Case Note & Summary
The dispute arose from income tax assessments for the years 1943-44 to 1948-49, excluding 1947-48, concerning an investment company incorporated in 1924. The company was originally incorporated as an investment company with objects permitting dealing in investments and properties. For several years the assessee company had claimed to be treated as a dealer in investments and properties, and for the assessment years 1940-41 to 1942-43 the department accepted that status. However, for assessment year 1943-44, after filing a return as a dealer, the company filed a revised return claiming to be an investor, relying on a Central Board of Revenue determination for excess profits tax purposes. The Income-tax Officer rejected the revised claim, holding that investments were stock-in-trade; the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal affirmed that view. The Tribunal placed reliance on the company's memorandum of association and its own past assertions as a dealer, noting that the company changed its stance when substantial profits arose. The Tribunal rejected an application under Section 66(1) of the Indian Income-tax Act, 1922 to refer two questions to the High Court: whether the company was rightly treated as a dealer and whether profits from sales were business profits, stating that no question of law arose. The High Court also dismissed the application under Section 66(2), leading to the present appeal by special leave. The Supreme Court examined the distinction between questions of law and fact, referring to English and Indian authorities. It held that the question whether the company's business amounted to dealing in shares and properties or investment was a mixed question of law and fact, and that the legal effect of facts found by the Tribunal was a question of law. The court found that the Tribunal had relied on the memorandum and past assertions, but the assessee contended that documentary evidence was ignored and crucial facts not considered. The Supreme Court concluded that a referable question of law arose and therefore set aside the High Court's order and remitted the case to the High Court with direction to require the Tribunal to state a case. The decision favoured the assessee/appellant.
Headnote
A) Income Tax - Business Income vs Capital Gains - Dealer or Investor Status - Mixed Question of Law and Fact - Indian Income-tax Act, 1922, Section 66(1), 66(2) - The assessee company claimed investor status while revenue treated it as dealer based on memorandum and past assertions. The Supreme Court held that the question whether business amounted to dealing in shares and properties or investment is a mixed question of law and fact; the legal effect of facts found by the Tribunal as to dealer or investor is a question of law. Accordingly, a referable question arose and the High Court should have directed the Tribunal to state a case. (Paras 4-10)
B) Income Tax - Reference to High Court - Question of Law Arising from Tribunal Order - Test for Referable Question - Indian Income-tax Act, 1922, Section 66(1), 66(2) - The Tribunal must state a case when a question of law arises from its appellate order. The court referred to English authorities and Indian decisions to distinguish questions of law and fact, holding that if the legal effect of facts found is in issue, a question of law exists. The Tribunal's rejection of the reference was therefore erroneous, and the case was remitted to the High Court for directing the Tribunal to state a case. (Paras 7-12)
Issue of Consideration
Whether any question of law arose out of the order of the Income-tax Appellate Tribunal holding the appellant company as a dealer in investments and properties rather than an investor, and whether the High Court erred in dismissing the assessee's application under Section 66(2) of the Indian Income-tax Act, 1922 to require the Tribunal to state a case.
Final Decision
Appeal allowed; order of High Court set aside; case remitted to High Court for directing the Tribunal to state a case.
Law Points
- Legal points not extracted
- Question of law arises from Tribunal order when legal effect of facts found is involved
- whether business amounts to dealing in shares and properties or investment is mixed question of law and fact
- legal effect of facts found by Tribunal is question of law
- Tribunal must state a case under Section 66(1)/(2) of Indian Income-tax Act
- 1922 when such question arises
Case Details
Civil Appeal No. 153 of 1954
J.L. Kapur, Natwarlal H. Bhagwati, S.K. Das
Citation not available, 1957 AIR 852, 1958 SCR 49
R. J. Kolah, J. B. Dadachanji, S. N. Andley, Rameshwar Nath, C. K. Daphtary, G. N. Joshi, R. H. Dhebar
The Oriental Investment Co., Ltd.
The Commissioner of Income-tax, Bombay
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Nature of Litigation
Appeal by assessee company against High Court order refusing to direct the Income-tax Appellate Tribunal to state a case and refer questions of law to High Court under Section 66 of Indian Income-tax Act, 1922.
Remedy Sought
Assessee company sought a reference to the High Court on questions whether it was rightly treated as a dealer in investments and properties and whether profits from sale of shares, securities and immovable properties were taxable as business profits.
Filing Reason
The Income-tax Appellate Tribunal held the assessee company as a dealer in investments and properties based on its memorandum of association and its past assertions as dealer, rejecting its claim to be treated as investor; the Tribunal and High Court refused to refer questions of law, leading to appeal by special leave.
Previous Decisions
Income-tax Officer rejected assessee's plea and held investments as stock-in-trade. Appellate Assistant Commissioner upheld. Income-tax Appellate Tribunal dismissed appeal, holding assessee a dealer. Tribunal's application under section 66(1) was rejected; application under section 66(2) to High Court was dismissed.
Issues
Whether the question whether the assessee's business amounted to dealing in shares and properties or investment is a question of law.
Whether the Tribunal's finding that the assessee company was a dealer was based on relevant material and correct legal principles, giving rise to a referable question of law.
Whether the High Court erred in dismissing the assessee's application under Section 66(2) of the Income-tax Act for requiring the Tribunal to state a case.
Submissions/Arguments
Assessee contended that it never carried on any business in purchase or sale of shares, securities or properties and should be treated as investor, supported by Central Board of Revenue order under Excess Profits Tax Act.
Assessee argued before Supreme Court that questions of law arise because Tribunal ignored documentary evidence, relied on irrelevant matters, failed to consider crucial facts, and misdirected itself by assuming petitioner was dealer from beginning contrary to documents.
Revenue contended that Tribunal's finding was factual and no question of law arose.
Ratio Decidendi
The question whether the assessee's business amounted to dealing in shares and properties or to investment is a mixed question of law and fact; the legal effect of facts found by the Tribunal as a result of which the assessee could be treated as a dealer or an investor is a question of law. Therefore, a referable question of law arose under Section 66(1)/(2) of the Income-tax Act, and the High Court should have directed the Tribunal to state a case.
Judgment Excerpts
The Tribunal did not decide this point merely because the company’s memorandum of association gave power to the company to deal in investments and properties, but it was actually found that the company had dealt in investments and properties throughout and had also all along in the past asserted that it was a dealer in investments and properties.
the question whether the appellant’s business amounted to dealing in shares and properties or to investment, is a mixed question of law and fact and that the legal effect of the facts found by the Tribunal as a result of which the appellant could be treated as a dealer or an investor, is a question of law.
This gives the history of the acquisition and disposal of shares and also how the various transactions were entered into and why.
Procedural History
Assessment years 1943-44 to 1948-49 except 1947-48. For assessment year 1943-44, assessee initially filed return as dealer, then revised return on 7 March 1944 claiming investor status. Income-tax Officer rejected claim, held investments as stock-in-trade. Appellate Assistant Commissioner upheld. Income-tax Appellate Tribunal dismissed appeal, holding assessee a dealer based on memorandum and past assertions. Tribunal rejected application under Section 66(1) for reference, holding no question of law. High Court dismissed application under Section 66(2) on 15 January 1952. Assessee obtained special leave to appeal to Supreme Court.
Acts & Sections
- Indian Income-tax Act, 1922: Section 66(1), Section 66(2), Section 22(1)
- Excess Profits Tax Act: Section 26(1)
