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Chunilal Khushaldas Patel Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference Nos. 8 of 1963 and 9 of 1965
Judge
Reported in[1967]66ITR522(Guj)
ActsIncome Tax Act, 1922 - Sections 10
AppellantChunilal Khushaldas Patel
RespondentCommissioner of Income-tax
Appellant Advocate S.P. Mehta, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredK. S. Rashid & Son v. Income
Excerpt:
(i) direct taxation - assessable income - section 10 (2) of income tax act, 1922 - assessee (chairman of board of directors of company) decided to issue balance of its share capital to strengthen financial position - assessee took over 5100 shares that had remained unsold - whether rs. 76000 in respect of profit alleged to be embedded in 5100 shares taken by assessee can be included in his assessable income - assessee took shares at cost and no profit accrued to joint venture in respect of those shares - held, rs. 76000 not to be included in assessable income of assessee. (ii) construction - assessee got right to issue deferred shares - assessee realized profit of certain amount on sale of this right - whether it was capital receipt or revenue receipt - held, it was capital receipt as.....bhagwati j. 1. four questions of law are submitted by the tribunal for our opinion, two under section 66(1) and two under section 66(2) of the income-tax act, 1922. the first question challenges the vires of section 34(a) but in view of the decision of the supreme court in k. s. rashid & son v. income-tax officer this question is not pressed by the assessee and it is conceded that the answer to this question must be against the assessee. three questions, therefore, survive for consideration. they arise out of an assessment made on the assessee as an individual for the assessment year 1945-46. the relevant accounting year is the calendar year 1944. the assessee was at all material times the chairman of the board of directors of a company called the international bank of india ltd......
Judgment:

Bhagwati J.

1. Four questions of law are submitted by the Tribunal for our opinion, two under section 66(1) and two under section 66(2) of the Income-tax Act, 1922. The first question challenges the vires of section 34(A) but in view of the decision of the Supreme Court in K. S. Rashid & Son v. Income-tax Officer this question is not pressed by the assessee and it is conceded that the answer to this question must be against the assessee. Three questions, therefore, survive for consideration. They arise out of an assessment made on the assessee as an individual for the assessment year 1945-46. The relevant accounting year is the calendar year 1944. The assessee was at all material times the chairman of the board of directors of a company called the International Bank of India Ltd. (hereinafter referred to as the bank). One J. C. Thakkar was the managing governor and one Nanji Kalidas Mehta was a director of the bank. On May 9, 1943, a meeting of the board of directors of the bank was held and at that meeting it was decided that with a view to the strengthening the financial position of the bank, the balance of the authorized share capital of the bank should be issued and the managing governor should take steps to see that it was subscribed for by one or two or more parties in big lots and with a view to attracting such parties to subscribe, brokerage at the rate Rs. 3 per share and the right to the issue of the deferred shares should be offered to the subscribers. Following upon this decision of the board of directors, an agreement was arrived at between the assessee, J. C. Thakkar and Nanji Kalidas Mehta whereby it was agreed that the entire balance of the authorized capital consisting of 24,000 shares should be taken up by these three parties 'in three equal parts' and that for the time being, these shares should stand in the name of Nanji Kalidas Mehta or some one residing in a Native State and that all the dealing should be put through the Rajkot branch of the bank. This agreement was disputed by the assessee in the course of the assessment proceedings but it has been found as a fact by the Tribunal (vide paragraph 5 of the Tribunal's order) and the reference must, therefore, be decided on the basis that such as agreement for a joint venture was entered into between the parties. Pursuant to this agreement the assessee remitted a sum of Rs. 2,40,000 to the credit of the joint account of Nanji Kalidas Mehta and his wife Santokben with the Rajkot branch of the bank on September 11, 1943, as and by way of his contribution to the purchase price of the shares and Nanji Kalidas Mehta contributed a sum of Rs. 6,00,000. No contribution in terms of money was made by the third partner, namely, J. C. Thakkar. Now though the agreement was for taking up 24,000 shares being the balance of the authorized capital, in fact 23,145 shares were taken up and they were taken in the name of Santokben. J. C. Thakkar soon thereafter - as soon as the shares of the bank began to be quoted on the stock exchange - started selling these shares on account of the joint venture and on 12th November, 1943, he addressed a letter to Nanji Kalidas Mehta, the material portion of which reads as under :

