JUDGMENT V. Bhargava, J.
1. The assessee, Sohan Lal Gupta, is assessed in the capacity of an individual. This reference relates to the assessment year 1944-45, the previous relevant year of account being the financial year 1943-44. The facts given in the statement of the case show that sometime in the year 1935 Lala Jaswant Rai, father of the assessee, purchased a sugar mill at Meerut and, subsequently, in the year 1936 he purchased 2,892 shares of the value of Rs. 100/- each of the Straw Board Mills Ltd. at Shahdra. The shares of the Straw Board Mills Ltd. at Shahdra were purchased by Lala Jaswant Rai in his own name as well as in the names of his four sons and other relatives including one of his cousins, Chiranji Lal.
The assessee was then a minor and in his name were purchased 120 shares. Thereafter, the Straw Board Mills were shifted from Shahdra to Meerut and located in the same premises which came to be known as the Jaswant Sugar Mills after the purchase of the mill by Lala Jaswant Rai. Thereafter, the Straw Board Mills Ltd. was running under the management of Lala Jaswant Rai whereas the assessee was in charge of the manufacturing section of the Jaswant Sugar Mills, On 12th December, 1940, when the assessee had attained majority, he purchased 100 more shares of the Straw Board Mills Ltd. from Chiranji Lal at the rate of Rs. 75/- per share, the face value of the shares being Rs. 100/- each.
In June, 1941, the Straw Board Mills Ltd. declared a dividend of 12 1/2 per cent on the shares for the year 1940. In 1942, a dividend of 20 per cent was declared for the preceding year 1941 and, in June. 1943, a dividend of 40 per cent was declared by the Straw Board Mills Ltd. for the preceding year 1942. Then, in July, 1943, the Jaswant Sugar Mills and all the shares of the Straw Board Mills Ltd., belonging to Lala Jaswant Rai, the assessee and other members of their family were sold to one Seth G.M. Khemka of Calcutta. As a result of this sale, the price fetched by the 100 shares of the assessee, which had been purchased by him in 1940, came to Rs. 500/- per share.
There thus accrued to the assessee a profit of Rs. 425/- per share on these 100 shares. The question arose whether this profit earned by the assessee in the financial year 1943-44 was his revenue income earned by entering into a venture in the nature of trade, or whether it was an accretion to his capital as contended by him The Income-tax Appellate Tribunal held that this income was re-venue income liable to income-tax. Thereupon, at the request of the assessee, the following question has been referred to this Court for opinion :
Q. "Whether, on the facts found and in the circumstances of the case, the Tribunal was justified in drawing the inference that the purchase of 100 shares of Straw Board Mills Ltd. in 1940 and their subsequent sale was a venture in the nature of trade and the income from their sale was a revenue receipt taxable in the hands of the applicant?"
From the appellate order of the Tribunal and the statement of the case, it appears that the Tribunal arrived at the following findings :
1. That the Tribunal were not satisfied that tile 100 shares were purchased in 1940 by the assessee to enable him to qualify himself for appointment as a director.
2. That the Tribunal were not satisfied that the shares had to be sold as the purchaser of the Jaswant Sugar Mills would not purchase that mill unless the shares in the Straw Board Mills Ltd. held by the family were also sold to the purchaser.
3. That the assessee had made the purchase at a time when a dividend was going to be declared and the price was likely to rise, and would not have otherwise invested money in a concern which had not done well ever since its purchase in 1936.
4. That the assessee was in charge of the Jaswant Sugar Mills while his father was in charge of the Straw Board Mills Ltd., and there was no reason why he wished to be a director in the Straw Board Mills Ltd.
5. That the father of the assessee had already a very large number of the shares in the Straw Board Mills Ltd. and, if the question arose merely of getting the qualifying shares, his father might have transferred to him fifty shares.
6. That the assessee admittedly had purchased other shares with the object of selling them in a rising market and making profit and had, as a matter of fact, since 1943 become a share-holder.
7. That the other shares which he had purchased for purposes of sale at a profit, e.g. the shares of Shri Gopal Paper Mills Ltd. were sold by him in 1943 after about two years of the purchase.
2. With regard to these facts found by the Tribunal, Shri G.S. Pathak appearing on behalf of the assessee has drawn our attention to the material on the record indicating that some of the findings of fact given by the Tribunal and relied upon by them were either not relevant to the question which the Tribunal had to consider, or were without any material whatsoever. The first fact relied upon by the Tribunal, which is coupled with the fifth fact mentioned above, relates to a plea, which, according to the Tribunal, was put forward by the assessee, that he had purchased those shares in order to qualify himself as a director of the Straw Board Mills Ltd.
