Z. A. CHANNA , J.--On the application of the assessee, Messrs Industrial Management Ltd.; Karachi the Income-tax Appellate Tribunal has referred the following question under section 66(1) of the Income-tax Act, for the decision of this Court :- "Whether on the facts and circumstances of the case the Tribunal is right in holding the surplus of Rs. 76,114 on sale of shares as revenue receipt and taxable income and not capital receipt?"
2. The assessee is a private limited Company. It was set up in 1954 with the object of acquiring and carrying on the business of Managing Agency of Industries, trades, occupations, vocations and as Industrialists, Capitalists, Financiers, Concessioneries, Merchants and Traders. It appears that in the main it was acting as Managing Agents for the Fancy Group of Companies, deriving income from insurance and Managing Agency and dividends. In respect of the assessment year 1961-62, the Income-tax Officer found that the assessee bad purchased and sold shares, the over all results whereof was a let gain of Rs. 76,114. The Income-tax Officer, on the basis of the frequency of the transactions entered into by the assessee for its purchase and sale of shares and the nature of its dividends, concluded that the assessee was dealing in shares and consequently held that its profits from the sale of shares was liable to tax. He repelled the contention of the assessee that these profits were of a capital nature or a casual gain. Aggrieved by the decision of the Income-tax Officer, the assessee went up in appeal to the Appellate Assistant Commissioner, who reversed the decision of the Income-tax Officer on the grounds, firstly, that there was no frequency of transactions as all the shares were sold on one and the same day, namely, 31-3-1961, to Messrs Fancy Investment Ltd., a sister concern, and that secondly, dealing in shares was not the regular line of the assessee's business and its Articles of Association do not permit such activity.
3. The matter was thereafter taken up to the Tribunal which came to the conclusion that the profits realised by the assessee on the sale of shares were taxable profits "arising, if not directly from its business of financiers and promoters, etc., at least, as incidental to its above-stated business objects." In coming to this conclusion, it relied upon the decision in the case of Indra Singh & Sons Ltd. v. Commissioner of Income-tax, West Bengal (191 T R 1
4. We have heard Mr. Qadirdad Khan, the learned counsel for the petitioner, and Mr. Mansoor Ahmad Khan, who appeared for the Income--tax Department. Mr. Qadirdad Khan submitted that the decision in Indra Singh's case is not applicable to the instant case as in the reported case the admitted position was that the assessee was a financier and was dealing in shares, whereas in the instant case, the case of the assessee is that it had acquired the shares mainly for the purposes of obtaining Managing Agency rights and partly as an investment, and the sale of the shares by the assessee was to a sister Company, which was floated with the object of taking over the entire investment of the Fancy Group. In support of his contention that profits arising from the realisation of investments are not revenue receipts and thus not taxable, the learned counsel relied upon the decisions in the Commissioner of Inland Revenue v. Scottish Automobile & General Insurance Company Ltd. (2) and the Dunn Trust Ltd. v. Walliams (H. M. Inspector of Taxes) (31 Tax Cas. 487
5. Mr. Mansoor Ahmed Khan, the learned counsel for the Department, on the other hand, strongly supported the order of the Tribunal that the profits accruing to the assessee from sale or transfer of shares were revenue receipts and therefore taxable, on the grounds, firstly, that the decision of the Tribunal was a decision purely on facts and did not involve any question of law and consequently its finding could not be disturbed by the High Court nor in fact was referable to it under section 66 of the Act; secondly, that the number of transactions is not the deciding factor but the intention whether the transaction was a simple investment or adventure in trade; and thirdly, that in the instant case, the purchase of shares by the assessee for the purpose of obtaining Managing Agency, as was the case of the assessee before the Tribunal, should be deemed to be an integral part of the investment business of the assessee and consequently profits accruing from such business are taxable.
