Skip to content


The New Jahangir Vakil Mills Co., Ltd. Bhavnagar Vs. the Commissioner of Income-tax, Bombay North, Kutch and Saurashtra, Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1964SC318; [1963]49ITR137(SC); [1964]2SCR971
ActsIndian Income-tax Act, 1922 - Sections 34, 35, 66(2) and 66-A(2)
AppellantThe New Jahangir Vakil Mills Co., Ltd. Bhavnagar
RespondentThe Commissioner of Income-tax, Bombay North, Kutch and Saurashtra, Ahmedabad
Cases ReferredIn Instalment Supply (P) Ltd. v. Union of India
Excerpt:
.....- sections 34, 35, 66 (2) and 66-a (2) of indian income tax act, 1922 - gain made in sale of shares by assessee engaged in garment business subjected to tax taking it business income - whether assessment valid - for previous year 1943 assessment was made as income from investment - this cannot be basis for assessment of impugned income for previous year 1944 - facts suggests during pervious year 1944 assessee started dealing in shares - under circumstances assessment by tax authority valid. - labour & servicesappointment: [s.b.sinha & j.m.panchal, jj] challenge on ground of inter se position in select list -select list originally prepared by giving bonus marks to candidates of particular districts and rural candidates some posts filled - said clause was declared unconstitutional..........assessment year 1945-46, the account year being the calendar year 1944. inthe said assessment year the income-tax officer concerned added to the taxableincome of the assessee a sum of rs. 1,86,931/- (which was later reduced to rs.1,23,840/-) as a revenue receipt, representing an amount by which the saleprice exceeded the original cost of certain shares and securities purchased andsold by the appellant. it was held that in the relevant account year in whichthe shares were sold and profits made as also in the two preceding years, theassessee was a dealer in shares and securities. in respect of this addition ofrs. 1,23,840/- the assessee raised two contentions. the first contention wasthat it was not a dealer in shares and securities in the relevant account yearor in the years past and.....
Judgment:

S.K. Das, J.

1. This is an appeal on a certificate of fitness granted by the High Courtof Bombay under s. 66-A(2) of the Indian Income-tax Act, 1922. The New JehangirVakil Mills Co., Ltd. Bhavnagar, appellant before us and called the assessee,carried on the business of manufacturing and selling textile piecegoods atBhavnagar in the former Bhavnagar State. The present appeal is concerned withthe assessment year 1945-46, the account year being the calendar year 1944. Inthe said assessment year the Income-Tax Officer concerned added to the taxableincome of the assessee a sum of Rs. 1,86,931/- (which was later reduced to Rs.1,23,840/-) as a revenue receipt, representing an amount by which the saleprice exceeded the original cost of certain shares and securities purchased andsold by the appellant. It was held that in the relevant account year in whichthe shares were sold and profits made as also in the two preceding years, theassessee was a dealer in shares and securities. In respect of this addition ofRs. 1,23,840/- the assessee raised two contentions. The first contention wasthat it was not a dealer in shares and securities in the relevant account yearor in the years past and that the shares and securities were held by way ofinvestment and the investment surplus was in the nature of a capital receipt.The second contention was that even if the assessee was a dealer in shares andsecurities in the relevant account year, the Income-tax Officer committed anerror in the matter of the computation of profits in not taking the marketvalue of the shares as at the opening day of that year as the cost thereof.

2. These were the two questions along with a third question which werereferred to the High Court under s. 66(2) of the Act. The third question doesnot now survive, and therefore we set out below the two questions which fallfor decision in this appeal :

1. In the event of the surplusaforesaid being held to be income assessable to income-tax whether the incomeshould be ascertained by taking the market value of the shares as at theopening day of the year as the cost

2. Whether there is any evidenceon record to justify the Tribunal's finding that the assessee company was adealer in shares not only in the year under consideration but in the years past?

3. Now, as to the contention whether the assessee was a dealer or not inshares and securities in the calendar year 1944 the position appears to be thatthe Income-tax Officer found against the assessee. There was an appeal to theappellate Assistant Commissioner who remanded the case to the Income-taxOfficer on the ground that the materials in the record were not adequate todecide the question. In the remand proceedings the assessee filed before theIncome-tax Officer statements showing the position of transactions relating toshares and securities from 1939 onward. These statements marked as annexure 'C'form part of the statement of the case. In his remand report dated April 1,1952 which is also a part of the statement of the case, the Income-tax Officerexamined the purchase and sale of shares in different years by the assessee andcame to the conclusion that the assessee was a dealer in shares at least fromthe year 1942 by reason of the frequency and multiplicity of the transactionswhich the assessee conducted since that year. It further pointed out that theassessee had sold certain shares out of a block of shares in the year 1943, andafter taking out the price of the shares realised in 1943, the remaining amountwas shown in the balance sheet as the value of the remaining shares in eachblock. The value of such shares as shown in the balance sheet for 1943 was notthe cost price of the assessee. In some cases it was below cost. As a result ofthis valuation in the balance sheet, the profits from the sale of shares during1945-46 would be Rs. 1,23,840/-. If, however, the difference between the saleprice and the market value of the shares as on the first day of the accountyear was taken into account, the results might be different.