'The price of the shares of the bank which at present is Rs. 65 in the bazaar will gradually rise to Rs. 75. Sales of shares are going on and will be completed by the end of November. The final settlement of the accounts will be made by the end of December about which you need not worry. The future of these shares is very bright. So please let me know whether you desire to keep some shares from this or you want to sell them all. Seth Kikabhai wishes to keep shares to the extent of the profit of Rs. 1 to 1 1/4 lakhs. So please let me know what you desire.'

2. Then again on 15th November, 1943, he addressed another letter to Nanji Kalidas Mehta stating, inter alia :

'I am keeping here a complete account of all amounts in respect of sale of shares. So when the sales of all shares are completed next month, the accounts can be settled from here. By now nearly 8,000 shares are sold and gradually within two or three weeks all the shares will be sold.'

3. By November 20, 1943 a few out of 23,145 shares were sold but from that date J. C. Thakkar expanded the activities of the joint venture and started purchasing further shares of the bank in the market and selling them on account of the joint venture. The number of shares thus purchased and sold, come to 15,677 and they were purchased and sold in different lots from time to time. The last sale took place on 21st June, 1944. The ultimate position as it emerged was that all 15,677 shares purchased in the market were sold, but out of 23,145 shares originally taken up from the bank, 5,100 shares remained unsold. These 5,100 shares were admittedly taken over by assessee. The second question referred to us raises the controversy whether these 5,100 shares were taken over by assessee in lieu of his capital and share in the profit of the joint venture or they were withdrawn by him from the stock-in-trade of the joint venture at cost. We shall presently examine this question but, in the meantime, to continue with the narration of the facts, a statement of account in respect of the aforesaid transactions was drawn up after the shares were sold and this statement of account has been accepted as representing the correct state of affairs both by the income-tax authorities as also by the Tribunal. The decision of the controversy in regard to 5,100 shares turns largely on the true interpretation of the relevant entries in the statement of account and it would, therefore, be desirable to set it out in extenso. The statement of account omitting portions immaterial, reads as follows :

'Statement I. Rs.Total No. of shares in the part. 23,145Less :- Shares taken by Seth Kikabhai 5,100------18,045-------Total sales proceeds. 22,32,609-8-0Less : 'Purchases33,729 shares.15,677'--------18,043 10,57,228-15-0-------- --------------11,75,380-9-0Less : Cost of 18,045 shares @ 50 9,02,250-0-0--------------2,73,130-9-0--------------Rate of profit per share Rs. 1518,045 shares are to be divided as follows :Seth Kikabhai 2,615Seth Nanjibhai 7,715Mr. Thakkar 7,715----------18,045----------Rs.Profit of Seth Kikabhai 2,615 at Rs. 15 39,225Profit of Seth Nanjibhai 7,715 at Rs. 15 1,15,725Profit of Mr. Thakkar 7,715 at Rs. 15 1,15,725------------Total division as per shares 2,70,675------------Balance of profit to be divided equally 2,455-9-0---------------2,73,130-9-0---------------IIFinal shares of profitRs. As. Ps.Seth Nanjibhai 1,16,543-8-4Seth Kikabhai 40,043-8-4Mr. Thakkar 1,16,543-8-4---------------2,73,130-9-0----------------IIISeth Nanjibhai accountSeth Kikabhai's accountRs. As. Ps. Rs. As. Ps.Cost of 5,100 shares at Rs.50 2,55,000-0-0Paid by him 2,40,000-0-0Share of profit 40,043-8-4 2,80,043-8-42,55,000-0-0---------------Due to him final 25,043-8-4---------------Mr. Thakkar's accountRs. As. Ps.Taken by him1,30,000-0-0Due to him 1,16,543-8-4--------------Refund due from Mr. Thakkar 13,456-7-8'--------------

