H.R. Khanna, C.J.
(1) The following four questions have been referred to this Court under Section 66(1) of the Income-tax Act, 1922. on the application of the assessed and the Revenue by the Income-tax Appellate Tribunal:-
(1)'Whether on the facts and in the circumstances of the case the Tribunal rightly rejected the assesses claim for deduction of the interest payment of Rs. 2,04,744.00 (2) Whether on the facts and in the circumstances of the case the Tribunal rightly held that the Revenue was not stopped from disallowing the claim for deduction of the interest amount in view of the allowance of such claim in the past (3) 'Whether on the facts and in the circumstances of the case the Tribunal rightly disallowed the loss of Rs. 1,05,000.00 in respect of 7500 preference shares of the Dalmia Investment Company Limited (4) 'Whether on the facts and in the circumstances of the case the Tribunal rightly held that the dividend amount of Rs. 95,664.00 did not constitute the income of the assessed ?'
(2) The assessed. Shri Ram Krishan Dalmia, is an individual. The matter relates to the assessment year 1953-54, the relevant previous year for which ended on September 30, 1952. In 1944-45, the joint family of the assessed sold the shares in question Along with various other shares to Bharat Bank Limited. On February 5, 1948, the Managing Director of the Bharat Bank Limited addressed the following letter to the assessed:
'(1)That we sell and you buy the following shares at the rates mentioned against each :- Kind Nominal Paid Number Rate of value of up of shares shares value shares
___________________________________________________________________________ Dalmia Investment Co. Ltd. Pref. 100 100 7,500 104.00 D.C.P.M. Co. Ltd. Pref. 100 100 1,400 103.00 Lahore Elec. Supply Co. 'A' 100 100 50 575.00 -Do- 'B' 10 10 84.440 41.00 ___________________________________________________________________________ (2) mat That shares so purchased will be taken delivery of by you on or before 31-3-1948. (3) That if the shares are not taken delivery of by 31-3-1948, the dividends, rights, bonuses etc. that may be declared after that date will be for your benefit but you will be liable to pay interest at 6% from 1-4-1948 till the dates of actual delivery on the price of the shares calculated at the rates mentioned above. (4) That if for any reason the shares are not taken delivery of by 31-3-1951, the bank shall be at liberty to sell the then undelivered shares on the prices then available and hold you liable for the difference.'
(3) The assessed did not take delivery of the shares on March 31, 1948, as provided in clause 3 of the letter, nor on March 31, 1951, as provided in clause 4 thereof. He also did not enter these shares as purchases in his investment account or share account. He did not further credit the price thereof to the bank's account till March 31, 1951 in his books. For not taking delivery of 7500 preference shares of Dalmia Investment Company Limited, the assessed paid Rs. l,05,000.00 as damages. He took delivery of the remaining shares on payment of Rs. 75,000.00 in cash and by transferring some shares held by him for balance of the amount. The final date of March 31, 1951. fixed for taking delivery of the shares under clause 4 was by mutual consent subsequently changed to March 31, 1953. The delivery of the shares of Lahore Electric Supply Company and of D.C.&P.M.; Company Limited was effected to the assessed during the period from February 18, 1952, to September 4, 1952. The Bharat Bank Limited claimed the following amounts by way of interest from the assessed as per agreement dated February 5, 1948 :-
(4) On February 5, 1948, the date on which the assessed contracted to purchase the shares in question, his brother, Jai Dayal Dalmia. and his daughter, Mrs. Rama Jain. entered into similar constricts for purchasing big lots of shares from Bharat Bank Limited under separate agreements. According to the assessed, family partition had taken place between him, his brother and his daughter a little before February, 1948, in which each of them was allotted different groups of companies. Each of them entered into identical contracts with the Bharat Bank Limited for the purchase of shares of the companies allotted to him or her in order to acquire and retain the controlling interest in the companies so allotted. The assessed claimed the deduction of the interest amount of Rs. 2,04,744.00 which became payable by him to. the Bharat Bank under the agreement dated February 5, .1948. during the previous year on the ground that it represented interest on the loan of Rs. 44,14,990.00 raised by him from the Bharat Bank purchasing the shares.
(5) The Income-tax Officer held that the aforesaid contract of purchase was not a commercial contract carried on in the ordinary course of the business of a dealer in shares and that the assessec's motive in purchasing these shares was anything other than dealing in shares. He accordingly disallowed the claim for deduction of interest. At the same time the Income-tax Officer included the dividend amount of Rs, 95,664.00 received in terms of letter dated February 5, 1948.
