Deb, J.
1. In this reference under Section 66(2) of the Indian Income-tax Act, 1922, we are concerned with the following questions of law ;
(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in investigating the nature of the shares held by the assessee in Chrestian Mica Co. Ltd., when both the assessee and the income-tax authorities had treated them as the stock-in-trade of the assessee as a dealer in shares for every assessment year since 1949-50 and proceeded on the same basis for the instant assessment year?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the shares held by the assessee in Chrestian Mica Co. Ltd. were not its stock-in-trade for dealing in shares?
(iii) If the answer to question No. (ii) be in the negative, then, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of rupees thirty-two lakhs, twenty-five thousand and five hundred and fifty was not assessable in the hands of the assessee?'
2. The assessee is a firm. The assessment year is 1956-57. The previous year ended on December 31, 1955. The assessment was made on a total income of Rs. 36,41,554 including a sum of Rs. 32,25,550 representing the surplus which the firm had received during the relevant previous year from the liquidator of Messrs. Chrestian Mica Company Ltd., which went into liquidation in 1955.
3. The said assessment was confirmed on appeal by the Appellate Assistant Commissioner, but the second appeal was allowed by the Tribunal and the assessment order was set aside.
4. It is unnecessary for us, as rightly said by Mr. Pal, the learned counsel for the revenue, to deal with the facts in detail, for question No. (ii) can be answered on the facts and circumstances as hereinafter stated and we need not answer question No. (i) in view of our answer to question No. (ii).
5. The assessee is a regular dealer in shares. In 1945, the assessee purchased all equity shares of Chrestian Mica Co. Ltd., which was then a public limited company. The assessee took over the management of the said company after acquiring those shares. In 1947, the said company was converted into a private limited company. In 1948, the value of these shares depreciated and the assessee claimed Rs. 20,88,735 as trading loss in the assessment year 1949-50 on the ground that these shares were the stock-in-trade of the assessee. The said claim was allowed by the Tribunal on appeal. All successive assessments were made according to the value of these shares as claimed by the assessee, namely, that they were the stock-in-trade of the assessee.
6. In the assessment year under reference, the learned counsel for the assessee not only conceded but also admitted before the Tribunal that these shares were the stock-in-trade of the assessee. Accordingly, it has been held by the learned Judicial Member that these shares are the stock-in-trade of the assessee, but it has been held by the learned Accountant Member that they are not the stock-in-trade of the assessee.
7. On a reference, under Section 5A(7) of the Indian Income-tax Act, 1922, the learned President of the Tribunal after recording that the learned counsel for the assessee has expressly admitted before him that these shares continued to be the stock-in-trade of the assessee in the assessment year has upheld the aforesaid finding of the learned Accountant Member.
8. It has been contended by Mr. Roy, the learned counsel for the assessee, that the Tribunal was not bound by the above concession and admission, for it was made erroneously by the counsel. He has also submitted that it is the duty of the Tribunal to ascertain the assessee's intention at the time of purchase of these shares inasmuch as such intention can alone determine the question of assessability of those sums in the hands of the assessee and, therefore, no error has been committed by the Tribunal in finding out the intention of the assessee and in holding that these shares are not the stock-in-trade of the assessee. In support of this contention he has placed reliance on the decision of the Supreme Court in the case of Ramnarain Sons (P.) Ltd, v. Commissioner of Income-tax : [1961]41ITR534(SC) . In that case the Supreme Court, at page 537 of the report, has said as follows ;
'In considering whether a transaction is or is not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the 'legal requirements which are associated with the concept of trade or business'.'
9. But in that case the Supreme Court was not concerned with the effect of a fact admitted by the assessee which goes to the root of the matter. Further, in the case of Khan Bahadur Ahmed Alladin and Sons v. Commissioner of Income-tax : [1968]68ITR573(SC) the Supreme Court says thus:
'In other words, in reaching the conclusion that the transaction is an adventure in the nature of trade, the Appellate Tribunal has to find the primary evidentiary facts and then apply the legal principle involved in the statutory expression ' adventure in the nature of trade' used by Section 2(4) of the Indian Income-tax Act, 1922. A question of this description is a mixed question of law and fact and the decision of the Appellate Tribunal thereon is open to challenge under Section 66(1) of the Act.