4. The final position of accounts was thereafter sent by one Jethalal Radia on behalf of Nanji Kalidas Mehta to the assessee and J. C. Thakkar with covering letters dated 12th September, 1943, and the figures as stated in the final position of accounts sent to J. C. Thakkar were as follows :

Rs. As. Ps.1,16,543-8-4 My shares of profit on 7,715 shares1,16,543-8-4 Your shares of profit on 7,715 shares40,043-8-4 Seth Chunilal Khushaldas share of profit on 2,615-------------- shares2,73,130-9-0--------------

5. It was stated at the end of the letter containing the final position of the accounts addressed to J. C. Thakkar :

'The position is as above with regard to all of us and in future if any income-tax matter arises, please note that all will have to pay according to this account.'

6. The revenue took the view that the assessee, Nanji Kalidas Mehta and J. C. Thakkar being partners in the joint venture with equal shares, the share of each in the profit of the joint venture was Rs. 1,16,543-8-4 (excluding the underwriting commission or brokerage of Rs. 3 per share) and while this share of profit was received by each of the two partners, namely, Nanji Kalidas Mehta and J. C. Thakkar in cash, so far as the assessee was concerned, he received it partly in cash and partly in shares. Rs. 40,043-8-4 was received in cash and the balance of Rs. 76,500 was received embedded in 5,100 shares taken over by the assessee. According to the revenue, 5,100 shares were received by the assessee in lieu of capital and his share of profit to the extent of Rs. 76,500 and the total profit which accrued or arose to the assessee as a result of the joint venture, therefore, was Rs. 40,043-8-4 plus Rs. 76,500, that is, Rs. 1,16,543-8-4. The revenue accordingly claimed to tax the assessee on a profit of Rs. 1,16,543-8-4. The assessee resisted this claim saying that his only profit in the joint venture, according to the statement of accounts, was Rs. 40,043-8-4 and that 5,100 shares were received by him not in lieu of capital and his share of profit but as part of the stock-in-trade withdrawn at cost and receipt of those shares did not, therefore, amount to receipt of any profit. But the claim of the revenue was upheld by the income-tax authorities and on appeal by the assessee, the Tribunal also, on an interpretation of the statement of account, took the same view and confirmed the addition of Rs. 76,500 in the assessable income of the assessee. This addition of Rs. 76,500 is challenged by the second question of the present reference.