(6) In appeal, the Appellate Assistant Commissioner found that the assessed's contract with the Bharat Bank was a result of the division of assets between the three members constituting Dalmia Group, and that no cash was ever paid to the Bharat Bank for the purchase of the shares. It was observed that the delivery of the shares was taken by certain manipulations and by bartering certain shares and that Bharat Bank claimed refund of tax deducted at its source on the dividends of Lahore Electric Supply Company's share in its own assessment. The transaction, in the opinion of the Appellate Assistant Commissioner appeared to be a part of strategy to evade taxes and was not genuine. The Assistant Commissioner accordingly disallowed the deduction of interest. The assessed then went up in appeal before the Income-tax Appellate Tribunal and contended that he purchased the shares in question for a sum of Rs. 44,14,990.00 on April 1, 1948, by borrowing that amount from the bank and that the title to the shares passed on to him on April 1, 1948. The interest liability incurred on the borrowed amount was claimed to be a permissible deduction. It was pointed out that in all the preceding years the interest paid by the assessed to the Bharat Bank on the outstanding amount of the price had been held to be a permissible deduction. According to the assessed, the Revenue was estopped from departing from the decision taken by it on this point in the preceding years. In the alternative it was contended by the assessed that in case his claim for deduction of interest amount was rejected, the inclusion of dividend income of Rs. 95,664.00 should be set aside. The assessed also claimed the loss of Rs. 1,05,000 incurred by him in relation to purchase of 7,500 preference shares of Dalmia Investment Company. The aforesaid amount was stated to have been paid to Bharat Bank as damages for failure to take delivery of the shares.
(7) The Revenue on the other hand refuted the assessed's contention that it could not depart from the decisions it took in the earlier years. The interest amount, according to the Revenue, was not a permissible deduction in as much as the purchase of the shares could neither be said to be business nor investment. In the alternative, the argument advanced on behalf of the Revenue was that the title to the shares did not pass to the assessed till he took actual delivery of the shares Along with the bank transfers by payment of the price and that the interest accruing till the date of taking actual delivery of the shares formed a part of the price and did not represent interest on the funds borrowed by the assessed for purchasing the shares.
(8) The Tribunal held that the transaction evidenced by letter dated February 5, 1948 was a bona fide and genuine transaction. The Tribunal then referred to the assessed's stand that the shares had been purchased on investment account and observed that the assessed's claim for deduction of interest payment could be upheld provided the expenditure had been incurred for the purchase of making an earning and was not in the nature of capital expenditure. The Tribunal pointed out that interest for the period subsequent to the date of the acquisition of the source of in come can alone be considered for deduction. The Tribunal then proceeded to determine the date on which title to the shares in question could be said to have been passed to the assessed, and held that even for the transfer of equitable title in the shares or for the creation of the relationship of which constructive trustee and quo trust between the vendor and the vendee, the delivery of the share certificate and the relevant blank forms by the vendor to the vendee and the payment of the price by the latter to the former were an essential pre-requisites. The admitted position of the parties was that the shares certificate and the blank transfer forms were neither delivered to the assessed on February 5, 1948 nor on March 31, 1951, but on date subsequent to that. It was held that the source of income was acquired only on the dates on which the shares were transferred to the assessed's name and there was no question of borrowing the funds prior to the date of acquisition of the shares for the purpose of purchasing the shares. The payment of interest prior to the date of acquisition of shares as such, in the opinion of the Tribunal, could not be claimed as an expenditure incurred solely for the purpose of earning an income. In the alternative the. Tribunal held that even if it be assumed that the title to the shares passed to the assessed on April 1, 1948 or March 31, 1951, the interest amount was not a permissible deduction as it was of capital nature. The contention that the Revenue was estopped in view of the allowance of similar claims in the preceding years did not find favor with the Tribunal. As regards the assessed's alternative contention that in case his claim for deduction of interest was rejected. the inclusion of the- dividend income of Rs. 95.664.00 should be set aside. The Tribunal observed that this amount had not been earned by the assessed as dividend but had merely been credited as an adjustment of the provisional price fixed under the contract. No dividend income a view of the Tribunal, could have been earned before the acquisition of the shares. The dividend income of Rs. 95,664.00 was of the loss of Rs, 1,05,000.00 incurred by him in relation to-the purchase of 7,500 shares of Dalmia Investment Company, the Tribunal found that there was no material on record to prove that the shares were purchased in ordinary course of business and not as an investor. The amount, was, accordingly held to be capital loss and the claim was rejected. The questions reproduced above were thereafter, as stated earlier, referred to this Court.
