904 SUPREME COURT REPORTS [1961] 1960 the result that there will not be any evidence ta.ken Sh . -.;: Oth by the committing Magistrate which could be used as mam v. "'substantive evidence under s. 288 of the Code. Even The state of if the prosecution takes that risk, the Magistrate shall Bombay exercise a sound judicial discretion under the second part of sub-s. (4) of s. 207A in forming the opinion Suhba Rao J. whether witnesses should be examined or not, and . any perverse exercise of that discretion can always be rectified by a superior court. But there may be a. case where the Magistrate can make up his mind definitely on the documents referred to in s. 173 without the a.id of any oral evidence and in that event he would be within his rights to discharge or commit the accused, as the case may be. In this view, it is not necessary to express our opinion whether even if the Magistrate acted illegally in committing an accused without tak- ing any evidence, the said illegality is cured either by x960 December 5. s. 537 of the Code or any other section thereof. In the result, the appeals fa.ii and a.re dismissed. Appoola dismisse,d. M/s. RAMNARAIN SONS (Pr.) LTD. v. COMMISSIONER OF INCOME TAX, BOMBAY (J. L. KAFUR, M. lI:IDAYATULLAH and J. c. SHAH, JJ.) lncom. Tax-Assessment-Purchase of shares for acquiring managing agency rights-Loss incurred in sale of such shares-If of a capital nature. The appellants, a private limited company, carrying on business as brokers, managing agents and dealers in shares and securities and having as one of their objects the acquisition of managing agencies, purchased shares of the Dawn Mills at a rate much higher than the market rate for obtaining the con- trolling voting right and thereby acquired the managing agency of the Mills. Later on, they sold some of those shares and suffered a loss of Rs. 1,78,438. The Income-tax Officer in asses- sing the taxable income disallowed the loss and the Appellate '. 2 S.C.R. SUPREME COURT REPORTS 905 Assistant Commissioner on appeal confirmed that order. The Income-tax Appellate Tribunal held that the shares did not become stock-in-trade of the appellants, but since the loss incur- red was incidental to their business of acquiring managing agency, it was allowable as a revenue loss. On reference, the High Court held that the shares acquired by the appellants were a capital asset and the loss suffered by the sale was of a capital nature. Held, that the High Court had taken the correct view of the matter and the appeal must fail. The question whether a transaction is or is not an adven- ture of the nature of trade has to be decided in the light of the intention of the assessee judged by the legal requirements asso- ciated with the concept o'f trade or business. Since the shares in question were purchased by the appel- lants with the intention of acquiring the managing agency and not in the course of their business as dealers in shares with the intention of trading in those shares and what was acquired by such purchase was a capital. asset in the shape of a managing agency, it could not be said merely because the managing agency could be utilised for earning profits. that those shares were stock-in-trade of their share business. G. Venkataswami Naidu and Co. v. The Commissioner of Income-tax, [1959] Supp. I S.C.R. 464 and The Oriental Invest- ment Co., Ltd. v. The Commissioner of Income-tax, Bombay, [1958] S.C.R. 49, referred to. ' CIVIL APPELL.A.TE JURISDICTION: Civil Appeal No. 698of1957. Appeal by special leave from the judgment and order dated August 2, 1956, of the Bombay High Court in Income-tax Reference No. 1 of 1956. A. V. Viswanatha Sastri, B. A. Pallcliiwala and G. Gopalakrishnan, for the appellant. Hardyal Hardy and D. Gupta, for the respondent. 1960. December 5. The Judgment of the Court was delivered by SHAH, J.-The High Court of Judicature at Bom- bay answered the following two questions referred by the Income Tax Appellate Tribunal, Bench "B", Bombay, under s. 66(1) of the Indian Income Tax Act, 1922: (1) Whether the acquisition of the managing agency M /s. Ramnarain Sons (Pr.) Ltd. v. Commissio11er of Income-tax, Bombay Shah ]. 