7. It is apparent that the addition of Rs. 76,500 in the assessable income of the assessee cannot be sustained unless it can be shown that Rs. 76,500 was the income of the assessee and the burden of showing that would clearly be on the revenue. The revenue argued - and that was the argument which found favour with the Tribunal - that Rs. 76,500 represented a part of the assessee's share in the profit of the joint venture and it was received in the form of 5,100 shares. The argument proceeded on the hypothesis that the assessee's share in the profit of the joint venture was Rs. 1,16,543-8-4 and out of that, Rs. 40,043-2-4 was received in cash and the balance of Rs. 76,500 was received by taking over 5,100 shares. The assessee disputed the validity of this hypothesis and his contention was that his share in the profit of the joint venture amounted only to Rs. 40,043-8-4 and the alleged further profit of Rs. 76,500 did not accrue to him as his share in the profit and 5,100 shares were not taken over by him in lieu of such profit. Now there can be no doubt that, where a joint venture makes profit, a partner in the joint venture may be paid his share in the profit in cash or if the partners so agree, instead of cash, some property or stock-in-trade of the joint venture may be given over to him at an agreed valuation in satisfaction of his share in the profit. If, therefore, Rs. 76,500 accrued to the assessee as his share in the profit of the joint venture and 5,100 shares were given over to the assessee at an agreed valuation in lieu of Rs. 76,500, the inclusion of Rs. 76,500 in the assessable income of the assessee would be justified. But the question is whether Rs. 76,500 accrued to the assessee as his share in the profit of the joint venture and 5,100 shares were taken over by him at an agreed valuation in payment of such amount. It is manifest that a profit cannot accrue to a partner unless it accrues to the joint venture and, therefore, if the revenue seeks to establish that Rs. 76,500 accrued to the assessee as his share in the profit of the joint venture, the first step in the argument which the revenue would have to take is that Rs. 76,500 accrued as the profit of the joint venture. The revenue must show that the profit of the joint venture was not Rs. 2,73,130-9-0 but Rs. 2,73,130-9-0 plus Rs. 76,500. Now Rs. 2,73,130-9-0 was admittedly the profit earned by the joint venture as result of the sale of the shares and, therefore, according to the contention of the revenue Rs. 76,500 must necessarily be profit arising in respect of 5,100 shares which remained unsold. These 5,100 shares were admittedly not sold in the market and the only other way in which profit could arise to the joint venture in respect of these 5,100 shares would be by the partners valuing them at a mutually agreed price and making up accounts on the basis of such valuation. The revenue, therefore, in order to make out a profit of Rs. 76,500 would have to show that the partners of the joint venture valued these 5,100 shares at Rs. 65 per share and made up accounts on that footing. The revenue would also furthermore have to show that these 5,100 shares were given over to the assessee at the value of Rs. 65 per share in lieu of capital and his share in the profit of the joint venture. The question is whether there is any evidence on record on the basis of which these two propositions can be said to have been established on behalf of the revenue.

8. Turning to the statement of account on which the strongest reliance was placed by the Tribunal for coming to a conclusion adverse to the assessee, we find that there is nothing in it which supports the inference that 5,100 shares were valued by the parties at Rs. 65 per share and they were taken over by the assessee at that value in lieu of capital and his share in the profit of the joint venture. The statement of account lends itself only to one interpretation, namely, that 5,100 shares were withdrawn by the assessee from the stock-in-trade of the joint venture at cost and no profit accrued to the joint venture in respect of 5,100 shares. Though 23,145 shares were shown in the statement of account as the initial stock-in-trade of the joint venture, 5,100 shares taken over by the assessee were, as the following entries show, taken out from the joint venture :

Rs.Total No. of shares in the part 23,145Less : Shares taken by Seth Kikabhai 5,100--------18,045--------

and the account of the joint venture was made up only in respect of the remaining 18,045 shares (coupled of course with the other shares purchased and sold by the joint venture) on the basis that those shares were the only stock-in-trade of the joint venture. The total profit which according to the statement of account accrued to the joint venture, was only Rs. 2,73,130-9-0 and that was the profit divided amongst the partners. As pointed out in paragraph 5 of the order of the Tribunal, 'the entire issue of 24,000 shares of the bank was to be taken in three equal parts' by the partners, but since the total number of shares taken from the bank was 23,145 instead of 24,000, the contribution of each partner to the stock-in-trade of the joint venture came to 7,715 shares, out of his contribution of 7,715 shares, the assessee withdrew 5,100 shares at cost and only 2,615 shares remained as his contribution as against 7,715 shares contributed by each of the other two partners. The profit of Rs. 2,73,130-9-0 was, therefore, divisible amongst the partners according to the proportion of 2615 : 7715 : 7715. But since the division according to this proportion would involve complicated arithmetical calculations, what the partners did was to adopt a rough and ready method of effecting division. They divided the profit of Rs. 2,73,130-9-0 by the total number of shares contributed by the partners, namely, 18,045, and arrived at the nearest integer, namely, 15, and applying it as a multiplier to each partner's contribution of shares, they effected a division of Rs. 2,70,675 in the proportion of 2615 : 7715 : 7715, vide the following entries in the statement of account :

