court was not whether the finding of the 
Tribunal was founded on evidence, but whether the sale proceeds of the 
bonus shares were of the nature of revenue. On this question, when the 
assessee had not filed any application under s. 66( 1) of the Income-tax 
SUPREME COURT REPORTS 
[1969] 2 S.CR. 
Act, 1922, expressly raising the question about the validity of the 
Tribunal's finding df fact, the High Court must accept the finding and 
cannot enquire whether the finding is supported by evidence or not. Tbe 
High Court was therefore, not justified in interfering with the finding and 
conclusion of the Tribunal. [11 D, F-H] 
A 
India Cements Ltd. v. C.I.T., 60 l.T.R. 52 (S.C.) followed. 
; 
OVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1764 
B 
to 1767 of 1967. 
Appeals from the judgment and decree dated January 17, 
1964 of the Allahabad High Court in Income-tax Reference No. 
193 of 1955. 
C. K. Daphtary, Attorney-General, R. Gopalakrishnan, R. N. c 
Sachthey and B. D. Sharma, for the appellant (in all the appeals). 
M. C. Chagla and R. P. Kapur for I. N. Shroff, for the respon-
dent (in C.A. No. 1764 of 1967). 
· 
I{. P. Kapur for l. N. Shroff, for the respondent (in C.As. 
Nos. 1765 to 1767 of 1967). 
The Judgment of the Court was delivered by 
Shah, J. M/s. Madan Gopal Radhey Lal-hereinafter called 
the assessees-deal in shares and securities. 
They held in the 
relevant years as part of their stock-in-trade shares of certain 
companies. 
The assessees received from the Companies at diff-
erent times bonus shares proportionate to their equity holding. 
From time to time the assessees sold the bonus shares received by 
them. The Income-tax Officer brought to tax Rs. 
55,607 in 
the assessment year 1946-47; Rs. 41,625 in the assessment year 
1948-49; Rs. 1,43,050 in the assessment y

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