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Puranmal Radhakishan and Company Vs. Commissioner of Income-tax, Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 51 of 1955
Judge
Reported in[1957]31ITR294(Bom)
ActsIncome Tax Act, 1922 - Sections 33 and 34
AppellantPuranmal Radhakishan and Company
RespondentCommissioner of Income-tax, Bombay
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateAdvocate-General
Excerpt:
.....at rs. 1100 per shares - appellate assistant commissioner valued price of shares at rs. 715 - on appeal tribunal valued the same at rs. 524 - whether tribunal revalued price exercise proper jurisdiction - finding of tribunal not on any ground of appeal - finding of tribunal out of jurisdiction. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay - application filed by respondent earlier before delhi high court for appointment of certain individual as arbitrator..........which would only arise if the first question is answered in the negative, is : 'whether the purchase price of the shares for the purpose of ascertaining the profits should be taken at rs. 1,100-0-0 or rs. 715-0-0 or rs. 524-6-0 per share ?' but the real question which the assessee has how taken out a notice of motion, and this question arises under the following circumstances. the case of the assessee is that the tribunal had not jurisdiction to find as a fact that this was a case of capital investment and not a case of purchasing of shares in the course of business and the shares constituted the stock-in-trade. all along, from the stage of the income-tax officer, it was conceded by the department that when the assessee purchased 5,300 shares on the 29th march, 1948, it purchased.....
Judgment:

Chagla, C.J.

1. The assessee is a dealer in shares and it appears that on the 29th March, 1948, it purchase 5,300 shares of the Edward Textiles Limited. The price it paid for these shares was Rs. 1,100 per share. It also on the same day purchased the manaing agency right of the Edward Textiles Limited. The assessment year is 1949 and the relevant previous year of the assessee ended on the 31st March, 1949. On that day the market value of these shares was Rs. 225 per share. In the year of account the assessee had dealt with some of these share and some shares had been given to it as bonus shares, and it claimed a loss in its business on the footing that it had purchased these share at Rs. 1,100 per share and the market value on the 31st March, 1949, was Rs. 225 per share. The Income-tax Officer held that market value on the 29th March, 1948, was only Rs. 715 and not Rs. 1,100 and that the assessee had paid Rs. 1,100 instead of Rs. 715 because it secured the additional advantage of getting the managing agency right, and therefore the Income-tax Officer allowed the assessee loss on the basis of the difference between Rs. 715 and Rs. 225. The assessee also had made some claim with regard to dividends, which claim was disallowed by the Income-tax Officer. The Appellate Assistant Commissioner confirmed the Income-tax Officer with regard to the basis of calculating the loss of the assess during the year of account in respect of these shares, but he gave relief to the assessee on the question of dividends. From this decision of the Appellate Commissioner confirming the Income-tax Officer with regard to the computing of the loss in respect of these of these shares. The Department appealed in respect of the decision of the Appellate Assistant Commissioner with regard to dividends. The Tribunal dismissed both the appeals, but in dismissing the appeal of the assessee it made certain observations and those observation were that the original purchase by the assessee of 5,300 shares should have been treated as a capital investment and not as forming part of the stock-in-trade of the assessee. They further went on to observe that even if this original purchase of shares was treated to have been converted into stock-in-trade, that was only on the 27th August, 1948, when some of these shares were sold for the first time by the assessee and as on that date the price was Rs. 524-6-0, they took the view that, that would be the proper price to consider and not either. The price of Rs. 1,100-0-0 Rs. 715-0-0 and, in view of these observations they stated this was clear case of under-assessment.

2. The assessee made an application to the Tribunal for reference to this Court and the Tribunal has referred two questions of law. One is, 'Whether there was evidence before the Tribunal to hold that the purchase of Rs. 5,300 shares of the Edward Textiles Limited was the purchase of a capital investment and lot that of a stock-in-trade ?' And the second question, which would only arise if the first question is answered in the negative, is : 'Whether the purchase price of the shares for the purpose of ascertaining the profits should be taken at Rs. 1,100-0-0 or Rs. 715-0-0 or Rs. 524-6-0 per share ?' But the real question which the assessee has how taken out a notice of motion, and this question arises under the following circumstances. The case of the assessee is that the Tribunal had not jurisdiction to find as a fact that this was a case of capital investment and not a case of purchasing of shares in the course of business and the shares constituted the stock-in-trade. All along, from the stage of the Income-tax Officer, it was conceded by the Department that when the assessee purchased 5,300 shares on the 29th March, 1948, it purchased them as dealer in shares and they constituted its stock-in-trade. The only dispute between the Department and the assessee was at what price should these shares be valued for the purpose of determining the loss as on the 31st March, 1949. The Income-tax Officer having taken the view that they should be valued at Rs. 715 and the Appellate Assistant Commissioner having confirmed that view, the Department did not prefer any appeal against the finding of the Appellate Assistant Commissioner; in other words, it accepted that finding as correct; and the assessee appealed against the decision of the Appellate Assistant Commissioner claiming that the price should be the higher price of Rs. 1,100. Therefore, the only questions that the Tribunal had to decide was whether the Appellate Assistant Commissioner was right in fixing Rs. 715 as the proper price of the assessee was right in claiming Rs. 1,100. It must be borne in mind that the Tribunal has to jurisdiction to enhance the assessment as the Appellate Assistant Commissioner has, and therefore in substances if the view of the Tribunal could in law be acted upon, the decision of the Tribunal amounted to this that the assessment of the assessee should be enhanced and the amount allowed by the Income-tax Officer and the Appellate Assistant Commissioner for loess in the assessment year should be deleted and no deduction whatsoever should be given to the assessee with regard to the loss in the dealing of these shares.