6. We find no force in the first contention of the learned counsel that no question of law arises out of the order of the Tribunal. The Tribunal no doubt has reached certain findings of fact but on the basis of the facts so found it proceeded to reach the conclusion that the transactions regarding A the purchase and sale of shares by the assessee were incidental to his business and, therefore, taxable. This inference or conclusion consequently raised a question of law. The Supreme Court of India, in Commissioner of Income--tax v. National Finance Ltd. (1) has observed: "whether a particular loss is a trading loss or a loss on the capital side undoubtedly depends on the facts of each case. But it has been held, over and over again, that the question is not one of pure fact, and that a mixed question of fact and law is always involved."
7. In Commissioner of Income-tax v. B. R. Sons (P.) Ltd. (2), Oak, C. J. While dealing with the question whether the business of Managing Agency of a particular Company and dealing in its shares constituted one and the same business, observed: "Whether a certain loss is a capital loss or revenue loss is a mixed question of fact and law."
8. Mr. Mansoor Ahmad Khan, the learned counsel for the Department, however, relied upon the decision of the Lahore High Court in the case of Nasir A. Shaikh v. Commissioner of Income-tax (3), in support of his contention that the order of the Tribunal is based solely on findings of fact specially the finding that the motive of the assessee in selling the shares was primarily not to realise the alleged investment or to change the same but to convert it into liquid resources for the furtherance of its objectives of financing and promoting the business of its allied concerns and hence the order of the Tribunal does not give rise to any question of law for reference to the High Court. No doubt in the above-reported case it has been held that the motive and intention with which the assessee acquired and sold the shares in a finding of fact and the order of the Tribunal concluded by findings of fact does not give rise to a question of law, but we are inclined to the view that the motive of the assessee in selling shares held by him is not the determining or even very material factor for deciding whether dealing in shares is a part of the business or even incidental to the business of the assessee or whether the purchase of the shares was for purposes of capital investment and the sales were realisation of such investment. As pointed out by the Supreme Court of India in National Finance Ltd., the determination of the question whether a particular profit or loss is a trading loss or gain or on the capital side depends upon the facts of each case. In the case of Nasir A. Shaikh, it was found that the assessee and his brothers, who not only controlled the Naushera Mills but also the Multan Mills, designedly increased the capital of the Naushera Mills by a substantial amount and acquired the lion's share out of the fresh issued capital under a preconceived plan and set ~ scheme of making as much gain as possible. In the instant case, there is no finding or evidence that the assessee controls the Companies whose shares it had bought or that the shares were purchased under a preconceived plan of selling them at a profit. It may be mentioned that even in the above-reported case, distinction was made between the original purchase of shares in 1952 and their sale in 1958 and the sale and purchase of the additional shares in 1958, and it was only in respect of the latter shares that it was held that their purchase and sale was motivated by desire to obtain profit and was not a mere realisation of investment as in the case of the shares bought in 1952.
9. We may also point out that in the instant case the Tribunal has separately listed its findings of fact and the inference drawn by it therefrom the conclusion reached by it on their basis. This conclusion from the facts, in our humble opinion, is clearly a mixed question of law and fact, and therefore, a decision thereon can be given by the High Court under section 66 of the Income-tax Act. Even in the case of finding of fact based on no evidence or on material which was irrelevant to the enquiry or where the decision is based on conjectures, surmises and suspicions, it is settled law that an issue of law arises and the finding of the Tribunal can be interfer--ed with.
10. In Dunn Trust Ltd. v. Williams, the facts were that a Company incorporated in 1927, commenced to trade as money-lenders. In 1940, it purchased from the Managing Director certain number of shares. In 1943, the Company extended its business to include dealings in shares and the proceeds of these transactions were admitted to be trading profit. During the years 1944 to 1940(7) the Company disposed of some of the shares purchased from the Managing Director and made profits on such sales. It was held by the General Commissioners that the sale of shares were realisation of investment and not trading transactions and accordingly the profits were capital gain and not assessable to tax. On the matter being taken to the High Court, is was held that there was no evidence to support the Commis--sioners' decision and on the contrary the accounts were adverse to the conclusion reached by them and accordingly their decision was set aside.
