JUGGILAL KAMLAPAT, KANPUR versus COMMISSIONER OF INCOME-TAX, LUCKNOW

Citation: [1970] 1 S.C.R. 720 · Decided: 31-07-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

720 
JUGGILAL KAMLAPAT, KANPUR 
v. 
COMMISSIONER OF INCOME-TAX, LUCKNOW 
July 31, 1969 
[J. C. SHAH, ACTING C.J., V. RAMASWAMI AND A. N. GROVER, JJ.] 
Jncon1e-tax-Deafing in shares-Whether capital investment or trading 
activity. 
A 
B 
The assessee firm used to promote companies. It purchased all the 
shares of a Company at the ruling rates with borrowed money and very 
soon thereafter disposed of all of them at a profit. Before the Income-tax 
C 
authorities the assessee claimed that it had taken over the shares with a 
view to secure the managing agency of that Company and had thereafter 
distributed the shares to its allied concerns, that the transaction was only 
to facilitate acquisition of a capital asset and the profit realised from the 
sale of such a capital investment was a capital gain. It was, found by the 
Departmental authority and the Tribunal that the shares were not merely 
'distributed' to the assessee's associates, but that, some of the shares were 
sold to its allied concerns and others to strangers, through brokers, in small 
D 
lots and at a profit. Also, the interest which the assessee had to pay for 
the amount borrowed for purchasing the shares was debited in its revenue 
account and was claimed befdre the Income-tax authorities as a revenue 
allowance. 
The assessee also purchased shares of two other Companies which 
were its allied concerns, and commenced selling them soon after at a 
profit. It was claimed before the Income-tax authorities, with respect to 
E 
these transactions that when a part of the new issue of capital o'f those 
two Companies was not taken over by the public, the assessee, as the 
financiers of those two companies took over the shares, that they were 
in the nature of a capital investment and the shares were sold on account 
of 'financial embarrassment' and not with the object of earning income 
and so, the profit realised by the sale did not attract income tax. 
The 
Departin:ental authorities and the Tribunal found that the first Jot of shares 
in one of these two Companies was purchased in January, 1945 and the 
F 
firm went on purchasing and selling the shares of that Company thereafter 
from February, 1945 and hence, there could not have been any 'financial 
embarrassment'. As regards the shares in the second company they were 
purchased in February, 1945 and sold in August, 1945. The sales were 
all through brokers and at a profit. 
On the question whether the total profits realised by the assessee was 
a capital gain or revenue income, 
G 
' 
HELD : Whether a transaction is or is ·not an adventure in the nature 
of trade is a mixed question of law and fact : in each case, the legal effect 
~ 
of the facts found by the Tribunal on which the tax-payer could be treated 
, 
as a dealer or an investor in shares has to be determined. [724 C-D] 
In the present case, on the facts found, there was a well planned 
scheme for earning profit. Therefore, all the transactions were impressed 
H 
with the character of a commercial transaction entered into with a view 
to earn profits and were not capital investments, and hence, were liable 
to tax '.72-t D; 725 A-BJ 
· 
..... 
JUGG!LAL v. c.I.T. (Shah, Ag, C./.) 
721 
A 
Ra111 Narain Sons (P) 
Ltd. v. C. I. T., Bombay, 41 J.T.R. 
534, 
B 
c 
D 
E 
F 
G 
H 
(S .C.) explained. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1953 of 
1968. 
Appeal by special leave from the judgment and order dated 
September 17, 1962 of the Allahabad High Court in Misc. I.T. 
Application No. 167 of 1955. 
A. K. Sen, G. L. Sanghi and B. R. Agarwal, for the appellant. 
Jagdish Swarup., Solicitor-General, S. K. Iyer, R N. Sachthey 
and B. D. Shc:rrna, for the respondent. 
The Judgment of the Court was delivered by 
Shah, Ag.· C.J. 
In proceedings for assessment 
to income-
tax for the year 1946-4 7, the appellant firm was assessed to tax 
in respect of an amount ot Rs. 3,99,587 received by it as profit 
on sale of shares. The plea of the firm that the amount was 
"capital ~ain" and was on that accoun\ not taxable was rejected. 
In the view of the Income-tax Officer the profit arose from "a well 
planned business activity in which the assessee had fully utilised 
its resources". 
The Appellate Assistant Commissioner affirmed 
the decision of tQe Income-tax Officer. The Income-tax Appel-
late Tribunal dismissed the appeal filed by the firm. 
The Tribunal, amongst others, referred the following question 
to the Higli Court of Allahabad for opinion : 

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