(9) We have heard Mr. Natesan on behalf of the assessed and Mr. Kirpal on behalf of the Revenue. So far as the first question is concerned, we find that according to the definition of the word 'goods' in the Sale of Goods Act, 1930 (Act Iii of 1930). 'goods' means every kind of movable property other than actionable claims and money; and includes stock and shares. Section 4 of the Act deals with sale and agreement to sell, A contract of sale is a contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price. Such a contract may be absolute or conditional. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale. but where the transfer of the property in the goods is to take place at a future lime or subject to some condition thereafter to be fulfillled, the contract is called an agreement to sell. The controversy between the parties has hinged on the point as to. whether the property in the shares in question vested in the assessed during the relevant accounting period. According to Mr. Natesan, the property in the aforesaid shares passed on from the Bharat Bank to the assessed on February 5, 1948. He has in this context referred to Section 20 of the Sale of Goods Act, according to which where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both. is postponed. The above stand has been controverter by Mr. Kirpal.
(10) It is the common case of the parties that on the registers of the companies of which the shares were the subject matter of the letter dated February 5, 1948, the Bharat Bank was shown as the owner of the shares. The stand taken on behalf of the assessed by Mr. Natesan, however, is that the letter in question operated as an unregistered transfer and had the effect of transferring the beneficial ownership in the shares in favor of the assessed. In this respect we find that the effect of unregistered transfers has been dealt with on page 401 of the Principles of Modern Company Law by Gower, 3rd Edition, in the following words :
'A question that has caused the courts great difficulty is that of deciding what precisely is the legal effect of a transfer executed by the transferor and delivered to the transferee but not yet registered by the company. In considering this question it is is essential to keep in mind the dual nature of the transaction; on the one hand it is a straight forward assignment of personal property, on the other it is the release of one person from membership and the admission of another in his place. As between the transferor and the transferee it is the first aspect that is important, while as between the parties and the company is the second. But while adherence to this distinction may solve problems arising between one set of contracting parties and the company, it does not necessarily do so when other parties are involved, each claiming priority. So far as the transferor is concerned the transaction is complete as between him and the transferee when he hands over the duly executed transfer certificate. On a sale and purchase thereforee it is clear that the beneficial ownership passes then at the latest; indeed, if the contract of sale is specifically enforceable the purchaser has already become the beneficial owner. But the buyer does not become a member or shareholder until the transfer is registered. Moreover, it is the policy of our company law that the company shall not be concerned with the beneficial ownership but shall only be bound or entitled to recognise the, person whose name is on the register.'
(11) The position has been explained in Halsbury's Laws of England. Third Edition, Volume 6, page 249, as under:-
'UNDER an ordinary contract for sale of shares, made subject to the rules of the Stock Exchange, London, the seller's only duty is to execute a valid transfer, hand it and the certificate to the purchase, and do all that is necessary on his part to enable the purchaser to be registered, it being the purchaser's duty to obtain registration of the transfer. Unless registration is refused because the transferor has no right to execute the transfer, the transferee must pay the consideration for the transfer, although registration is refused and the transferor, so long as his name remains on the register, holds the shares in trust for the transferee. The transferee becomes in equity the owner of the shares and the transferor is bound not to prevent or delay the registration of the transferee as owner.'
(12) In Maneckji Pestonji Bharucha and another v. Wadilal Sarabhai & co. and others, 2nd 50 Bombay 360(1), their Lordships of the Judicial Committee observed:
'THE Company is entitled to deal with the share-holder who is on the register, and only a person who is on the register is in the full sense of the word owner of the share. But the title to get on the register consists in the possession of a certificate, together with a transfer signed by the registered holder.'
(13) The matter was considered by their Lordships i the Supreme Court in the case of Messrs Howrah Trading Co., Limited, v. The Commissioner of Income-tax Calcutta (1959) Supp (2) Scr 448, and the following observations of Lopes, L.J., in the case of Nanney v. Morgan 1888 37 Ch.D.346, were quoted with approval :
'THEREFORE the transferor, until the delivery of the deed of transfer to the secretary, is subject to all the liabilities and entitled to all the rights which belong to a shareholder or stockholder, and, in my opinion, until the requisite formalities are complied with, he continues the legal proprietor of the stock or shares subject to that proprietorship being divested, which it may be at any moment, by a compliance with the requisite formalities.'
