1. The assessee, Karsondas Ranchhoddas, filed three applications before the Income-tax Appellate Tribunal asking it to refer to the High Court certain questions of law said to arise out of the consolidate order of the Tribunal in I. T. As. Nos. 7181, 7182 and 7183 of 1962-63. By its order dated the 9th of October, 1964, the Tribunal has drawn up a statement of the case and has referred the following question for the opinion of the High Court under section 66(1) of the Income-tax Act, 1922 :
'Whether, on the facts and in the circumstances of the case, the losses amounting to Rs. 602, Rs. 91,778 and Rs. 9,897 suffered by the assessee on sale of shares in the account years relevant to the assessment years. 1956-57, 1958-59 and 1959-60, respectively, could be allowed as deductions as business losses while determining his total income for the relevant assessment years ?'
2. The assessee was a partner in three registered firms at the relevant time and received income from property, dividends and business. We are concerned in this reference with the loss suffered by him on the sales of certain shares in his individual capacity. The sales were effected in Samvat year 2011, 2013 and 2114, corresponding respectively to assessment years 1956-57, 1958-59 and 1959-60. The assessee died on the 18th of July, 1964, and is represented by his son, Karsondas.
3. The assessee has been dealing in shares since 1941 and for the assessment years 1942-43 to 1947-48 the profits which he made on the sale of shares where taxed as business profits in his hands. In the assessment years 1948-49 to 1953-54 there were no sale transactions. In the assessment year 1954-55, the assessee showed a loss of Rs. 44,190 on the sale of shares but that loss was disallowed by the Appellate Tribunal on the ground that for the particular year the assessee was not a dealer in shares. In a reference arising out of the judgment of the Tribunal (I. T. R. No. 30 of 1963), we have just held that the Tribunal was in error in not allowing the particular loss as a business loss. In the assessment year 1955-56, the assessee incurred a loss of Rs. 2,273 which was allowed by the Appellate Assistant Commissioner. The department did not challenge that order.
4. For the assessment years 1956-57, 1958-59 and 1959-60, which form the subject-matter of this reference, the assessee suffered a loss of Rs. 602, Rs. 91,778 and Rs. 9,897, respectively. For the assessment year 1956-57, the loss was suffered on sale of shares which were purchased by the assessee during the period 7th February, 1944, to 21st of January, 1946. For the assessment year 1958-59, the loss was suffered on sale of share purchased during the period 31st of July, 1945, to 15th October, 1947. In the assessment year 1959-60, the loss was suffered on sale of shares purchased from the 12th April, 1944, to 8th July, 1947. Except for 200 shares of International Radio and Television Co. Pvt. Ltd. which were sold in the assessment year 1958-59 and 10 shares of Khatau and Co. Pvt. Ltd. which were sold in the assessment year 1959-60, the other shares were of public limited companies.
5. In the intervening assessment year 1957-58, the assessee had shown profit of Rs. 1,155 on the salt of shares and that amount was taxed as a business profit by the Income-tax Officer. Similarly, for the assessment year 1960-61, which is the year subsequent to the years under reference, the profit from the sale of shares amounting to Rs. 3,313 was brought to tax by the Income-tax Officer.
6. The claim of the assessee in regard to the losses made by him in the three relevant years was rejected by the Income-tax Officer on the grounds : (1) that the assessee was an ordinary investor, that he was not carrying on any business in shares and that the sale were not effected in the course of any business, (2) that in each case the shares which the assessee had sold were purchased 10 or 11 years before the date of the sale, (3) that there was no continuity or repetition of the sale transactions for a considerable period of time and it could not therefore be said that the assessee was during a regular business of purchasing and selling shares during the accounting year, (4) that the investment were large and the shares were few, and (5) that all the sale were effected by the assessee during the last two month of the accounting year from which it was clear that the transaction were not effected with a view to carrying on business in the purchase and sale of shares, but were effected with a view to bringing down the incidence of tax. These reasons have been given in detail by the Income-tax Officer in his order for the assessment year 1958-59.