The question whether the transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule, principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case......
As we have already said, it is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction.'
10. There can be no issue of a fact which is either admitted or conceded by a party. The intention of the assessee is one of the relevant factors and it must be gathered from the fact which is either admitted or conceded before the Tribunal, because an admission is a substantive evidence of the fact admitted, is the decision of the Supreme Court in the case of Bharat Singh v. Mst. fthagirathi : [1966]1SCR606 . The original intention of the assessee at the time of acquiring these shares has been substituted by the subsequent intention of the assessee by bringing these shares in the stock-in-trade. And here the two learned Members of the Tribunal misdirected themselves in law by brushing aside the said admitted and conceded fact.
11. There is no substance in the contention of Mr. Roy that the said fact was erroneously admitted or conceded by the counsel before the Tribunal, because no such finding has been made by those two learned Members of the Tribunal. Hence, we overrule the above contentions of Mr. Roy.
12. As Chrestian Mica Co. Ltd. became a private limited company the submission of Mr. Roy is that it was no longer possible for the assessee to transfer these shares and no one was interested to buy these shares as the dividend declared by the company was negligible. It has been found by the Tribunal that these shares were not quoted in the 'stock exchange'' and, therefore, the submission of Mr. Roy is that these shares were not at all marketable and they ceased to be the stock-in-trade of the assessee. Hence, according to him, those two learned members of the Tribunal committed no error by ignoring the above fact admitted and conceded by the counsel and in holding that these shares were not the stock-in-trade of the assessee.
13. But it has not even been contended before the Tribunal on behalf of the assessee that these shares had ceased to be the stock-in-trade of the assessee and there is no such finding of the Tribunal. Further, the assessee has made these shares its stock-in-trade after the company was converted into a private limited company whose articles of association is not on the record. Therefore, what was the actual restriction on the transfer of these shares is a matter of speculation and conjecture. Moreover, the assessee was the owner of all these shares and was also in the sole management of the company and, therefore, declaration of negligible dividends is of no consequence. Furthermore, merely because these shares were not quoted in the stock exchange it cannot be assumed that there was no market for theseshares. In any event, no stock-in-trade can lose its nature, character and quality merely because there is no market in which it can be sold or it cannot be transferred at all. Hence, there is no merit in the contentions of Mr. Roy and we are of the opinion that the Tribunal was not justified in holding that these shares were not the stock-in-trade of the assessee.
14. The submission of Mr. Pal on question No. (iii) is that the assessee has received the aforesaid sums from the liquidator in lieu of these shares and, therefore, the said receipt is assessable to tax. In support of this contention he has placed reliance on the decision of the Patna High Court in the case of Dalmia Cement and Paper Marketing Company Ltd. v. Commissioner of Income-tax : [1949]17ITR141(Patna) . His further submission is that the liquidation of the company is not a relevant fact for, according to him, the sale proceeds of the stock-in-trade are always revenue receipts.
15. But the assessee did not receive any sale proceeds of these shares nor any sum in lieu of these shares. The said amount was the surplus asset of the company and in the hands of the assessee it is a capital receipt and not a revenue receipt. It has been held by Lord Atkin in the case of Commissioners of Inland Revenue v. George Burrell [1924] 9 TC 27, that on liquidation of a company the shareholder 'receives his share of the joint stock, as Lord Justice Scrutton said in Inland Revenue Commissioners v. John Blott [1921] 8 TC 101 , 'not income of the property but the property itself'. And in that case it was unanimously held by the Court of Appeal that the surplus received by the assessee was not an income at all and was, therefore, not assessable to super-tax.