(14) It was held that the same position obtained in India. Hidayatullah, J. (as he then was), speaking for the Court, observed :
'DURING the period that the transfer exists between the transferor and the transferee without emerging as binding document upon the company, equities exist between them, but not between the transferee and the company. The transferee can call upon the transferor to attend the meeting, vote according to his direction, sign documents in relation to the issuance of fresh capital, call lor emergent meetings and inter alia, also compel the transferor to pay such dividend as he may have received. See E. D. Sasoon & Co. Ltd. v. Patch, approved in Mathalone v. Bombay life Assurance Co. Limited. But these rights though they, no doubt, clothe the transferee with an equitable ownerships, are not sufficient to make the transferee a full owner, since the legal interest vis-a-vis the company still outstands in the transferor; so much so, that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital, which may be needed.'
(15) It would, thereforee, follow that equitable ownership in shares can be transferred by the owner by signing a blank transfer form and handing over that transfer form Along with the share scrips to the transferee. So far as the company of which the shares are the subject matter of transfer is concerned, it would not recognise the transferee as the owner of the shares till such time as the transfer is registered and the name of the transferee is entered in its registers as the owner of those shares, it would be only after his name is entered in the registers of the Company as the owner of the shares that the transferee would acquire legal ownership in the shares.
(16) In order to decide the question as to whether the equitable ownership in the shares vested in the assessed during the relevant period, we have to take note of certain facts. It is the common case of the parties that the share certificates and the blank transfer forms were neither delivered to the assessed on February 5, 1948, nor on March 31, 1948. They were also not delivered even on March 31. 1951. The delivery of the shares took place during the period from February 18, 1952 to September 4, 1952. The letter dated February 5. 1948. indicates that the intention of the parties was that the delivery of shares was to take place against payment of price. The assessed did not enter these shares as purchaser in his capital account or shares account. These facts, in our opinion, would militate against the inference that the equitable ownership in the shares had passed on to the assessec on February 5, 1948. It also cannot be said that the transfer of the ownership in shares took place on March 31, 1948. or March 31, 1951. The provision in the letter of February 5, 1948. .about the payment of interest or the right to dividend taken in the context of all the facts would not detract from the above conclusion. The argument that the equitable title in the shares was transferred to the assessed on February 5, 1948, can also be not accepted on another ground. According to Section 19 of the Sale of Goods Act, where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred, and for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. It is further provided that unless a different intention appears, section 20 to 24 should be taken as the rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. It would, thereforee, follow that the question as to when the ownership in the shares is to pass to the buyer depends upon the intention of the parties which has to be ascertained from their conduct and the circumstances of the case. besides the terms of the contract. So far as the intention of the parties is concerned, the assessed took the stand before the Tribunal that the title to the share had passed on to him on April 1 1948. in view of the above stand taken by the assessed before the Tribunal, the contention now advanced on his behalf that the title to the shares was intended to pass on to him on February 5, 1948, as contemplated by Section 20 of the Sale of Goods Act cannot he accepted. The above position of the assessed also does not appear to be tenable, because the assessed was not entitled to the dividends in accordance with letter dated February 5, 1948. for the period from February 5, 1948. to March 31, 1948.
(17) Another fact of which note may also be taken is that in letter dated February 5, 1948, the Seriall numbers of the shares proposed to be transferred arc not mentioned. According to the statement of the case. the above shares Along with other shares had been sold by the joint family of the assessed to the Bharat Bank somewhere in the year 1944-45. On the material on record it cannot be said with certainty that the shares agreed to be sold by letter dated February 5, 1948, were the only shares of the companies mentioned in that letter which were owned by the Bharat Bank, As such. the argument of Shri Kirpal that it was not a contract for sale of specific goods as contemplated by Section 21 of the Sale of Goods Act cannot be held to be devoid of force. We are fortified in the above conclusion by the following observations of a Division Bench of the Allahabad High Court in the case of A. W. Domingo v. L. C. De Souza, I.L.R. (1928) All 695:-
'THE learned advocate for the defendant has to concede that so far as 500 preference shares are concerned they could not be said to have been definitely ascertained goods at that time when the defendant in fact possessed 2,000 such shares. So long as the share certificates were not delivered and the numbers were not specified they remained unascertained, and it would have been open to the defendant to hand over any 500 out of the 2,000 shares possessed by him. As regards the 500 ordinary shares, no doubt the defendant had only that number at that time. but as the delivery was to take place in December it would have been open to the defendant to hand over any other 500 ordinary shares which he might acquire before that date to the plaintiff. It is thereforee, not possible to hold that even the 500 ordinary shares which the defendant would sell to the plaintiff were definitely ascertained in June, 1920.'