7. In an appeal filed by the assessee, the Assistant Commissioner confirmed the assessment orders passed by the Income-tax Officer on the following grounds : (1) That the bulk of the share holding of the assessee were in private limited companies, (2) that in the assessment year 1958-59, shares which were purchased of Rs. 1,16,735 were sold for Rs. 25,175 and the sale proceeds were not utilised for purchasing shares of any well-known company, and (3) that during the three years under consideration, though there was a large expansion in the corporate sector, the sale proceeds were not utilised by the assessee for purchasing shares in such companies which a dealer would normally do. Besides, if the appellant had been a dealer in shares, he would have certainly purchased shares of well-known companies like Tatas, Lever Brothers, Indian Iron or in any of the tea and coffee companies.
8. The assessee filed an appeal to the Tribunal which confirmed the order of the Appellate Assistant Commissioner. It was hold by the Tribunal that the question whether a person is dealing in shares or investing in shares is not capable of a general answer applicable to all years in the case of any assessee and in fact it was not even capable of a general answer in respect of the same assessee for any single year with reference to all the shares held by him during that year. According to the Tribunal, the relevant consideration for determining the question whether a particular person is a dealer in shares of public limited companies are : 'the volume and frequency of transactions in shares in the years of account, the interval between the purchase and sale of shares, the nature of the shares, the circumstances in which the purchased and sales have been effected and whether handling of the transaction of purchase and sale showed any commonly accepted indicia of trade.' The Tribunal concluded :
'In this case, except the fact that the shares were shares of public limited companies, there is no other circumstance to support the assessee's claim; and the fact that the shares were shares of public limited companies is a natural fact, because even an investor can go in for shares of public limited companies. The other circumstances are all against the assessee. The shares sold by the assessee have been sold at long intervals and even dealers is shares do not hold their stock that long. Moreover, there is nothing to show that the purchases were effected with a view to treating the shares as trading transactions, i.e., either to acquire other shares of similar kind or on information that the time was most opportune for disposing of these shares. The purchases in the years of account have been quite negligible, so that the disposal of shares was more in the nature of realisation of investments than in the nature of a transaction in the course of carrying on of any business.'
9. In our opinion, the Tribunal is in error in holding that except for the fact that the shares were of public limited companies, there is no other circumstance to support the assessee's claim that he was a dealer in shares in the relevant assessment years and that therefore he could claim the losses as business losses. At annexure 'A' to the statement of the case is an agreed statement of the transaction effected by the assessee from assessment years 1942-43 to 1962-63. It shows that from the assessment year 1942-43 till and inclusive of the assessment year 1947-48 the profit made by the assessee on the sale of shares were taxed in his hand as business profits. From the assessment years 1948-49 to 1953-54 there were no transactions. In 1954-55 the assessee claimed a loss of Rs. 44,190 which was disallowed by the Tribunal but which has been allowed by us in the judgment just delivered in I. T. R. No. 30 of 1963. For the assessment year 1955-56 the assess claimed a loss of Rs. 2,273 which was disallowed by the Income-tax Officer but was allowed by the Appellate Assistant Commissioner. The department acquiesced in that order. In 1957-58 the assessee showed a profit of Rs. 1,155 which was taxed in his hands as a business profit which had accrued to him on the sale of shares. Similarly, in 1960-61 a profit of Rs. 3,313 was taxed as a business profit. Annexure 'A' contains a remark that assessment for the years 1961-62 and 1962-63 were not completed but it is common ground that they have since been completed on the 23rd of September, 1965, and 27th of March, 1967, respectively. For the assessment year 1961-62 a sum of Rs. 9,550.45 and for the assessment year 1962-63 a sum of Rs. 18,030.15 has been taxed as business profit in the hands of the assessee.
10. It is, therefore, clear that the assessee was taxed as a dealer in shares in the assessment years 1942-43 to 1947-48, in 1955-56, 1957-58 and form 1960-61 till 1962-63. For the assessment year year 1954-55 we have held in Reference No. 30 of 1963 that the assessee was a dealer in shares. For the remaining years, that is, from assessment years 1948-49 to 1953-54, there were no transaction at all and, therefore, there was no question of taxing business profits or allowing business losses.
11. This evidence has been wholly overlooked by the Tribunal as a consequence whereof it held that :
'..... except for the fact that the shares were shares of public limited companies there is no other circumstances to support the assessee's claim.'