11. We also find no force in the contention of the learned counsel for the Department that since the case of the assessee itself was that the shares 'were purchased only of such concerns which the assessee wanted to control or to obtain their Managing Agency, therefore, the purchase and sale of shares by the assessee should be deemed to be an integral part of its business and consequently the profits accruing from such activities are taxable as business profits. The Privy Council, in the case of Doughty v. Commis--sioner of Taxes (1927 L R 327emphasised the distinction between capital sales and sales producing income and, observed that in the case of capital sales or sale of assets of an enduring nature, the profits are exempted from tax while profits accruing from sales producing income, such as sale of stock-in-trade, are revenue receipts and taxable as such. The specific question whether profits or losses made on sale of shares acquired merely with the intention of obtaining a Managing Agency or a Directorship or a Secretaryship or a Selling Agency, are capital or revenue profits or losses has been dealt with by the Indian Supreme Court in a number of cases.
12. The first case to which we would like to refer is Kishan Parshad & Company Ltd. v. Commissioner of Income-tax (271 T R 49The facts of that case were that the assessee-Company, which was formed with the objects, inter alia of carrying on the General business and trade of Commission Agents and Bankers, undertaking the management of commercial undertakings and dealing in bills, hundies and other securities, entered into an agreement with a Sugar Syndicate, then incorporated, under which in lieu of the assessee subscribing for shares worth Rs. 3 lacs in the Sugar Syndicate and undertaking to sell shares of the Syndicate worth Rs. 2 sacs, the assessee was to be given the Managing Agency of mill of the Sugar Syndicate, when such mill was erected. The mill was not erected and hence the agreement about acquiring the Managing Agency fell through.
The assessee sold the shares in the Sugar Syndicate and the sale brought a profit of about Rs. 2 lacs.. On a question being raised whether this profit of Rs. 2 lacs was a receipt from business and not a mere appreciation in capital, it was held that the purchase of shares was an investment and not an adventure and hence the profit of Rs. 2 lacs received by the assessee was not liable to tax.
13. The next case to which we would like to refer is that of Commis--sioner of Income-tax v. Wazir Sultan & Sons (1). In that case, the facts were that the assessee was appointed the sole selling agents and sole distributors for the Hyderabad State for a cigarettes manufacturer. Subsequently, another arrangement was arrived at between them whereby the-assessee was given a discount of 2 % not only on the goods sold in the Hyderabad State but on all the goods sold whether within or outside the State. Later on, the parties reverted to the old arrangement confining the sole agency of the assessee to the Hyderabad State and the assessee was paid substantial compensa-- petition for the loss of the agency for the territory outside the Hyderabad State. On the question being raised whether the amount received by way of com--pensation by the assessee was a revenue receipt liable to income-tax or a capital receipt not so assessable, the Supreme Court of India by majority held that the agency agreement in respect of the territory outside the Hyder-- abad State was as much an asset of the assessee's business as the assessee's business within the Hyderabad State; that the agency agreements formed the capital asset of the assessee's business which was exploited by the assessee by entering into contracts with various customers and dealers in the respective, areas and that the payment made to the assessee by way of compensation for limiting the agency agreement to the Hyderabad State was a capital receipt in the hands of the assessee. It was further held that the fact that the agreement was terminable at will and was not of an enduring character was immaterial.
14. In a recent case, reported as Rameshwar Prashad Bagla v. Commis--sioner of Income-tax (2), the Supreme Court of India upheld the view of the Appellate Tribunal that the purchase by the assessee of shares of a company for the purposes of acquiring its managing agency did not constitute stock--in-trade of the assessee and therefore the profits accruing to the assessee by the sale of such shares were not revenue receipts and hence not liable to tax, and disagreed with the view of the High Court that the shares constituted the assessee's stock-in-trade. The Supreme Court observed that the circum--stances that the assessee took a loan-for the purchase of the shares would not by itself go to show that the purchase was not to facilitate acquisition of the Managing Agency.
15. Mr. Mansoor Ahmad Khan, the learned counsel for the Department, however, relied upon the decision of a Division Bench of the Allahabad High Court in Commissioner of Income-tax v. B. R. & Sons (Pvt.) Ltd. (3). In that case the assessee had purchased shares in a mill with a view to.