Rate of profit per share Rs.1518,045 shares are to be divided as follows :-Seth Kikabhai 2,615Seth Nanjibhai 7,715Mr. Thakkar 7,715---------18,045---------Rs.Profit of Seth Kikabhai 2,615 at Rs.15 39,225Profit of Seth Najeebhai 7,715 at Rs.15 1,15,725Profit of Mr. Thakkar 7,715 at Rs.15 1,15,725-----------Total division as per shares 2,70,675-----------

and since the balance of the profit which remained to be divided was a very small amount, namely, Rs. 2,455-9-0 not capable of convenient division in the proportion of 2615 : 7715 : 7715, they divided it equally amongst themselves. The profit of Rs. 2,73,130-9-0 which accrued to the joint venture was thus divided amongst the partners in the following manner : Rs. 1,16,543-8-4 to Nanji Kalidas Mehta, Rs. 1,16,543-8-4 to J. C. Thakkar, and Rs. 40,043-8-4 to the assessee. The profit which came to the share of the assessee was only Rs. 40,043-8-4 and that is why this was the only amount which was credited in the capital account of the assessee as his share of profit in the joint venture. It is also significant to note that the debit entry in respect of 5,100 shares which was made in the capital account of the assessee was :

'Cost of 5,100 shares at Rs. 50, Rs. 2,55,000-0-0'. This debit entry clearly shows that 5,100 shares were withdrawn by the assessee at cost and no profit accrued to the joint venture in respect of 5,100 shares.

9. If the contention of the revenue were correct, the statement of account would have been completely different. 5,100 shares would not have been shown as having gone out of the joint venture; the account of the joint venture would not have been made up only in respect of 18,045 shares; the profit of the joint venture would not have been shown to be only Rs. 2,73,130-9-0; the division of the profit amongst the partners would not have been in the proportion of 2615 : 7715 : 7715; Rs. 40,043-8-4 would not have been shown to be the only profit coming to the share of the assessee and the assessee would not have been debited with the cost price of 5,100 shares taken over by him. The statement of account, according to the ordinary principles of commercial accountancy, would have been on the following lines :-

Rs. As. Ps.Total No. of shares of partnership 23,145Total sale proceeds 22,32,609-8-0Value of 5100 shares takenover by Seth Kikabhai atRs. 65 per share 3,31,500-0-0--------------25,64,109-8-0Less : Cost of shares purchasedin the market 10,57,228-15-0--------------15,06,880-9-0Less : Cost of 23,145 shares atRs. 50 per share 11,57,250-0-0--------------Profit 3,49,630-9-0--------------Profit to be divided in three equal parts as each partner is entitledto an equal shares.Rs. As. Ps.Profit of Seth Kikabhai (i.e., the assessee) 1,16,543-8-4Profit of Seth Nanjibhai 1,16,543-8-4Profit of J. C. Thakkar 1,16,543-8-4-------------3,49,630-9-0-------------and the assessee's capital account would have been as follows :-Rs. As. Ps. Rs. As. Ps.Paid by Value of 5,100 sharesSeth Kikabhai 2,40,000-0-0 taken over at Rs.65per share. 3,31,500-0-0Share of profit 1,16,543-8-4 Balance due to SethKikabhai 25,043-8-4-------------- -------------3,56,543-8-4 3,56,543-8-4-------------- -------------

10. On no principle of commercial accountancy could the statement of account have been in the form in which we find it. It must be remembered that an account represents a historical record of a transaction and, therefore, in order to understand the true nature and import of the transaction, the statement of account would be the surest guide, unless of course it is shown that it does not contain a faithful record of the transaction. The statement of account before us has been accepted both by the revenue authorities as also by the Tribunal as representing the correct state of affairs and if we interpret it, one and only one conclusion is possible, namely, that 5,100 shares were withdrawn at cost and no profit accrued to the joint venture in respect of those shares. It cannot bear the other interpretation contended for on behalf of the revenue.