It appears, however that this question did not arise because the plea, which was taken by the assessee in his affidavit, was not to the effect that the 100 shares had been purchased by him for the purpose of qualifying himself as a director but were purchased as an investment pure and simple out of his surplus funds. The affidavit did mention that, after the purchase of those 100 shares, the assessee had become a director but no case had been specifically put forward by him in the affidavit to the effect that the intention of purchasing the shares was to qualify as a director. The findings given by the Tribunal rejecting this supposed plea of the assessee can have, therefore, no bearing at all on the question which came up for decision.
3. What the Tribunal had really to find out was whether the intention of the assessee at the time of purchasing those 100 shares in 1940 was that he would subsequently sell them at a profit and earn income by that transaction, or whether the assessee's plea was correct to the effect that he had purchased those shares as an investment pure and simple because he was possessed of surplus funds. The Tribunal did not direct their mind to this question as they were misled by the impression that the assessee's main contention was that those shares had been purchased with the intention of obtaining qualification for director-ship of the Company.
4. The third fact mentioned above is relevant to the question which really arose for decision. The Tribunal held that the assessee had purchased those shares at a time when a dividend was going to be declared and the price was likely to rise and he would not have otherwise invested money in a concern which had not done well ever since its purchase in 1936. This finding does not, however, appear to be helpful at all in giving a decision on the question in dispute. Whether the assessee purchased the shares as an investment in order to earn income from that investment, year after year, or whether he purchased the shares with the object of selling them at a profit when the business become profitable and the price of the shares rose are questions which are equally affected by the fact that, at the time of the purchase, the business had shown promise of being successful.
Unless the business was likely to be successful, there could be no hope of the value of the shares rising and, therefore, a speculative venture in the shares would not have been entered, into by the assessee unless, on information available to him, he felt satisfied that the business was going to give profits which would enhance the value of the shares. At the same time, if he found that the business was going to give profits, it would have been quite reasonable for him to purchase the shares as an investment in order to earn handsome returns on it year after year. The fourth fact mentioned above that the assessee's father was in charge of the Straw Board Mills Ltd. from which the inference could be drawn that the assessee must have known the state of affairs of the mills takes us no farther.
This circumstance also only leads to the conclusion that, at the time of the purchase of the shares, the assessee was aware of the fact that the investment would be a profitable one and it an also be held that he knew that the shares would rise in price. The next fact mentioned above as No. 5 is the mere possibility taken into consideration by the Tribunal that the assessee might have got some shares transferred in his favour by his father instead of purchasing them from some other person. The Income-tax Appellate Tribunal have not taken notice of the fact that even the 100 shares, which had been purchased by the assessee, were obtained by him from one of his close relations, Chiranji Lal.
Further, as we have said earlier, this point was relevant only if the assessee's case had been that he had obtained those shares in order to qualify himself as a director whereas this was not really his case. The real case put forward by him was that he had purchased the shares as an investment. The circumstances discussed so far, therefore, give no indication at all that the assessee's explanation that he had purchased those shares as an investment was not correct and that he had purchased them for the purpose of entering into a speculative venture in the nature of trade by purchasing and selling the shares.
5. The most important point, on which the Tribunal relied, is that mentioned at No. 2, viz., that, according to the Tribunal, the assessee had not satisfactorily established that the shares had to be sola as the purchaser of the Jaswant Sugar Mills was not willing to purchase that mill unless the shares in the Straw Board Mills Ltd. held by the family were also transferred to him at the same time. On this point, the only material available on the record is the affidavit which was filed by the assessee before the Income-tax Officer. The assessee in his affidavit, had definitely stated that the purchaser wanted to purchase both the going concerns, the Jaswant Sugar Mills and the Straw Board Mills Ltd., together and one of his conditions of purchase was that all the shares of Lala Jaswant Rai, his sons and other relatives had to be transferred to the purchaser.
The Income-tax Appellate Tribunal rejected this affidavit of the assessee on the mere ground that there was no documentary evidence in corroboration in the form of any correspondence or otherwise on this point. Shri G.S. Pathak has contended rightly before us that the Tribunal was not entitled to reject the affidavit on this point on such a ground. After the assessee had filed the affidavit, he was neither cross-examined on that point, nor was he called upon to produce any documentary evidence. Consequently, the assessee was entitled to assume that the income-tax authorities were satisfied with the affidavit as sufficient proof on this point.
If it was not to be accepted as sufficient proof either by the Income-tax Officer or by the Appellate Assistant Commissioner of Income-tax or by the Income-tax Appellate Tribunal, the assessee should have been called upon to produce documentary evidence, or, at least he should have been cross-examined to find out now far his assertions in the affidavit were correct.
