V. Amirtham Ammal vs Commissioner of Income Tax

Veeraswami, J.—This reference raises a question as to the character of a single transaction effected by the assessee on December 5, 1960,

whether it was one of an adventure in the nature of trade or an isolated dealing in capital asset giving rise to capital gain. The assessee, who

happened to be the wife of one of the directors of a private limited company by name Murugan Transports (P.) Limited, purchased from her

husband''s brother on August 6, 1960, 37 shares in that company and sold the same at a profit on December 5, 1960, to the brother-in-law and

wife of one Chinnaswami Pillai, the managing director of the very same company. Two of this gentleman''s daughters were also directors, all the

three of whom together held 200 shares as on August 5, 1960. His son possessed 42 shares which he had purchased from one Sundaralinga

Asari. On August 6, 1960, one L. G. Varadarajulu, the brother-in-law of the assessee, transferred 45 shares to his brother''s wife and 50 shares to

the wife of another brother of his. On December 5, 1960, the assessee sold 30 shares to Karupaiah Pillai, said to be the brother-in-law of

Chinnaswami Pillai, and 7 shares to the latter''s wife, Angammal. As on December 5, 1960, Chinnaswami Pillai and his relatives together held 414

shares and a stranger by name, Sundaralinga Asari, already referred to, had 101 shares. The assessee made a return for the year ending March

31, 1961, showing a capital gain of Rs. 14,800 on account of her sale of 37 shares. The revenue as well as the Tribunal treated the gain as from an

adventure in the nature of trade and it was charged to tax as business income. At the instance of the assessee this reference of the question comes

before us :

Whether, on the facts and in the circumstances of the case, the assessment of Rs. 14,800 as income from business is justified in law ?

Whether a given transaction, isolated as it is, as in the present reference, is a gain made out of conversion of an investment in a capital asset or

revenue derived out of a transaction amounting to an adventure in the nature of trade, is always a mixed question of law and fact. Decided cases

will help only to a certain extent for extracting the general principles-to decide the character of a transaction as of a trading one or an adventure in

the nature of trade, but their application to particular facts will depend upon the total impression the court may form of them in the light of those

principles'': Commissioner of Income Tax v. Kasturi Estates (P.) Ltd. and Sarojini Rajah v. Commissioner of Income Tax, to each of which one of

us was a party, deal with the general aspects to be borne in mind in deciding a question of this kind. We do not think it necessary, therefore, to

deal with them at any length. So far as we are aware, nobody has defined trade exhaustively or precisely, nor is it wise or possible to do it. But, at

the same time, it is a term well understood by the mind and so too is the case with an adventure in the nature of trade. In Sarojini Rajah v.

Commissioner of Income Tax, reference was made to the considerations that bear upon the identification of badges of trade, to wit, the subject-

matter of the realisation, the length of the period of ownership, the frequency of a number of similar transactions by the same person,

supplementary work on or in connection with the property realised, the circumstances that were responsible for the realisation and the motive;

They were all taken from the report of the Royal Commission on the Taxation of Profits and Income, 1955. Each of these badges was taken up

and illustrated in that decision. While referring to these badges, this court cautioned that it did not accept these badges as comprehensive or

exhaustive but thought that they were of considerable assistance in deciding the character of a transaction as of a commercial character. Atte.

referring to Ram Narain Sons (P.) Ltd. v. Commissioner of Income Tax and extracting the particular observations, this court posed the question as

to what were the legal requirements associated with the concept of trade or business, and proceeded :

We think that the presence of commercial motive is a primary legal requisite of trade. Purchase and sale as a business deal in the present context

may be another requisite. Intention to make a profit normally inspires trade and commerce, but it seems it may not be the essence of trade.

Likewise habitual dealing is ordinarily indicative of trade or commerce, but is not necessarily so, as pointed out by Rowlatt J. in Graham v. Greene.

There may be other legal requisites which may have to be satisfied with reference to the character of particular transactions in different kinds of

trade or businesses. But whether these legal requisites are satisfied or are present will themselves, in their turn, be a mixed question of law and fact.

The character of the motive or intention with reference to a transaction is a matter of inference from the other facts. It is here the badges of trade

indicated by the Royal Commission earlier referred to are of assistance, The subject-matter of a transaction may be such as is commonly or usually

dealt with in trade or commerce. For instance, often stocks and shares by their nature are transacted as a commercial deal, though occasionally

there may be investment as such in shares and stocks. The length of their holding may perhaps be suggestive of the character of the holding. If the

stocks purchased, are held over a long number of years, it may be reasonable to conclude that it is a case of investment. But if there is frequency in

the purchase and sale of shares in the course of a person''s activities, that may lead to a just inference that he does so as a commercial deal and in

the course of his business. There may be cases where the subject-matter itself may not suggest the intention. For instance, supposing a person buys

a motor car, uses it for a number of years and then sells it, that is a clear case of not being in the course of business. On the other hand, the same

person while making use of a car for over a long time also indulges in purchase of cars and frequent sales thereof with or without putting them to his

use in between the purchase and sale, it may be possible to infer in such a case that he is a dealer in motor cars.

What should be noticed is that it is the cumulative effect or impression that is formed in the mind of the court of the totality of the facts and

circumstances in each case, in the light of the principles just referred to, that should decide the issue and not by matching decided cases with the

facts in a particular case.

Looking at the facts before us, the outstanding features are these :

(1) the assessee was not a regular dealer in shares in the sense that there was no transaction in shares engaged in by her before or after the isolated

transaction on December 5, 1960 ;

(2) the subject-matter was shares in a company ;

(3) their purchase was on August 6, 1960, and they were sold so soon thereafter on December 5, 1960 ;

(4) the transaction brought a sizable profit;

(5) the assessee, as circumstances showed, clearly anticipated that the managing director and his group of shareholders attempted or would

attempt to acquire all the available shares in order to concentrate the power of the private company as much as possible in their hands and thus

there would be a demand for the shares held by other shareholders.

Taking all these facts into account, the cumulative effect of them, to our minds, is that the transaction of sale cannot be said to be merely a

conversion of one form of asset into another giving rise to capital gain. At any rate, we do not feel justified to differ from the conclusion of the

Tribunal, in the circumstances, that the transaction was an adventure in the nature of trade. Learned counsel for the assessee took one or other of

the circumstances we have mentioned in isolation and attempted to show that by itself was not conclusive on the question. What primarily

influences our minds is the nature of the subject-matter of sale and the shortness of the time between purchase and sale of the shares coupled with

the fact that the profit was anticipated or should have been anticipated and that there is no material on record to show that there was any urgency

for the assessee to cash the shares so soon after their purchase. That last feature particularly seems to point against the purchase of shares on

August 6, 1960, being an investment and the same being sold for any purpose other than making a profit. It is stated that this is an isolated

transaction but that it related to shares in a private company which are not normally put in the share market for purchase or sale and that therefore

there was no commercial motive. We are not impressed by this contention. Nor are we able to derive any assistance from Inland Revenue v.

Reinhold, for accepting the accesses'' contention that the transaction was not a commercial one. It was suggested for her that we should approach

the question from the standpoint whether the Tribunal had material before it to sustain its conclusion. If that were the proper form of approach, we

have no hesitation in stating that the Tribunal had certainly material. But, as pointed out by the Supreme Court in G. Venkataswami Naidu & Co. v.

Commissioner of Income Tax, the question in such a case should be in the form whether the inference drawn by the Tribunal from the facts was

justified in law. As it should be clear by now, we are of the view that the Tribunal was in this case so justified. We answer the question against the

assessee with costs, counsel''s fee Rs. 250.