11. Moreover it may be noted that the final position of accounts sent by Jethalal Radia to the assessee also speaks the same voice. It shows the profit of the joint venture to be only Rs. 2,73,130-9-0 and the assessee's share of profit to be only Rs. 40,043-8-4.

12. It was however contended on behalf of the revenue that the market value of shares of the bank at the date of making up accounts was Rs. 65 per share and 5,100 shares must, therefore, have been taken over by the assessee at Rs. 65 per share and since the profit in respect of 5,100 shares was Rs. 15 per share which was the same as the rate obtainable by dividing the profit of Rs. 2,73,130-9-0 by the remaining 18,045 shares, it did not make any difference to the ultimate result whether the statement of account was prepared in the way it was done or it was prepared in the manner set out above. We cannot accept this contention. It suffers from several fallacies. In the first place there is no finding of the Tribunal that the market value of the shares at the date when the accounts were made up was Rs. 65 per share. The revenue relied on the statement in the order of the Income-tax Officer that the prevailing market rate of the shares was Rs. 65 per share when they were given over to the assessee but no reference to this statement is to be found in the order of the Tribunal and it is not adopted by the Tribunal as representing its own finding. We are concerned in this reference only with the finding of fact recording by the Tribunal and any finding recorded by the Income-tax Officer is of no consequence unless it is adopted and made its own by the Tribunal. Moreover there is no evidence at all to support the statement that the prevailing market value of the shares at the date when they were taken over by the assessee was Rs. 65 per share. We asked the learned Advocate-General whether he was in a position to point out any evidence which would support this statement but the expressed his inability to do so. We cannot, therefore, proceed on the basis that the market value of the shares at the date of settlement of accounts was Rs. 65 per share. And if that be so, the entire superstructure of the argument of the revenue must fall to the ground. But even if this hurdle against the argument of the revenue were ignored, there are other obstacles on which the argument must founder. If we scrutinize the argument, we will find that it is essentially based on conjecture and speculation rather than upon an interpretation of the statement of account. Even if the market value of the shares at the relevant time was Rs. 65 per share, there is nothing in the statement of account to show or even remotely to lead to the inference that the assessee took over 5,100 shares at Rs. 65 per share. The entries in the statement of account are in fact destructive of any such inference. It is undoubtedly true that if 5,100 shares were taken over by the assessee at Rs. 65 per share, the profit in respect of those shares would be Rs. 15 per share and that does coincide with the rate obtainable by dividing the profit of Rs. 2,73,130-9-0 by the remaining 18,045 shares but no argument can be founded on such coincidence when, first, there is no evidence to show that the market value of the shares was Rs. 65 per share; secondly, there is nothing in the statement of account to support the inference that 5,100 shares were taken over by the assessee at Rs. 65 per share; and thirdly, the entries in the statement of account on the contrary show that 5,100 shares were withdrawn by the assessee at cost and no profit accrued to the joint venture in respect of those shares. The argument of the revenue, if valid, would mean that the partners of the joint venture, commercial men though they were, did not make up the statement of account according to ordinary principles of commercial accountancy but prepared the statement of account without caring whether or not it correctly and faithfully recorded the transaction. We cannot accept such an argument.