4. On the basis of the aforesaid remand report the Appellate AssistantCommissioner examined the records of the transactions and observed :

'There are five different transactions of purchaseand two transactions of sale in 1942. The tempo of purchases and sales goes upfrom 1943. There are purchases of fifteen or twenty different dates in 1943.There is a similar number of transactions in 1944. Many of the shares purchasedin 1943 have been disposed of in 1944. Several scrips purchased in 1944 havebeen sold within the year. The number of transactions is, in my opinion,sufficiently numerous to show that the assessee is dealer in shares.'

5. There was an appeal then to the Tribunal. The Tribunal came to theconclusion that so far as Government securities were concerned the assessee wasobliged to keep its large cash invested in Government securities and,therefore, so far as these securities were concerned, the amount realised bytheir sale was not a revenue receipt and should not be included in the totalincome of the assessee. It held, however, that the assessee was a dealer inshares in 1944 and as to the computation of the profits made on the sale of theshares, such profits were correctly computed to be the difference between theoriginal cost price of the shares to the assessee at the time of purchase andthe price realised at the time of sale, and the Tribunal significantly addedthat this computation was correct on the finding that the assessee was a dealernot only in 1944 but from 1942 onward. We may here state that for the yearsprior to the account year 1944, the department had treated the assessee as aninvestor and not a dealer in shares and had made assessments accordingly forthose years. Those assessments have now become final.

6. When the matter went to the High Court on a case stated by the Tribunal,the High Court observed that the crucial year was the year 1943, for if theassessee was a dealer in shares since 1943 and sold some of them in the accountyear 1944 and made profits thereon, then both the questions referred to theHigh Court must be answered against the assessee. The High Court re-framed thesecond question by substituting the words 'in the year 1943' for thewords 'in the years past'. The High Court further pointed out that inthe exercise of its advisory jurisdiction it did not sit in appeal over thedecision of the Tribunal that the assessee was a dealer in shares in the year1943. It also held that on the materials on record it was open to the Tribunalto come to the conclusion that the assessee was a dealer in shares in 1943 andas to the computation of profits it pointed out that if the assessee was adealer in 1943 also, then it was not open to the assessee to say that themarket value of the shares as on the opening day of the year 1944 should betaken as the cost of the shares. Accordingly, the High Court answered both thequestions against the assessee.

7. Learned counsel for the appellant has addressed us at length on bothquestions. However, it appears to us that by reason of the re-framing of the secondquestion, the two questions really merge into one, namely, was the assessee adealer in shares in 1943 and continued to be such a dealer in 1944 which is therelevant account year The question no doubt has two aspects. Firstly, thereis the aspect whether there is any evidence to justify the finding that theassessee was a dealer in shares in 1943. Secondly, there is the aspect as tohow the profits made from the sale of shares in 1944 should be computed in theassessment year 1945-46. It is however manifest that if the assessee was adealer in 1943 also, then the principle laid down by this court in Commissionerof Income-tax v. Bai Shirinbai K. Kooka : [1962]46ITR86(SC) , will notapply, for that decision proceeded on the footing that the assessee of thatcase converted her investment shares into a stock-in-trade and carried on atrading activity as from April 1, 1946, the relevant account year being thefinancial year 1946-47. If the assessee in the present case was a dealer in1943, then nothing happened on the opening day of the relevant account year,namely, January 1, 1944 and there is no reason why the market value of theshares on that date should be taken into consideration in computing theprofits. Learned counsel for the assessee has however pressed an argument whichmay now be stated. He has submitted that he is not arguing that it was not opento the assessing authorities to consider the question whether the assessee wasa dealer in shares in 1944 which was the relevant account year. What hecontends is that it was not open to the taxing authorities to consider and findthat the assessee was a dealer in shares in 1943; because for all years priorto 1944 the department had already assessed the assessee on the footing that itwas an investor of shares and not dealer and those assessments having becomefinal could be re-opened only either under s. 34 or s. 35 of the Act. Theargument is that in assessing the assessee for the account year 1944 it wasopen to the department to treat the assessee as a dealer in 1944 but not forany earlier year which was not the subject of the assessment proceedings.Learned counsel states that if he is right in his first contention, then theprofits made on the sale of shares in 1944 must be computed in the manner laiddown in Commissioner of Income-tax v. Bai Shirinbai K. Kooka : [1962]46ITR86(SC) , because the assessee will be treated as a dealer for the firsttime in the relevant account year 1944.