3. It is said by Mr. Joshi that the substantive order passed by the Tribunal was dismissing the appeal of the Department and therefore the assessee has not grievance. But the curious thing is this, that in the statement of the case the Tribunal admits the position that it has found as a fact that these shares represented capital investment. Not only that, but they also actually refer a question of law arising out of that finding and that question of law is, as pointed put, whether there was evidence before the Tribunal to hold that the purchase of these shares was the purchased of a capital investment and not that of a stock-in-trade, and the second question which their finding that these shares were purchased as a capital investment. Therefore it is no use saying, as Mr. Joshi says, 'ignore this finding; what matters is the ultimate decision of the Tribunal, viz., dismissing the appeal of the Department.' This finding may have serious consequences as far as the assessee is concerned. We need not go into the question as to what it may entail. Mr. Palkhivala says that it has already entailed a notice under section 34 being issued by the Income-tax Officer. But whatever that may be, before we can answer question 1 and 2 which the Tribunal has raised, we must ask them to refer the more important question which arises in limine, and that question is 'whether it was competent to the Tribunal to give a finding that the purchase of 5,300 shares of Edward Textiles Limited represented a capital investment and that this was a clear case of under-assessment when it was not even the Department's case in the grounds of appeal before the Tribunal or even in the hearing of the appeal that the said shares did not constitute the applicant's stock-in-trade.' If the Tribunal thinks it necessary they will submit a supplemental statement of the case.

4. The Department to pay the costs of the notice of motion.

SUPPLEMENTARY STATEMENT OF CASE.

5. As requisitioned by their Lordships by their order in I. T. Reference No. 51 of 1955, dated 7th March, 1956, we refer the following question of law as directed therein :

'Whether it was competent to the Tribunal to give a finding that the purchase of the 5,300 shares of Edward Textiles Limited represented a capital investment and that this was a clear case of under-assessment when it was not even the Department's case in the grounds of appeal before the Tribunal or even in the hearing of the appeal that the said shares did not constitute the applicant's stock-in-trade.'

2. It is true that neither before the Appellate Assistant Commissioner nor in the grounds of appeal before the Tribunal the Department took a stand that 5,300 shares of the Edward Textiles Limited were the capital investment of the assessee's business. As the time of the hearing before the Tribunal, the Department Representative stated that these shares were capital assets and not stock-in-trade of the assessee's share business. In the opinion of the Tribunal the purchase of these shares was in the nature of capital investment and was an investment in the managing agency business. In giving this finding, the Tribunal carefully considered the arrangement of the sale of shares and the transfer of the managing agency of the mills. These shares were purchased at a much higher price than the market price prevailing at the material time. The Tribunal, however, did not dispose of the appeal merely on this issue. The question which was agitated before the lower authorities related to the purchase price of the stock-in-trade. The assessee wanted to take the price which he had paid for these shares, i.e., Rs. 1,100 per share. The Income-tax Officer had taken the market price of the price of the shares at the time of the purchase of the shares, i.e., at Rs. 715 per share. In view of the finding given by the Tribunal that the purchase of the shares was not the purchase of stock-in-trade, the question, therefore, arose what was the point of time at which these shares were transferred to the stock-in-trade. The Tribunal considered the various transaction in share done by the assessee and came to the conclusion that the price of the business could not be taken at higher than Rs. 524-6-0 per share. As the Department had already allowed a higher price of Rs. 715 per share, the appeal of the assessee was dismissed.

3. We think it is open to the Tribunal to go into the facts which are essential for the decision of the points raised in the appeal. Some times it happens that the Income-tax Officer has made a wrong assessment and given the assessee a partial relief. If the Tribunal thinks that no relief was necessary, the appeal will be dismissed without going into the question of the quantum of the relief allowed. Similarly there may be another case where a Department's appeal may be dismissed on similar grounds. Under section 33 (4) the Tribunal has been given the power to pass such order as it thinks fir. As both the assessee and the Department have got the right of appeal to the Tribunal, the Tribunal will not pass an order which may in effect enhance the assessment. In the present case therefore the Tribunal did jot consider if fair to enhance the assessment as the Department had not come in appeal to the Tribunal. If the Income-tax authorities think advisable to take action under section 34 it will be open to the assessee to produce further evidence to show that the purchase of shares was the purchase of a stock-in-trade and not a capital investment. It will also be open to the assessee to raise a ground of appeal as to the validity of the proceedings under section 34.

4. The original statement of the case will indicate that the reference was made with some hesitation. We also admit that we made a mistake in referring the following question in the original statement of the case :

'Whether there was evidence before the tribunal to hold that the purchase of 5,300 shares of the Edward Textiles Limited, was the purchase of a capital investment and not that of a stock-in-trade

We did so under a pressure from the parties.

5. On the date of the hearing of the draft statement of the case on unfortunate controversy arose between the assessee and the Department. The assessee's counsel and attorney stated that the Department Representative never took the stand that the 5,300 shares of Edward Textiles Limited were capital asset of the assessee. According to the assessee only a mention to this aspect of the matter was made by the Bench at the time of the hearing. On the other hand, Mr. Hegde, the Departmental Representative, stated affirmatively that his last contention was that the purchase of the shares was the purchase of a capital investment. He however admitted that in the first instance the point had been mentioned by the Bench during the hearing. It is long time since the case was heard. We have no reason to doubt the statement made by the Departmental Representative. The constitution of the Bench which heard the appeal was different. Mr. Malhotra, who was a member of the bench which heard the appeal, believes that the Department Representative's impression are correct.

6. There is not suggestion to place more facts in record.


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