(18) A number of authorities have been referred to on behalf of the assessed on the question of transfer of ownership in shares. One of them is Madholal Sindhu v. The Official Assignee of Bombay anil another 1949 Fcr 441. In that case the question was whether 26,000 shares of a Company standing in the name of one Nissim had been lawfully transferred to Jamnadas and then to the plaintiff or whether the official assignee on the insolvency of Nissim acquired the ownership of the shares subject to the pledge of New Citizens Bank Limited. The trial Court after considering the documentary and oral evidence reached between the conclusion that a concluded sale between Jamnadas and the Bank with the concurrence of Nissim regarding the shares had been proved and that the title in those share vested in Jamnadas and he was competent to sell them to the plaintiff. The decision of the trial Judge was reversed in appeal by a Division Bench of Bombay High Court, but on further appeal the Federal Court by a majority restored the decision of the trial Judge. Perusal of the judgment shows that the decision o: the Federal Court rested on the facts of that case. Likewise, the other cases o! which mention was made on behalf of the assessed were decided on their own facts and none of them detracts from the principle enunciated in the cases referred to above regarding the transfer of equitable title in shares,
(19) Mr. Natesan has also assailed the view taken by the Tribunal that the interest amount was of a capital nature and as such was not a permissible deduction. It is pointed out that the decision of the Bombay High Court in tire case of Bombay Steam Navigation Co. (1953) Private Limited v. Commissioner of Income-tux. Bombay City I. : 48ITR476(Bom) , upon which the Tribunal based its view was reversed on appeal by the Supreme Court as per judgment reported in : 56ITR52(SC) . In that case the assessed company took over the assets of another company in pursuance of a scheme of amalgamation between two shipping companies. Part of the price of the assets was paid by allotment of shares and the balance was to be treated as a loan and secured by a promissory note and hypothecation of all movable properties of the assessed company. The amount of loan carried interest. Question arose whether the interest paid on the balance was liable as a deduction under section 10(2) (iii) or (xv) of the Indian Income-tax Act of 1922. It was held that the word 'capital' used in Section 10(2) (iii) meant money and not other assets, and that the transaction did not give rise to a loan. The claim for deduction of the amount of interest under Section 10(2) (iii) was found to be not admissible. The Court further held that the interest paid by the assessed was business expenditure and as such was allowable as a deduction under section 10(2) (xv). Mr. Natesan does not dispute that the payment of the interest in the present case has not been proved to be an expenditure for the purpose of the business of the assesseds but. according to him. it would be a permissible deduction under sub-section (2) of Section 12 of the Act which deals with income from other sources and the expenditure incurred for the earning of such income. It is, in our opinion, not necessary to go into this aspect of the matter, because it is conceded by Mr. Natesan that the consideration of this aspect of the matter would arise only if the Court finds that there was transfer of the equitable ownership of the shares in question to the assessed on or before March 31, 1951. In view of our finding given above against the assessed on that point, it is not necessary to dilate upon the question as to whether the payment of interest was a permissible deduction under sub-section (2) of Section 12 of the Act.
(20) We would, thereforee, decide question No. 1 in the affirmative and against the assessed.
(21) So far as question No. 2 is concerned, the position of law is that the doctrine of rest judicata does not apply so as to make a decision on. question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment; the findings on question of fact may be good and congent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive. See M. M. Ipoh and others v. Commissioner of Income-tax, Madras : 67ITR106(SC) . We, thereforee are of the view that question No. 2 should be answered in the affirmative.
(22) In respect of the matter, which is the subject of question No. 3, the Tribunal found that the whole block of shares was purchased by the assesses as an investor and not as a dealer in shares. It was further found that there was no material on record to show that the purchases were made by the assessed in the ordinary course of business and not as an investor. Nothing has been brought to our notice for taking a contrary view. Question No. 3. thereforee, should be decided in the affirmative and against the assessed.
(23) As regards question No. 4, we find that the Tribunal found that the amount of Rs. 95,664.00 had not been earned by the assessed us a dividend but had merely been credited as an adjustment of the provisional price fixed under the contract. The receipt of the dividend was taken into account only in the finalization of the price. It was further observed that no dividend income could have accrued even before the acquisition of the shares, and, thereforee, the dividend income of Rs. 95,664.00 should be deducted. We find nothing wrong in the above conclusion of the Tribunal. The Revenue, in our opinion, could not have it both ways by disallowing claim for deduction of interest on the ground that the property in shares had not passed on to the assessed and at the same time taxing the assessed on the amount of dividend which became payable for the shares for the period before the assessed got the equitable title in shares. The answer to question No. 4, in our opinion, should, thereforee, be in the affirmative and against the Revenue.
(24) As a result of the above, we answer all the four questions in the affirmative. The first three questions would thus be decided against the assessed and the fourth against the Revenue. Looking to all the facts, we leave the parties to bear their own costs.