Acquiring its Managing Agency. It sought to carry forward and set off the losses incurred on devaluation of the shares against the profits it derived from the Managing Agency. The Tribunal allowed the claim as it found that dealing - in shares by the assessee and Managing Agency constituted the game business. The High Court upheld the view of the Tribunal and held that on the facts of the case the assessee was entitled to set off his unabsorved loss on devaluation of the shares against the Managing Agency business in the assessment year. The decision of the Tribunal and the High Court was inter alia based on the grounds that the assessee maintained a single set of accounts for the two activities; that the assessee had to purchase the shares for the Managing Company at an inflated price under the terms of agreement under which the assessee acquired the Managing Agency; that 90 % of the shares held by the assessee related to the Company of which it had acquired Managing Agency and finally that the assessee in fact combined the two activities under consideration. It will thus be seen that the decision in this case turned upon the special facts of the case.
16. We may also refer to the decision of the Calcutta High Court in Commissioner of Income-tax v.
Produce Exchange Corporation Ltd. (50 1 T R 308In that case, the assessee-Company, which was carrying on business in various lines and one of its objects was dealing in shares, bought certain shares and about a year later sold them to a Company managed by its Managing Agents at a substantial loss. About a year after the sale the purchaser Company was appointed Secretary of the Company whose shares it had purchased. The Tribunal held that the loss incurred by the assessee was a trade loss as it found that the assessee bad dealt in shares and the profits with respect to those dealings were brought to tax, that -the shares were purchased with borrowed money, that both the purchases and sales were at the prevailing market rate and one of the objects of the assessee was to carry on business of dealing in shares. The High Court held that it could not go behind the facts found by the Appellate Tribunal since there was no ground for thinking that they were based on evidence at all or were contrary to such evidence or were capricious. It further held that the fact that the assessee acquired the Secretaryship of the Company cannot be decisive of the question as to whether the transaction was investment or a dealing in shares. The above authorities would seem to indicate that from the mere fact that any shares have been bought in a Company for the purpose of acquiring its Managing Agency or securing control over it no automatic presumption can be drawn either that the shares were bought as a business venture or that the business of Managing Agency and the purchase of shares were the same business, but each case has to be decided on its own facts.
17. We are in agreement, however, with the contention of the learned counsel for the Department that the number of transactions is not the determining factor for deciding whether any purchases or sales are in the nature of an ordinary investment and its realisation or an adventure in trade.
Although a multplicity of transactions would ordinarily be indicative of trading, a single venture could be held to be an adventure in trade if it is connected with the assessee's ordinary line of business or the intention to venture in trade is manifest. In Wisdom v. Chamberlain 45 Tax Cas. 92), there was a single transaction on the part of the assessee of purchase of silver bullion of a large amount as a hedge against devaluation. A substantial part of the price of silver was paid by means of obtaining loans. On a substantial increase having occurred in the price of silver, the wsessee sold the silver and carved a handsome profit. It was held by the Court of Appeal that notwithstanding that the transaction was a hedge against devaluation of .The pound, "it was nevertheless as a transaction entered into on a short term basis for the purpose of making a profit out of the purchase and sale of commodity" and consequently it was clearly an "adventure in the nature of trade".
18. The line between a realisation of an investment which is not profit but represents merely a capital sale and a conversion of securities which amounts to carrying on of a business was succinctly drawn by Lord Justice Clerk in the case of Californian Copper Syndicate v. Harris (5 Tax Cas. 15as follows :- "It is quite a well-settled principle in dealing with question of assessment of income-tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of Schedule D of the Income- tax Act of 1922 assessable to income-tax. But it equally well established that enchanced values obtained from realisa--petition or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business. The simplest case is that of a person or association of persons buying and selling lands or securities speculatively, in order to make gain, dealing in such investments as a business, and thereby seeking to make profits. There are many companies which in their very inception are formed for such a purpose, and in these cases it is not doubtful that, where they make a gain by a realisation, the gain they make is liable to be assessed for income- tax.
What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being-Is the sum of gain that bad been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme for profit-making."