1960 906 SUPREME COURT REPORTS [1961] of the Dawn Mills Co.,. Ltd., was in the nature of a "business" carried on by the assessee company?P.1 /s. Ra»1narain Sons (I».) Ud. (2) If the answer to the first question is in the v. affirmative, whether the loss suffered by the assessee Commissioner cf company of Rs. 1, 78,438 on purchase and sale of 400 In&ome-tax, shares of the Dawn Mills Co., Ltd., being incidental to Bombay its business of acquiring the managing agency, was a Shall]. loss of a revenue nature?, as follows: (1) Acquisition of the managing agency was an acquisition of a capital asset; (2) The loss in respect of the 400 shares was of a capital nature. Against the order of the High Court, this appeal is preferred with special leave. The appellants are a private limited company registered under the Indian Companies Act, 1913, and carry on business as brokers, managing agents and dealers in shares and securities. One of the objects for which the appellants were incorporated was to acquire managing agencies. The appellants also carried on business in shares of different companies, and were assessed to income- tax as dealers in shares and securi- ties. M/s. Sassoon J. David & Co., Ltd. were the manag- ing agents of the Dawn Mills Ltd.-a public limited company-and they held 2,507 out of a total issue of 3,200 shares. On September 28, 1946, the appellants purchased from M/s. Sassoon J. David & Co., Ltd. 1,507 shares of the Dawn Mills at the rate of Rs. 2,321-8-0 per share and having obtained a con- trolling voting right, acquired the managing agency rights of the Mills. The remaining one thousand shares were acquired from M/s. Sassoon J. David & Co., Ltd. by the Directors of the appellants at the rate of Rs. 1,500. At the material time, the ruling market price of the shares of the Dawn Mills was Rs. 1,610. In December, 1946, the appellants sold 400 out of the shares purchased by them, and thereby suffered a loss of Rs. 1,78,438. The loss suffered by the appellants in the yeftr of account January 1, 1946, to December 31, 1946, by sale of shares including 400 shares of the 2 S.C.R. SUPREME COURT REPORTS 907 Dawn Mills was Rs. 1,92,834. Crediting Rs. 1,05,907 earned as profit in certain other share transactions, h h . . h M/s. Ramnarai the net loss suffered in t e s a.re transactions m t e Sons (Pr.) Ltd. year of account amounted to Rs. 86,927. The appel- v. !ants valued their shares at the end of the year of Commissioner o account at cost or market price whichever was lower. Income-tax, By this method of valuation, the books of account of Bombay the appellants showed a loss of Rs. 7,97,792 which included a loss of Rs. 7,04,000 on the valuation of the Dawn Mills shares held by the appellants at the end of the year of account. In the income-tax assessment for the year 1947-48, the appellants claimed Rs. 86,927 as loss on sales in trade in shares and Rs. 7,97,792 as loss on valuation of stock-in-trade. The Income Tax Officer, Companies' Circle IIl(l), Bombay, disallowed the loss suffered by the appellants in the sale of the Dawn Mills shares, because in his view those shares were purchased by way of capital investment and the loss sum~red by sale thereof could not be allowed as a trading loss. He also held that the appellants were not entitled to depart from the method adopted in earlier years and to value the closing stock of shares in the year of account at cost or market price whichever was lower and to claim the difference between the opening and closing valuation as a trading loss. The Appellate Assistant Commissioner confirmed that order. In appeal, the Income Tax Appellate .Tribunal held that the managing agency of the Dawn Mills was acquired by the appellants as a part of their business activity and the shares of the Mills having been purchased in the regular course incidental to their business of acquiring the managing agency, the loss on the sale of those shares was allowable as a revenue loss; but the shares of the Dawn Mills were not the stock-in-trade of the appellants' business and they were not entitled to treat the difference between the putchase price and the value at close of the year of those shares, as a trading loss. Accordingly, the Tribunal allowed Rs. I, 78,438 as loss on sale of 400 shares of the Dawn Mills, but did not allow Rs. 7,04,000 as loss arising out of the valuation of the Dawn Mills shares at the Shah]. 908 SUPREME COURT REPORTS [1961) 1 9 60 end of the year of account. On the application of the Mfs. Ramna.ain Commissioner of Income Tax, the Tribunal referred to sons (1'<.) Ltd. the High Court the questions set out hereinbefore. In v. the High Court, the appellants took out a notice of Commis.