12. Now, it is true that there is no res judicata in tax matters and a finding recorded in one assessment years is not conclusive in the following years Raja Bahadur Visheswara Singh v. Commissioner of Income-tax. Therefore, a previous decision that the assessee's holding constituted his stock-in-trade will not preclude a finding that for any subsequent year he held the shares as capital investment Dwarkadas Kesardeo Morarka v. Commissioner of Income-tax. But, for the purpose of deciding the question whether the assessee in a dealer in shares, the Tribunal must take into account all material facts which are before it. A finding recorded in total disregard of a relevant consideration would vitiate its judgment.
13. In Investment Ltd. v. Commissioner Income-tax, a company called 'Investment Ltd.' was incorporated with the object, inter alia, of investing its fund and dealing in shares. For the assessment years 1952-53, 1954-55 and 1955-56 the Income-tax Officer accepted the claim of the company that the shares and securities were the stock-in-trade of the company and allowed losses for all the three years. For the assessment year 1953-54, however, the loss resulting from the sale of a Loan purchased between July, 1968, and March, 1949, was held by the Tribunal to be a of a capital nature. In the balance-sheet the company had valued the securities at cost and had described its stock as 'investment'. It was held by the Supreme Court that, though an order made in assessing the income of one years, was not conclusive in other years, that finding is 'good and cogent evidence' of the nature of transaction in shares in the other accounting years. It was further held that from the circumstance that the company did not effect any sales between 1948 and 1951, no inference might arise and that the loss suffered by the company for the assessment year 1953-54 was a revenue loss and not a capital loss.
14. It is thus clear that in failing to consider the previous and subsequent orders of assessment, the Tribunal has ignored 'good and cogent evidence' which was before it. Therefore, the finding recorded by it that :
'.... except for the fact that the shares were shares of public limited companies, there is no other circumstance to support the assessee's claim'
and that :
'.... there is nothing to show that the purchase were effected with a view to treating the shares as trading stock, nor is there anything to show that the sales were effected as trading transaction' cannot be accepted as binding.
Learned counsel for the department contends that the question before the Tribunal was essentially a question of fact, because whether for a particular assessment year the assessee is an investor or dealer in shares must depend on the facts and circumstances of the case. Now, it may be true to say that an inference drawn from a conglomeration of diverse facts is a finding of fact and such a finding of the Tribunal must bind the High Court, because the jurisdiction of the High Court under section 66(1) of the Income-tax Act, 1922, is limited to entertaining references on question before the Tribunal was a pure question of fact. As observed by the Supreme Court in Oriental Investment Co. P. Ltd. v. Commissioner of Income-tax, there is a :
'..... class of cases in which the assessee or the department may seek to challenge the correctness of the conclusion reached by the Tribunal on the ground that it is a conclusion on a mixed question of law and fact. Such a conclusion is no doubt based upon the primary evidentiary facts, but its ultimate form is determined by the application of relevant legal principles. To put if differently, a proper construction of statutory language is always a matter of law and, therefore, the claim of the assessee that the profits and losses arising from the sale of shares, securities, etc., cannot be taxed as profit of a business involves the application of law to the facts found in the setting of the particular case.' In Investment Ltd. v. Commissioner of Income-tax, to which we have already referred, the finding of the Tribunal that the loss suffered by the sale of securities was of a capital nature was upheld by the High Court. While reversing that finding the Supreme Court held that the finding recorded by the Tribunal was not one of fact. In support of this view, Shah J. (now the learned Chief Justice), who delivered the judgment of the court, has relied on another judgment of the Supreme Court in Commissioner of Income-tax v. National Finance Ltd., in which it was held :
'Whether a particular loss is a trading loss or a loss on the capital side, depends upon the facts of each case. The question, however, is not one of pure fact but a mixed question of fact and laws; and the decided cases indicate how the matter is to be viewed in the context of facts. The problem must be approached in such cases 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.' It is, therefore, not possible to accept the contention advanced by the learned counsel on behalf of the department that the finding recorded by the Tribunal that the assessee was not a dealer in shares during the relevant assessment years is a pure question of fact with which we have no jurisdiction to interfere.