16. It is to be noticed here that George Burrell's case [1924] 9 TC 27 has been approved by the Supreme Court in the case of Dhandhania Kedia & Co. v. Commissioner of Income-tax : [1959]35ITR400(SC) . Further, it has been held by the House of Lords in the case of Broganv. Stafford Coal & Iron Co. Ltd. [1963] 41 TC 305 ; [1964] 54 ITR 555, that on liquidation of the company its surplus assets received by the shareholder is not an income in his hands. In that case, at pages 329-30 Lord Reid says this I
'The company was an independent legal entity and its assets were its property and in no sense the property of the members.........I can find no sufficient reason to exclude this case from the general rule that what is distributed in a liquidation is capital whatever may have been its source. One may think that that rule leads to an unreasonable result in this case, but there is nothing unusual in that. One may think it equally unreasonable that accumulated profits distributed in a liquidation should escape surtax. But the rule is firmly established, and if it is to be altered that must be done by legislation.'
17. In the same case, [1963] 41 TC 305; [1964] 54 ITR 555, Lord Evershed said as follows:
'..... I have, with all respect to the majority of the Court of Appeal, felt compelled to the conclusion that the 58,108 received by the appellant-company from the liquidator of the mutual company did not lose its capital character when received by the appellant-company and cannot properly be regarded as a trading receipt.
It cannot now be in doubt that surplus assets in the hands of the liquidator of a limited liability company--whether limited by share capital or by guarantee--are in his hands capital. Such a conclusion was laid down by the Court of Appeal in Commissioners oj Inland Revenue v. George Burrell [1924] 9 TC 27 (see especially per Atkin L.J. at page 41 et seq), and it has never since been questioned.'
18. We will now refer to the decision of the Patna High Court in Dalmia Cement & Paper Marketing Co. Ltd. v. Commissioner of Income-tax : [1949]17ITR141(Patna) on which reliance was placed by Mr. Pal. It has been held in that case that the two sums of money received by the assessee from the liquidator of the company were revenue receipts and were, therefore, assessable to income-tax, in the following terms at page 147 of the report:
'It cannot be doubted that the assessee had realised its shares for a larger sum than what it had paid for acquiring those shares ; but as the assessee carries on business, inter alia, of dealing in shares, the excess profit made must be treated as income.
The matter can be looked at from another point of view. The shares of the assessee are its stock-in-trade. Is this not a realisation of this stock-in-trade There is high authority for the view that if the assessee realises his stock-ill-trade either by selling it or by receiving the valve of it from the insurers as a result of the stock having been lost in fire the amount received less the value of the stock-in-trade must go to the revenue account (see Green v. J. Gliksten & Son Ltd. [1929] 14 TC 364 .
But it was argued that there was no sale by the assessee of its shares. This argument does not appeal to me. In substance, it was a compulsory sale of the shares carried out in accordance with law when the liquidator distributed the assets to the shareholders.'
19. But, with due respect to their Lordships, we are unable to agree with them. The liquidator sells the assets of the company and not the shares of the shareholders. The shareholder does not receive anything from the liquidator in exchange of his share nor in lieu of his share. He is entitled to participate in the surplus assets of the company in liquidation and what he receives is the surplus assets and in his hands it is a capital receipt and not a revenue receipt as held by the House of Lords and the Court of Appeal in the cases already cited.
20. Unless the articles of association of a company otherwise provides its surplus assets must be distributed to the shareholders according to their rights and interests in the company in liquidation under Section 211 of the Indian Companies Act, 1913, and Section 511 of the Companies Act, 1956. When the said case was decided by the learned judges of the Patna High Court, Section 211 of the Indian Companies Act was in force and their Lordships' attention was not drawn to it. Further, the decision of the Court of Appeal in the case of Commissioners of Inland Revenue v. George Burrell [1924] 9 TC 27 was not cited before them and, moreover, the principles laid down in Green's case [1929] 14 TC 364 cannot be applied at all, because the surplus received by the shareholder from the company in liquidation is not a revenue but a capital receipt. It seems to us that that case was not properly argued before their Lordships of the Patna High Court and since we are not in agreement with their decision the contentions of Mr. Pal must also fail.
