BRIJLAL GUPTA J. - This is a reference under section 66(1) of the Income-tax Act. The question which has been referred for the opinion of the court is :
'Whether on the facts and in the circumstances of this case the net surplus realisation of Rs. 31,000 by the sale of 9,000 shares of the Soora Jute Mills Co. Ltd. was revenue income of the assessee liable to take under the Indian Income-tax Act ?'
There is a mistake in the question inasmuch as in place of the figure of 9,000 there should be a figure of only 4,500 as will be shown hereafter.
The facts giving rise to the reference are that in the assessment year 1946-47 the assessee was assessed in the status of an individual. In that assessment a sum of Rs. 31,000 was included in assessment as the assessees share of the surplus realisation of the sale of 9,000 shares of Soora Jute Mills Co. Ltd. The assessee and three other purchased 36,000 shares of Soora Jute Mills Co. Ltd. on April 20, 1944 at the rate of Rs. 32 per share from Messrs. Mangni Ram Bangar & Co. of Calcutta as follows :
Lala Ram Prasad Ji
Lala Ram Gopal Ji
Lala Ram Ratan Ji
Lala Shyam Sunder Ji
On February 1, 1945 Lala Shyam Sunder Ji the assessee purchased 250 shares from Lala Ram Ratan Ji at the rate of Rs. 32 per share. Thus the total holding of Lala Shyam Sunder Ji came to be 9,000 shares.
Lala Shyam Sunder Ji was a partner in the firm of Messrs. Ram Kishan Baldeo Prasad, and the 9,000 shares were owned by Lala Shyam sunder Ji and the other partners of the firm as follows :
In the account of Ram Bharosey
the account of Ram Kishan
the account of Baldeo Prasad
the account of Satya Prakash
the account of Shyam Sunder
All the 36,000 shares purchased on April 20, 1944 were resold to Messrs. Mangni Ram Bangar & Co. at the rate of Rs. 40-12-0 per share in April 1945 i.e., after nearly one year of their purchase at a profit of Rs. 8-12-0 per share. The assessees net profit one the sale of 4,500 shares held by him came to Rs. 31,000.
During the assessment proceedings the question arose about the liability of Rs. 31,000 to tax. The case of the assessee was that he was not a dealer in shares, and the shares had been purchased merely for acquiring the managing agency of Soora Jute Mills Co. Ltd. and as the managing agency could not be secured the share were sold and the surplus on sale was an accretion of capital nature and was not a revenue receipt. His case was not accepted by the income-tax authorities and by the Income-tax Appellate Tribunal. All of them held that the surplus was income liable to tax. The findings of fact recorded by the Judicial Member of the Tribunal were :
(i) that there was no reliable evidence to prove that the assessee and other had purchased 36,000 shares of Soora Jute Mills Co. Ltd. for the purpose of acquiring its managing agency;
(ii) that the evidence clearly showed that the assessee was not an investor but a dealer;
(iii) that in the immediately preceding year (1945-46), the assessee had purchased shares of Hindustan Commercial Bank and had sold them and realised a profit of Rs. 1,678, which the assessee had himself shown as profit in the return filed by him for that year;
(iv) that the share both of the Hindustan Commercial bank and of the Soora Jute Mills Co. Ltd. were purchased and sold by the assessee through brokers;
(v) that the purchases had been made not with the assessees own money but from borrowings from the firm of Ram Kishan Baldeo Prasad of which the assessee was a partner;
(vi) that the purchases and sale of shares of both Hindustan Commercial Bank and Soora Jute Mills is credited in the same account in the books of Ram Kishan Baldeo Prasad, through whom they were sold;
(vii) that the interest paid by the assessee to the firm of Ram Kishan Baldeo Prasad on money borrowed by him for the purchase of shares was claimed by him as a permissible deduction under section 10 and was allowed as such; and
(viii) that the shares were purchased and sold by the assessee not independently but in company with others.