8. The argument appears plausible at first sight and it may perhaps beconceded that the question of the computation of profits in a case like this isnot entirely free from difficulty. However, on a very careful consideration ofthe argument we have come to the conclusion that it is not worthy of acceptance.As to the first aspect of the question we see no difficulty. The appellateAssistant Commissioner and the Tribunal have referred to various transactionsrelating to shares shown in the books of the assessee. From those transitionsthey came to the conclusion that the assessee was a dealer in 1943. The HighCourt has also summarised the various transactions in which the assesseeindulged in the year 1943. Having regard to the frequency and nature of thosetransactions it was open to the taxing authorities to come to the conclusionthat the assessee was a dealer in shares in 1943. We are not prepared to saythat the rule of 'no evidence' can be applied to the present case. Wetherefore consider that the High Court correctly answered the question relatingto this aspect of the case.

9. Now, as to computation of profits. Though is true that the question whichdirectly arose before the taxing authorities in the present case was whetherthe assessee was a dealer in 1944, the question of the position of the assesseein 1943 also arose in determining how the profits made in 1944 should becomputed. It is not therefore quite correct to say that the position of theassessee in 1943 was completely outside the scope of the assessment proceedingsof 1945-46. In determining or computing the profits made by the sale of sharesin 1944, the assessing authorities had to go into the question - did theassessee start its trading activity on January 1, 1944 or did it start thetrading activity at an earlier date If the assessee was a dealer when theshares sold in 1944 were originally purchased, then obviously the principle inCommissioner of Income-tax v. Bai Shirin Bai K. Kooka : [1962]46ITR86(SC) , will not apply and the profits will be the excess of the sale price overthe original cost price. The extent to which a decision given by a Income-taxOfficer for one assessment year affects or binds a decision for another yearhas been considered by courts several times and speaking generally it may bestated that the doctrine of res judicata or estoppel by record does not applyto such decisions; in come cases it has been held that though the Income-taxOfficer is not bound by the rule of res judicata or estoppel by record, he canre-open a question previously decided only if fresh facts come to light of ifthe earlier decision was rendered without taking into consideration materialevidence etc. As to the argument based on Sections 34 and 35, it is enough to pointout that the assessment relating to the year 1943 is not being reopened. Thatassessment stands, What is being done is to compute the profits of 1944, whichthe assessing authorities could do, by finding out when the trading activity inshares began The question of the profits in 1944 was not and could not be thesubject of any assessment proceeding relating to 1943, for such profits aroseonly on the sale of the shares in 1944.

10. In Broken Hill Proprietary Company v. Broken Hill Municipal Council[1926] A.C. 94, the question was one of the capital value of a mine forrating purposes. This question of valuation as between the parties wasdetermined by the High Court of Australia in a previous year. But it was heldthat the decision did not operate as res judicata. The reason given was :

'The decision of the High Court related to avaluation and a liability to a tax in a previous year, and no doubt as regardsthat year the decision could not been disputed. The present case relates to anew question - namely, the valuation for a different year and the liability forthat year. It is not eadem questio and therefore the principle of res judicatacannot apply.'

11. In another decision reported in the same volume, Hoystead v.Commissioner of Taxation [1926] A.C. 155., one of the questions was whethercertain beneficiaries under a will were joint owners. It was held that thoughin a previous litigation no express decision had been given whether thebeneficiaries were joint owners, it being assumed and admitted that they were,the matter so admitted was so fundamental to the decision then given that itestopped the Commissioner. The latter decision was distinguished in Society ofMedical Officers of Health v. Hope [1960] A.C. 551.. Both the decisions wereagain considered by the Judicial Committee in Caffoor v. Income TaxCommissioner [1961] A.C. 584.. The decision in Broken Hill ProprietaryCompany's case [1926] A.C. 94.], was approved and the principle laid down wasthat in matters of recurring annual tax a decision on appeal with regard to oneyear's assessment is said not to deal with eadem questio as that which arisesin respect of an assessment for another year and consequently not to set up anestoppel. As to the decision in Hoystead's case [1926] A.C. 155., it wasstated :

'Their Lordships are of opinion that it isimpossible for them to treat Hoystead's case as constituting a legal authorityon the question of estoppels in respect of successive years of tax assessment.So to treat it would being in into direct conflict with the contemporaneousdecision in the Broken Hill case; and to follow it would involve preferring adecision, in which the particular point was either assumed without argument ornot noticed to a decision, in itself consistent with much other authority, in whichthe point was explicitly raised and explicitly determined.'

12. In Instalment Supply (P) Ltd. v. Union of India : [1962]2SCR644 this court referred to the decisions just mentioned and said that it was wellsettled that in matters of taxation there would be no question of res judicata.

13. On the principle stated above, it seems to us that it was open to thetaxing authorities to consider the position of the assessee in 1943 for thepurposes of determining how the gains made in 1914 should be computed, eventhough the subject of the assessment proceedings was the computation of theprofits made in 1944. The circumstance that in an earlier assessment relatingto 1943 the assessee was treated as an investor would not in our opinion estopthe assessing authorities from considering, for the purpose of computation ofthe profits of 1944, as to when the trading activity of the assessee in sharesbegan. The assessing authorities found that it begin in 1943. On that findingthe profits were correctly computed and the answer given by the High Court tothe question of the computation of the profits was correctly given.

14. For these reasons the appeal fails and is dismissed with costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //