STAR COMPANY LIMITED versus COMMISSIONER OF INCOME TAX (CENTRAL) CALCUTTA

Citation: [1970] 1 S.C.R. 772 · Decided: 07-08-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

~ ... 'I 
'J -
STAR COMPANY LIMITED 
v. 
COMMISSIONER OF INCOME TAX (CENTRAL) 
CALCUTTA 
August 7, 1969 
[J.C. SHAH, ACT!SG C.J., V. RAMASWAMI ASD A. N. GROVER, JJ.] 
Income-Tax-Loss arising in the ordinary course of business-Assessee 
carrying on business of buying and selling shares-Buying certain shares 
of a company at well above market price as nominee of associate who 
acq11ired management of company-Selling shares later to a.rsociate 
al 
111arkrt price-Loss on transaclion if in normal course of business. 
The K company, \\'ho \\'ere the managing agents of the F Company, 
entereU into an agreement on f\.fay 21, 1952, with the M Company, where-
by the entire share-holding of the K Company consisting of certain prefer-
ence and ordinary shares were to be sold to the ~1 Company or their 
non1inees. 
The appellant was a public limlted company carrying on the 
businc!>s of dealing in shares and securities. Some of the preference shares 
v.·crc pu'rchascd, amongst others by the appellant at Rs. 185 per share and 
f0r this ourposc the appellant had to overdraw on its bank account. The 
m:nket price of the preference shares at the time was about Rs. 119. After 
the agreement \Vas implemented, the M <:on1pany became the man;iging 
11g~nts or the F Company. 
On December 23, 1953, the appellant snld the preference 5hares to the 
~f Company thereby incurring a loss or Rs. 1,11,816. In its assessment to 
inc0mc-tax the appellant claimed this loss as arising in the ordinary course 
or its business. 
The Income-tax Officer and Appclla1e Assistant Cornmis-
sioncr rejected the ;:1ppellant's claim on the ground that the shares 
v.·cre 
purchased as a conlrihulion to the scheme of acquisition 0f the n1~naging 
ogcncy of the F Company by the M .company. The Appellate Tribunal 
found however that there was no evidence that the appellant h;id been 
n1ade a pa"'·n in the scheme of acquisition of the managing agency; but in 
\'ie\\' oJ the treatment of the loss by lhe appellant as a Joss in in\'Cstment 
and not a loss on its stock in trade in its own profit anJ loss account, the 
tribun;1I held that the shares were not acquired in the course of the appel-
lant's share dealing business and therefore rejected itc; cl:tim. The High 
Court, upon a reference, also held against the appeli<int, hut expressed the 
opinion that the tribunal had not properly considered 
the prim:iry facts 
found hy the Income-tax Officer and the Appellate Assistant Commissioner 
\\'hich clearly sho\\o'ed that the appellant, an a!>sociale of the :-..-1 Company, 
h;td en1ered into the transaction relating to preference shares at the bid-
ding: of the ;\f Company and for the purpose o'( hclpin!? them. 
In appeal to this Court it \\·as contended (i) 1h:it the High Court "'·as 
not entitled to reverse the findings of fact of the tribunal \Vhich v.•ere in 
f:t\'Ollr of the appellant since the' depanment h:id nor challenged these by 
means of appropriate proceedings; and (ii) that \\'here a qucs1ion is one 
of n1ixcd 'facls and la''" the f;icts aS found hy the tribun11l must he accept-
ed :is correct~ the lrihunal had negatived the fin~ting 1hat the preference 
sh:Hl'S \\'Cre :lcquired by the appellant as a p:nvn in the schen1e of transfer 
of th~ managing a~ency of the F Con1pany and it 'vas not open to the 
High Court to come to rhe same concluo;ion by not trca1ing the findings 
0f the Tribunal as final. 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
~···~:, 
+ ,,. 
STAR COMPANY v. C.I.T. (Grover, !.) 
773 
I 
HELD : Dismissing the appeal : 
(i} The question Which was referred to the High Court was couched 
in general terms and was not limited to or circumscribed by the reasons 
which had been given by the Tribunal against the appellant. The question 
of law on which refe'rence can be made must arise out of the order of 
the Tribunal. Although certain reasons which had appealed to the Income-
tax Officer and the Appellate Assistant Commissioner were not accepted by 
the Tribunal, it had come to the conclusion which was material for the 
disposal of the -appeal, r.amely~ that the loss in question was not a loss that 
arose in the course of the appellant's business in share dealing. The question 
which was referred to the High Court was framed in the light of this final 
conclusion and it was not necessary for the department to apply for and 
obtain a reference on a question arising from the reasons given by the 
Tribunal in suppo·rt of its conclusion in favour of 

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