In this connection, Shri Pathak has drawn our attention to a decision of the Supreme Court of India in Parikh and Co. v. Commissioner of Income-tax, Bombay, 1956-30 ITR 181 : ((S) AIR 1956 SC 554) (A). In that case, their Lordships of the Supreme Court, in very similar circumstances, held that the rejection of an affidavit filed by an assessee was not justified unless the assessee had either been cross-examined or called upon to produce documentary evidence in support of the affidavit sworn by him. Their Lordships held :
"No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits considered necessary by either party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income-tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits. Under these circumstances it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits".
In the instant case, these remarks fully apply, so that we have to hold that it was not open to the Tribunal to reject the plea taken by the assessee in his affidavit merely on the ground that no documentary evidence had been filed in support of that plea. The Tribunal, in fact, after having rejected this explanation, still appear to have been doubtful as they went on to say :
"Be that as it may, we do not believe that the appellant would have yielded to the demand of the purchaser Khemka & Co., unless it was to his own interest to yield to it. In matters of business, courtesy or respect to elders or consideration for the benefit of others hardly prevail."
The expression "be that as it may" would show that the Tribunal were not prepared to give a definite finding that the explanation of the assessee was wrong merely because no documentary evidence had been filed. The Tribunal, however, went on to hold that they could not believe that the assessee would have yielded to the demand of the purchaser unless it was to his own interest to yield to it. Even if this view be accepted as quite correct, it does not militate against the explanation given by the assessee. The assessee was, according to him, compelled to sell his shares in the Straw Board Mills Ltd. because otherwise the purchaser was not prepared to purchase even the sugar mills.
Even though the sugar mills belonged to the assessee's father, it could not be said that the assessee would not have any interest in the sale of those sugar mills. The sugar mills belonged to his father and he was one of the heirs. The sale of the sugar mills at a good price could, therefore, be in his own interest also. Further even though shares in the Straw Board Mills Ltd. held by him were yielding good return in the form of dividend, he may have agreed to their sale at that time because he found that the price, which was being offered, was very handsome, so that he was going to get a good price and, in addition, it was in the larger interest of the family as a whole to give up this profitable investment in order to enable the sugar mills to be sold.
Consequently, the fact the assessee must have acted in his own interest does not show that the explanation given by him was incorrect. The grounds relied upon by the Tribunal for rejecting the explanation did not, therefore, exist and, consequently, the Tribunal were bound to accept the explanation given by the assessee in his affidavit. That explanation would show that the shares were sold by the assessee under special circumstances and not with a view to obtain profit by their sale. The circumstances, under which the shares were sold, thus do not at all support the view that those shares had been purchased by the assessee with the intention of selling them at a profit. On the other hand, it would appear that the assessee's contention that they were purchased as an investment is supported by the circumstances to a much greater extent.
6. The only other point left for our consideration is that relating to the purchase and sale by the assessee of shares in some other concerns. Here, again. Shri Pathak has drawn our attention to the fact that the Tribunal have gone wrong in stating the facts inasmuch as, out of the two purchases of shares made by the assessee in the years 1942 and 1943, only one was an admitted purchase for the purpose of selling the shares at a profit whereas the other was a purchase admittedly for the purpose of investment in the shares for earning income on the investment and not for the purpose of making profit by selling the shares at a higher price.
The purchase in 1941 of the shares of Shri Gopal Paper Mills Ltd. was admitted by the assessee to be a venture which he entered into for earning profits by selling the shares at a higher price, but the subsequent purchase of the shares of Amrit Banaspati Company Ltd. was alleged by the assessee to have been an investment for earning Income on that investment and this plea of the assessee was accepted by the Income-tax Appellate Tribunal. In the circumstances, it would appear that, after the purchase of these shares in 1940, the assessee in 1941 entered into a venture of purchasing shares for earning profit by selling them later and then again, in 1942, he purchased shares on Amrit Banaspati Company Ltd. for the purpose of mailing an investment.
The purchase of shares of Shri Gopal Paper Mills Ltd. cannot, therefore, lead to any inference that the purchase of the shares in the Straw Board Mills Ltd, in 1940 was also a purchase of the same nature. The subsequent engagement of the assessee in the business of purchasing and selling shares is also not a fact which can be relevant for the purpose of judging his intention at the time of the purchase of the shares in 1940. Thus none of the facts found by the Income-tax Appellate Tribunal, which are supported by evidence, justified the inference that the purchase of those shares was a venture in the nature of trade.
7. Consequently, we answer the question referred to us in the negative. The assessee will be entitled to his costs from the Department which we flx at Rs. 300/-.