21. We are also not impressed by his last contention noted earlier in view of the decision of Lord Evershed, already quoted--See [1963] 41 TC 305; [1964] 54 ITR 555 .
22. We now return our answer to question No. 2 in the negative and in favour of the revenue whereas question No. 3 is answered in the affirmative and in favour of the assessee.
23. In the facts and circumstances of the case, we make no order as to costs.
Dipak Kumar Sen, J.
24. I respectfully agree with the conclusions of my learned brother recorded in his judgment just now delivered as also with the observations contained therein. I would like to add that law seems to be well-settled that on the liquidation of a company what the liquidator distributes by way of surplus assets cannot be deemed to include items of profits or dividends so that the same can be taxed in the hands of the recipient. In such a case the shareholders participate in a distribution of the property of the company and they participate in such distribution by reason of the fact that they are shareholders. This follows from the decision in the case of Commissioners of Inland Revenue v. George Burrell [1924] 9 TC 27 . The subsequent decision of the House of Lords in the case of Brogan v. Stafford Coal and Iron Co. Ltd. [1963] 41 TC 305 ; [1964] 54 ITR 555 held that the surplus assets in the hands of the liquidator of a limited liability company, whether limited by share capital or by guarantee, were in his hands capital.
25. This is one aspect of the matter. But it may otherwise be contended that what leaves the hands of the liquidator as capital may in the course of transfer change its character and by the time it reaches the shareholder it may be deemed or treated to be income or trading receipt. In neither of the English cases the assessees held shares as trading assets. In Brogan's case [1963] 41 TC 305 ; [1964] 54 ITR 555 the company being limited by guarantee, the question of holding any share did not arise. This question, it appears to me, has been indicated in the observations of Lord, Evershed in Brogan's case [1963] 41 TC 305 ; [1964] 54 ITR 555 .
26. Manohar Lal J. in the case of the Patna High Court (Dalmia Cement, cS-Marketing Co. Ltd. v. Commissioner of Income-tax : [1949]17ITR141(Patna) held that distribution of the surplus assets by the liquidator would amount to a realization by the shareholder of his share and the shareholder having held shares by way of stock-in-trade such realisation would be accountable to trade. He further drew the analogy of a sale and observed that in substance what was done by the shareholder was a compulsory sale of his shares to the liquidator.
27. With respect, I am unable to agree that the distribution of the surplus assets by a liquidator to the shareholders amounts to either a realization of the shares or the sale thereof. Where a limited liability company is liquidated and the liquidator distributes the surplus assets there is no transaction in the trading sense between the liquidator and the shareholders. Irrespective of the decision of the shareholders the liquidator has to carry out his duties and obligations as laid down in the Companies Act. No consideration passes from the liquidator to the shareholder as in the case of a sale. Nor can it be said that the liquidator in distributing the surplus assets is realizing or redeeming the shares. In law, a shareholder may technically continue to be a shareholder even after he gets his share of the surplus. Till the company is struck off the register, he remains a shareholder in law. He retains his share scrips.
28. By virtue of his holding, a shareholder is entitled to surplus assets on the liquidation of a company and such surplus assets, it appears to me, to be in the nature of an accretion to his shares. The Supreme Court in the case of Commissioner of Income-tax v. Madan Gopal Radhey Lal : [1969]73ITR652(SC) considered the case of bonus shares and observed as follows :
'The bonus shares, by the mere fact that they were received by the assessees in respect of their stock-in-trade, and as accretion thereto, did not become part of their stock-in-trade; the bonus shares were received as capital and they could be converted by the assessees into their stock-in-trade or retained as their capital asset.'
29. Surplus assets are undoubtedly capital in the hands of the liquidator and when such assets reach the shareholders as accretion to the shares already held they may be deemed to retain their character as capital.