On these findings, the Judicial Member applying the cases reported as Californian Copper Syndicate v. Harris, Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax and Sardar Indra Singh & Sons Ltd. v. Commissioner of Income-tax, held that the surplus of Rs. 31,000 on the sale of 4,500 shares was earned by the assessee in an operation of business in carrying out a scheme of profit-making and was, therefore, income liable to tax.
The Account Member of the Tribunal agreed with the view of the Judicial Member and in the result the assessees appeal was dismissed by the Tribunal.
One argument which appeals to have been addressed before the Tribunal was that on the same facts and in the same circumstances some of the co-purchasers had not been assessed to tax and for that reason, therefore the assessee should not also be assessed to tax. The Account Member dealt with this argument in the following words :
'I wish to observe that it is surprising that the profits derived by all the joint purchaser in similar circumstances should not have been assessed to tax in the hands of all the persons. That however, is no ground for excluding the profit which is of the nature of revenue profit from the total income of the assessee.'
In arguments before us on this reference nothing has been shown to us to enable us to take the view that the Tribunal committed any error of law in reaching the conclusion which it did in the facts and the circumstances of the case. One of the cases relied on was a decision of the Supreme Court in Dwarkadas Kesardeo Morarka v. Commissioner of Income-tax, on the basis of which it was urged that the mere fact that in preceding year the assessee had treated the surplus on the sale of the shares of Hindustan Commercial Bank as profits and had claimed a deduction under section 10 in respect of interest paid by him on money borrowed for the purchased of those shares could not lead to the conclusion that the purchases and sale of the shares of Soora Jute Mills was also an adventure in the nature of trade resulting in taxable profits and was not accretion to capital not liable to tax. It seems to us that the decision has no application to the facts of this case. All that the Supreme Court laid down in that decision was that every assessment year being a self-contained year there was noting to preclude the Tribunal from taking a different view in a subsequent year in regard to an activity of an assessee from that taken in an earlier year on the particular facts of that year. The Supreme Court did not say that the finding in the earlier year was not material which could be legitimately considered in the subsequent year. What it purported to lay down was that the whole question was at a large again in the subsequent year and a fresh decision has to be reached in the subsequent year in the light of all the facts and circumstances. There is nothing in that decision to support the proposition that the finding in the earlier year is irrelevant or inadmissible or cannot be taken into consideration at all in reaching the conclusion in the subsequent year. The finding in the earlier year does not operate as res judicate in the subsequent year but that is very different from saying that the finding in the earlier year is to be completely excluded from consideration while deciding the point in the subsequent year. As a matter of fact if in the earlier year it is held that the assessee carried on an activity in the nature of business or trade then unless there is material for holding that activity was put an end to or terminated in some other way there would be a presumption of continuity and the burden would be on the assessee to displace to displace the inference which might be legitimately drawn from the presumption of continuity. Apart from this the only basis on which the assessee could claim exception from tax liability in respect of the sum of Rs. 31,000 could be if he had succeeded in showing that the purchases of shares was for the purpose of acquiring the managing agency. On this point the Tribunal held that the assessee did not produce any reliable evidence. It was therefore, open to the Tribunal to take the view that it having remained unproved that the purchase was for acquiring the managing agency and in view of the other facts and circumstances the surplus derived by the sale of the shares was taxable income and not capital accretion. It was also argued that similar surplus not having been held to be taxable in the case of other co-purchaser the surplus in this case should also not be taxable. As pointed out by the Accountant Member there is no substance at all in this argument. If an error was made in the case of other co-purchaser that would be no justification for the making of a similar error in this case also.
The question referred to this court must accordingly be answered in this way; that on the facts and in the circumstances of this case the net surplus realisation of Rs. 31,000 by the sale of 4,500 (and not 9,000 as wrongly stated in the question) shares of the Soora Jute Mills Co. Ltd. was revenue income of the assessee liable to tax under the Indian Income-tax Act.
A copy of this judgment shall be sent to the Income-tax Appellate Tribunal Allahabad, under the seal of the court and the signature of the Registrar as required by section 66(5) of the Act. The department shall be entitled to its costs fixed at Rs. 200.