13. Some reliance was placed on behalf of the revenue on the word 'Seth Kikabhai wishes to keep shares to the extent of profit of Rs. 1 1/4 lakhs' in the letter dated 12th November, 1943, addressed by J. C. Thakkar to Nanji Kalidas Mehta and it was contended that these words showed that the intention of the assessee was to take over shares in lieu of his share in the profit of the joint venture and that it was in pursuance of this intention that 5,100 shares were taken over by the assessee in lieu of his share in the profit. This contention is without force and for two very good reasons. In the first place these words do not necessarily yield the inference that at the date of the letter, the intention of the assessee was to take over shares in lieu of his share in the profit to the extent of Rs. 1 to Rs. 1 1/4 lakhs. These words may also mean - and that is a more probable meaning - that the assessee intended to keep for himself, out of his contribution of the stock-in-trade, such number of shares as would, according to the prevailing market rate, bring him a profit of Rs. 1 to 1/4 lakhs. No reliance can, therefore, be placed on these words for the purpose of persuading the court to interpret the statement of account in the manner contended for on behalf of the revenue; secondly, these words merely expressed an intention entertained by the assessee as far back as 12th November, 1943, and it would not be right to determine the character of the transaction which took place between three partners of the joint venture in September, 1944, by reference to some intention vaguely and ambiguously expressed by one of the partners, namely, the assessee, about ten months prior to the taking place of the transaction. We must determine the character of the transaction on an interpretation of the statement of account which has been accepted as a correct and faithful record of the transaction and if we do so, there is no doubt that 5,100 shares were taken over by the assessee at cost and no profit accrued to the joint venture in respect of those shares. The addition of Rs. 76,000 made in the assessable income of the assessee must, therefore, be deleted.

14. That takes us to the next question referred to us. That question relates to the proper accounting year in respect of the assessee's share in the profit of the joint venture. The revenue adopted the calendar year 1944, as the previous year since the accounts of the assessee in respect of his other business were maintained according to the calendar year but this is plainly incorrect. Section 2(11) (i) as amended by the Income-tax (Amendment) Act, 1939, defines 'previous year' in reference to each separate source of income and the previous year in respect of each source of income has, therefore, to be ascertained by applying the definition in reference to such source of income. The joint venture was a separate source in income and the previous year in respect of this source of income could not, therefore, be determined by reference to the accounts maintained by the assessee in respect of other sources of income. If accounts had been maintained in respect of the joint venture, the assessee could have an option to choose the period of 12 months for which accounts were made up, as the previous year in respect of his share in the profit of the joint venture but admittedly no accounts were maintained in respect of the joint venture and the assessee did not have a choice of the previous year. The previous year in respect of the assessee's share in the profit of the joint venture must, therefore, be taken to be the financial year immediately preceding the assessment year, namely, 1944-45 and not the calendar year 1944. We may point our that section 2(11) (ii) has no application in this case, since the joint venture has not been assessed as a firm and the assessee's share in the profit of the joint venture is sought to be assessed in the hands of the assessee without assessing the joint venture. The second question would, therefore, have to be answered by the saying that the calendar year 1944 was not the proper previous year but the financial year 1944-45 was the proper previous year for the income arising from the joint venture.

15. But, contended the revenue, we should refuse to answer this question since it would be academic and futile to answer it. The revenue pointed out that, according to the Tribunal, the income from the joint venture accrued to the assessee only in September, 1944, when the accounts of the joint venture were made up between the partners and on this finding it was entirely immaterial whether the previous year was the calendar year 1944 or the financial year 1944-45, for, in either case, the date of accrual of the share in the profit of the joint venture to the assessee would fall within the previous year. Now there can be no doubt that, if the profit to the joint venture could not be determined until the joint venture was completed and the share in the profit, therefore, accrued to the assessee only in September, 1944, when the accounts were made up, it would make no difference as to what was the previous year and the controversy in regard to the previous year would be clearly academic and this was indeed not disputed by the assessee. But the argument of the assessee was that the joint venture did not consist of a single transaction and, therefore, the rule that assessable profits can arise only when the joint venture comes to an end or the entire cost is recouped, had no application, and the profit which accrued to the joint venture in the financial year 1943-44 was not assessable in the assessment year in question. The validity of this argument on merits was of course disputed on behalf of the revenue but the revenue also raised a preliminary objection against our entertaining the argument and that was on the ground that the point which was sought to be raised did not form the subject-matter of any question referred to us for our opinion. The preliminary objection is, in our view, well-founded and it is not necessary to enter upon a consideration of the merits of the argument urged on behalf of the assessee.