The judgment of the Tribunal also contains a material mis-statement that 'it is no longer in dispute that the assessee was not a dealer in shares at least in so far as the shares in the private limited companies were concerned'. There never was any occasion to raise such a dispute and, in fact, no one had ever raised it. There were only two transactions of sale of shares in private limited companies during the three relevant years and out of these only one had resulted in a loss. That was the sale of 200 shares in International Radio and Television Co. Pvt. Ltd. in the assessment year 1958-59, on which the assessee claimed a loss of Rs. 17,500. There is nothing on the record including the statement of the case to show that the question whether the assessee is a dealer in the shares of private limited companies was considered separately by itself and that a dispute in regard to that question was raised initially but at a later stage the question was 'no longer in dispute'.
15. It is this mis-statements which has to some extent influenced the view of the Tribunal that the assessee was not a dealer in shares sold by him during the relevant assessment years. The assumption years. The assumption made by the Tribunal has an important aspect to which we must refer. The assessee held share both in private limited companies and public limited companies. But annexure 'B' which contains the details of his shareholding in the relevant assessment years shows that the bulk of his holding were in public limited companies. As against large holdings in public limited companies, the assessee held only 100 shares in Sewri Land Co. Pvt. Ltd., 10 shares in Khatau & Co. Pvt. Ltd. and 200 shares in International Radio & Television Co. Pvt. Ltd. The Appellate Assistant Commissioner had committed an error in holding in paragraph 4 of his order that 'the bulk of the sh are holding ar in private limited companies and only a small portion represent investment in public companies'. Learned counsel for the department controverts that this is an erroneous statement but annexure 'B' leaves no doubt that this is an erroneous statement in the fact erroneous. The particular statement in the order of the Appellate Assistant Commissioner appears to have led the Tribunal to make a distinction between the two types of holdings and the apparently separate treatment accorded to these holdings by the assessee himself. There is nothing on the record to justify this distinction which, as we have stated earlier, is apparently based on erroneous statement made by the Appellate Assistant Commissioner.
16. Counsel for the department relies strongly on the circumstance that the sales were effected mostly at the close of the year which, according to him, would justify the inference drawn by the Tribunal that the dominant notice of the transaction which the assessee entered into was not to trade in shares but to save tax. Now, in the first place, the statement that sales were mostly effected at the close of the year holds good for the assessment year 1958-59 only. In that year, except for the sale of 200 shares of International Radio & Television Co. Pvt. Ltd. dated 9th of May, 1967, the other sales were effected within two month preceding the close of the year. But that is not true in regard to the sales effected in the assessment year 1956-57 and 1959-60. In 1956-57, the four clauses of shares were sold in March, May and November, 1955. In the assessment years 1959-60, the sales were all effected in February, 1958, except one sale dated November, 1957.
17. Secondly, we see no justification for the argument that the dominant motive of the sale effected by the assessee was to save tax and not to trade in shares. It may be true to say that by selling some of his holdings, the assessee was able to reduce his profits and thereby the quantum of tax. But then the motive to cut losses is always an important consideration for any one dealing in shares. In fact, hardly any trading or business activity is uninfluenced by the consideration that if you can do so lawfully, you must reduce your tax burden. Generally, profit-motive is the hallmark of these activities. As observed by the Supreme Court in Commissioner of Income-tax v. A. Raman & Co. : 'The law does not oblige a trader to make the maximum profit that he can out of his trading transactions..... Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not except on peril of penalty, be violated, but it may lawfully be circumvented'.
18. We might also in this behalf draw attention to the dissenting judgment of Viscount Simon in Smith's Potato Estates Ltd. v. Bolland (H. M. Inspector of Taxes), where it is said that :
'..... a reduction in the amount of tax does increase the fund in the trader's hand after tax is paid and so promotes the carrying on of the trade and the earning of trading profits.'
19. On the merits of the matter which involve the decision of a mixed question of fact and law, our decision is this case must be the same as in Reference No. 30 of 1963 in which one of us (Kotval. C.J.) has just delivered the judgment. We will only say briefly that the previous an subsequent order of assessment, which are good and cogent evidence, show that in the relevant assessment years the assessee was a dealer in shares. There is nothing on the record to justify the view that the assessee who was a dealer in shares since 1942-43 became an investor during the three intervening years under reference.
20. Counsel for the department has not repeated here all the submissions which be made in Reference No. 30 of 1963 but by consent be is to be deemed to have made those submissions in these references.
21. Our answer to the question referred to us is in the affirmative. The Commissioner will pay the costs of the assessee.