THE COMMISSIONER OF INCOME TAX, DELHI AND RAJASTHAN versus M/S. NATIONAL FINANCE LTD.

Citation: [1962] SUPP. 2 S.C.R. 865 · Decided: 29-01-1962 · Supreme Court of India · Bench: S.K. DAS · Disposal: Appeal(s) allowed

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Judgment (excerpt)

2 9.C.R. 
SUPREME COURT REPORTS 
THE COMMISSIONER OF INCOME TAX, 
DELHI Al\fD RAJASTHAN 
v. 
M/S. NATIONAL FH{ANCE LTD. 
865 
(S.K. DAs, M. HIDAYATULLAH and J.C. SHAH, JJ.) 
Income Taa:-OapUal WBB or trading /,ass-Dealer in 
sparea-Acquisition . of shares tc get 
agency of company 
-Sublequent sale of share& incurring loas-Whetlier trading loss 
-Application to Tribunal dismissed as ba"ed by limitati01&-
Reference to High Court dismissed-Appeal by Special Leave 
against Trtbunal's decision-Maintainability. 
The respondent was a company dealing in . shares and 
securities and belonged to a group of companies all controlled 
by the same persons. In the year of account, corresponding 
to the assessment year 1951-52, the respondent sold the shares 
relating to Madhusudan Mills Ltd., which it had acquired 
sometime earlier, suffering a loss for which it claimed a 
set-off against the profits in that year. 
The Income-tax 
Officer found that the shares in question had been purchased 
by J, a company belonging to the group, at a price which wa1 
almost double the current market price, that it was so done 
with a view to removing the sellers from their managing 
agency and to securing for the respondent the purchasing and 
selling agency of the Mills, and that after the purchase J 
achieved the purpose in view of its controlling interest and the 
purchasing and selling agency of the Milla was given to the 
respondent, though the latter had done no more than give a 
loan to J. It was aim found that soon after the plll'Chasc the 
shares in question came into the possession of the respondent 
and that when the shares were sold it ~ 
not in the market 
but at a loss to another company belonging to the same group. 
The Income tax Officer came to the conclusion that in getting 
the shares the respondent did not deal with them as stock-in-
trade but was acquiring a capital asset of an enduiing nature. 
Accordingly, he disallowed the claim holding the loss to be a 
a capital loss. The Appellate Tribunal, however, held in 
favour of the respondent on the view that a distinction must 
be made between the respondent company and J. 
The Commissioner of Income·tax moved the Tribunal 
for a reference to the High Court, but it was dismissed on the 
ground that though it was barred only by one day and there 
was no negligence on the part of the Commissioner, the Tri-
bunal had no power to extend time. An application to the 
High Court was also dismissed. The Commissioner of Incomc-
tax then applied for and got special leave to appeal against 
1962 
J.....,, 29 
J~a 
n, C-iJsU... of 
lltl#trla, Dtllti 
ad Rajaslhan 
v. 
M/1. ~ati.ruJl 
FiJUllfci Ltd. 
861) SUPREME COURT REPORTS (1962] SUPP. 
the order passed by the Tribunal. 
When the appeal came on 
for hearing in due coune the respondent raised an objection 
that the appeal was not maintainable bec.ause no appeal was 
filed against the order of the High Court, and relied on the 
decision in Chandi PrMad Chokani v. State of Hihar, ( 1962) 
2 S.C.R. 276. 
Held, that the appeal was maintainable because there 
was no question of by·passing the order of the High Court 
which only related to the correctness of the decision of the 
Tribunal on the question of limitation which was not the 
subj.ct of the prrsent appeal. 
Held, further, that there were special circumstances 
which justified the grant of special leave. 
RalJ.v Si7111h v. Commissioner of Income-tax ( 1960), 4-0 
I.T.R. 605, applied. 
Chan di Prasad ChoH111ni 
v. State of Bihar 
( 1962), 
2 S.C.R. 276, distinguished. 
l/elrl, al~n. that, on the facts, the object was tn purchase 
a largr block rof shares at a much larecr price than the market 
value to acquire certain agenries of a profitable character, 
that the purchase of the shares by J was mf'rely a device but 
the controllinl( interest wa• acquirerl by the respondent, and 
that the tranc;action must be regarded as one on the capital 
side. 
R~mnarain Sons (P.)l.td v. Commi•sioner of Tnwme-taz, 
(1961) 2 S.C:.R. 904- and Oriental lnvutment Co. lid. v. Com-
mi•.<ioner nf Income-taz, (1958) S.C.R. 49, applied. 
Salomon v. Salomon & Co. Ltd. (lll97) A.C. 22, distin. 
guished. 
C1v1L APPELLATE Jr.RISDICTION : Civil Appeal 
No. 559 of 1960. 
Appeal by special leave from the judgment and 
ord1>•dated May 1/14, 1957, of the Income Tax 
A ppella•c Tribunal of India (Delhi Bench) in I.T.A. 
~o. 2070 of 1956-57. 
K.S. Ra,ia.gopal Saslri and D. Gupta, for the 
appellant. 
Rodhey J,al Aaarwal

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