19. It has thus to be seen whether on the facts and circumstances of the case it can be reasonably presumed that the purchases and sales of shares by the assessee were in. The nature of a trade or business and not a mere investment and its realisation. The facts found by the- Tribunal, on which it based its conclusion that the purchase and sale of shares by the assessee and the realisation by it of profits on the sale of shares were inci--dental to the assessee's business objects, have been stated thus by the Tribunal in its order :- "(a) The Company has been financing and promoting the business of its allied concerns and in carrying on of this object it has been bor--rowing money from banks, etc.
(b) From the recorded evidence it is clear that the respondent has been carrying on the business of financiers by injecting the borrowed capital in the purchase of equities of companies of which it could obtain management and some control.
(c) The frequency of the respondent's transactions of purchases and sales of the scrips during the year under consideration clearly establishes that these dealings were entered into not as investment but as part and parcel of the respondent's business activities of financiers and promoters of such concerns of which managing agency it could succeed in obtaining.
(d) The finding that the entire transactions of transfer of the shares purchased earlier and during the year under consideration were effected on 31-5-1961 to Messrs Fancy Investment Ltd., is not correct.
(e) The motive for selling the shares was primarily not to realise the alleged investment or to change the same but to convert the same into liquid resources for furtherance of its above described objectives.
(f ) The finding that the respondent could not indulge in share dealings is not correct in face of clauses (1) and (20) of paragraph C of the Memorandum of Association already detailed above."
20. It was not contended before us by the learned counsel for the assessee that these findings of fact were based on no evidence or inadmissible or irrelevant evidence. What was attacked was the conclusion reached by the Tribunal on the basis of these findings of fact. It thus fails to be consi-- dered whether the conclusions reached by the Appellate Tribunal were o correct. The Tribunal found, on the basis of the Articles of Association of the assessee, that it was a financier and had been financing and promoting the business of its allied concerns. According to its Articles of Association, the assessee not only had the power to invest its surplus funds but was empowered to act as a financier and capitalist and to undertake and carry on all kinds of financial, commercial, trade and other operations. As such buying and selling of shares are within the ambit of the objects of the assessee as stated in its Articles of Association. In Indra Singh & Sons Ltd. v. Com--missioner of Income-tax (19 I T R 1the Calcutta High Court took the view that before it can be held that a profit arises from a transaction which forms part of a company's business it must be shown that the Company was not only entitled to enter into that transaction under its Memorandum of Association but that the transaction was part of the business which it carried on or was an essential or normal step in conducting its business. It referred with approval to the following observations of Viscount Mugham in Punhab Cooperative Bank Limited v. Commissioner of Income-tax ((1940) L R 61 1 A 464 "The profit from the sale of securities, therefore, may be taxable though the assessee is not carrying on the business of buying and selling such securities. If the sale of such securities is a normal step in carrying on the business of the assessee or is an act done in what is truly the carrying on of such business then the profits .From such sales would be liable to tax."
21. Since one of the objects of the assessee was to act as capitalist and financier and to undertake all kinds of financial operations, the purchase and sale of securities by it would be a normal step in the business of the assessee. The mere fact that it invested mainly in the concerns controlled E by the Fancy Group would make no difference. As found by the learned Tribunal the shares were mainly purchased by the assessee with borrowed capital. In the assessment year 1960-61, the assessee purchased shares of the value of Rs. 9,89,390. Such heavy purchases are clearly indicative oft the intention to do business in such shares or at least establish that it is a normal step in the carrying on of the business .Of the assessee. The fact that the bulk of the shares purchased by the assessee were sold to a sister concern would also, in our opinion, make no difference. Since the shares were sold to it at the market rate. Apparently the shares were sold to a sister concern in an attempt to escape tax on the profits earned from these shares.
22. We are, therefore, clearly of the opinion that on the facts as found by the Tribunal, the purchases and sale of shares by the assessee was not in the nature of a capital investment and its realisation but the carrying on of a busi--ness and the profits earned from such activities were taxable, as held by the Tribunal. We would accordingly answer the question referred to us for decision in the affirmative.
I. MAHMUD, J.-I agree.