NEW ERA AGENCIES (PVT.) LTD., BOMBAY versus COMMISSIONER OF INCOME-TAX, BOMBAY CITY I, BOMBAY

Citation: [1968] 2 S.C.R. 483 · Decided: 28-11-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

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NEW ERA AGENCIES (PVT.) LTD., BOMBAY 
v. 
COMMISSIONER OF INCOME-TAX, BOMBAY CITY I, 
BOMBAY 
November 28, 1967 
[J. C. SHAH. V. RAMASWAMI AND V. BHARGAVA, JJ.J 
Indian /ncome..rax Act, 1922--Profit on sale of shares-Whether capi-
tal accretion or r'-:"enue receipt. 
During the yea.rs 1942 to 1948. the dealings in shares of the assessee 
included dealings in shares of Elphinstone Mills and the profit and loss 
in the dealings of the Mills was taken. by the assessee to its revenue account. 
M was in control of the assessce-company and he a1so purchased the control 
and managing agency of the Mills, and in this managing agency company-
. the aSsessec \\'as also a share holder. 
From 1949 onwards the assessee 
did not sell the shares of the Mills but added to its holding. In 1953, M 
sold the entire shares in the Mills with him and under his control includ-
ing that with the asscssee. 
Along with that M got the venclee and the 
latter's nominee appointed directors and also got the resignation of the 
Managing agency-company from the managi11J>: agency of the Mill. 
Out 
of the total sale price the assessee received certain amount· which was in 
excess of the cosi price of the shares. The assessee did not show the ex-
cess amount on the sale of these shares in its profit and loss account but 
took it to the capital reserve account and showed it as a capital reserve in 
its balance-sheet. 
The asses:iee. in appeal, contended that (i) the excess 
amount received was a capital accretion on the sale of the shares and did 
not represent iflcome from business in shares; and (ii) the excess amount 
over and above the market price was pai<I for the controlling interest which 
was being transferred along with the shares. 
HELD : The appeal must be <!is.missed. 
(i) The profit made by the assessee on the sate of the snares was its 
business income. 
During the years 1943-48 the profits and loss~s 
in 
· these shares had been treated on the same footing as the profit and losses 
in other shares of the assessee. The circumstance that from 1949 onward~ 
the asses'see had not sold the shares of the Mills. but had added to its 
holding, was not in itself sufficient to reach an inference that the assessee 
had treated its holding in the shares an investment. 
During the years 
1949-53 the shares had slumped in price and this may be the ~eason whv 
the 3.ssessee did not effect any sales during this period. It ·was not un-
reasonable to think that the assessee who was a dealer in shares was makin.2 
further purchases and accumulating its holding when the market was fall-
ing so a.c; to be in a position to sell thte shFres to its advantage when a 
suitable opportunity occurred. 
Titere was no material on the record to 
suggest that the main object of the asscssee in acquiring the shares was to 
give support to the Managing A~ents. When the managin~ a~ency was 
acquired, there was no need to make anv use of the holding of the assessee 
because the assessee at that time had hardly any shares. Subsequent to 
the acauisition of the managing a~ency, until it was 
relinquished, the 
managin~ agency never felt its existence either precarious or in need of 
suppert. [488 D-H; 489 B-DJ 
484 
SUPREME COURT REPORTS 
[1968] 2 S.C.R. 
Californian Copper Syndicate (Ljmi!ed and Reduced) v. 
Harris. 
5 
Tax Cas. 159, Commissioner of Taxes v. Melbourne Tr~st Ltd., 
[19141 
A.C. 1001, Rees Roturbo Development Syndicate Ltd. v. Ducker, 13 Tax 
Cas, 366 and Venka1aswa1ni Naidu & Co. v. Colfunissioner of Income-tax, 
35 I.T.R. 594, referred to. 
(ii) No part of the amount received by the assessee could be regarded 
as consideration for any other valuable right excepting the price of the 
shares sold by it. 
No controlling power was held by th~ assessee itself 
in the Mills and it ,vas not in a position to procure the resignation of the 
Directors or hring about the 
appointment of vendee's nominees 
as 
Directors. Nor was it in a position to call upon the Managing Agents to 
relinquish their offices. 
All these things were possible to M because of 
the influence and power he possessed. 
The part taken by the assessee in 
the transaction with the vendee was merelv a passive oart. viz., 
keeping 
at the disposal of M its holding in the Mills' share, which it had held in 
its business as a dealer in shares. Therefore, so far as the assessee was 
concerned. what it parted with was the shares which it held and what it 
received was th

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