16. If we look at the question referred to us for our opinion, it is clear that the question is limited only to the controversy in regard to the previous year, namely, whether the previous year was the calendar year 1944, or the financial year 1944-45. It does not embody the further controversy as to when the profit could be said to have accrued to the joint venture, whether it accrued only on the completion of the joint venture in September, 1944, or it accrued from time to time as and when the sales were effected or at any rate at the end of the financial year 1943-44, and that controversy would not, therefore, legitimately fall to be determined by the court. Realising this difficulty, the assessee pleaded before us that the question should be reframed so as to take in this controversy as regards the time of accrual of profit to the joint venture and he urged in support of his contention that this was the real controversy between the parties which was agitated at all stages of the proceeding and it was this controversy which was really sought to be brought before the court by the question referred to us. The assessee pointed out that, when he applied to the court under section 66(2) for a reference of the present question, which was question No. 12 in the application, he made it clear in paragraph 11 of the application that the question which he sought to raise was founded on three grounds set out in the memorandum of appeal to the Tribunal and one of those grounds, namely, 22, was that the Appellate Assistant Commissioner had erred in holding that since the profits accrued or arose or were distributed by the joint venture only round about September, 1944, they were to be assessed in the accounting year relevant to the assessment year 1945-46, and it was, therefore, clear that it was this controversy embodied in ground 22 which was sought to be raised by the assessee by the present question. Now there can be no doubt that the assessee did refer to ground 22 in support of his application for reference of the present question, but the present question embodies a totally different controversy from that set out in ground 22. The controversy embodied in the present question relates to the correct previous year and that is entirely distinct and separate from the controversy in regard to the time of accrual of profit to the joint venture referred to in ground 22. We have undoubtedly power to reframe a question referred to us, but that can be done only where it is found that the question as framed is intended to bring out a particular controversy between the parties but by reason of inappropriateness of language it fails to properly bring out such controversy. The power does not extend to reframe a question so as to introduce a totally different kind of controversy from that which is embodied in the question as framed. The suggestion on behalf of the assessee for reframing the question was :

'Was the calendar year 1944 rightly taken as the previous year for the alleged income of Rs. 1,52,683 and whether the said alleged income accrued or arose in September, 1944 ?' If this suggestion of the assessee were to be accepted, the question as reframed would comprise two distinct and independent controversies, one in regard to the previous year and the other in regard to the time of accrual of profit to the joint venture. We would be expanding the scope of the question and introducing in the question a controversy which does not at present find a place there. That, we are afraid, is not permissible to us. On the question as framed, the only controversy is as regards the previous year and so far as that is concerned, it is entirely academic on the view taken by the Tribunal that the profit of the joint venture accured only in September, 1944, on the completion of the joint venture. We, therefore, find it unnecessary to answer this question.

17. So far as the last question is concerned, the assessee is on firmer ground. The right to the issue of deferred shares went to the assessee along with 5,100 shares taken over by him and that was clearly capital in his hands. There is nothing to show that it was converted by him as his stock-in-trade. If, therefore, the assessee realised a profit of Rs. 13,000 by sale of this right, it must be regarded as a capital receipt in his hands. This position was indisputable and it must be said in fairness to the learned Advocate-General appearing on behalf of the revenue that he did not seriously contest it.

18. Our answers to the questions referred to us therefore are : Question No. 1 : not pressed; Question No. 2 : The addition of Rs. 76,000 in respect of profit alleged to be embedded in 5,100 shares taken over by the assessee, in the assessable income of the assessee was not right in law. Question No. 3 : Not answered; and question No. 4 : The sum of Rs. 13,000 represented capital receipt in the hands of the assessee. Since the assessee has partly succeeded and partly failed, the fair order for cost would be that each party should bear and pay his own costs.


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