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Metal Distributors Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 591 of 1979
Judge
Reported in[1993]199ITR694(Cal)
ActsIncome Tax Act, 1961 - Section 256
AppellantMetal Distributors Ltd.
RespondentCommissioner of Income-tax
Cases ReferredCoimbatore v. Protein Products of India Ltd.
Excerpt:
- .....on june 10, 1967? (c) whether the finding of the tribunal that the assessee commenced its share dealing business on november 12, 1966, was supported by any evidence on record ?' 2. the facts leading to this reference are stated hereafter.3. the assessee is a private limited company. it passed a resolution at the meeting of its board of directors on june 10, 1967, that 2,800 shares in indian iron and steel co. ltd., 69,665 shares in binani metal works ltd., 93 shares in multimetals ltd., 1,130 shares in metal distributors ltd., 200 shares in metal corporation of india ltd. and 1,000 shares in wellman incandescent india ltd., which were hitherto held as investment, may from now onwards be held as stock-in-trade and that appropriate transfer entries be made in the account books for this.....
Judgment:

Ajit K. Sengupta, J.

1. In this reference under Section 256(2) of the Income-tax Act, 1961, at the instance of the assessee, the following questions of law relevant for the assessment year 1968-69 have been referred to this court :

' (a) Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the resolution dated June 10, 1967, passed by the board of directors of the assessee-company and the entries in its books of account transferring shares in six companies from the investment to the share trading account on the basis of their market value as on that date was merely a collusive device, was justified in law and/or in any event unreasonable or perverse ?

(b) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee commencedits business of dealing in shares on November 12, 1966, and not on June 10, 1967?

(c) Whether the finding of the Tribunal that the assessee commenced its share dealing business on November 12, 1966, was supported by any evidence on record ?'

2. The facts leading to this reference are stated hereafter.

3. The assessee is a private limited company. It passed a resolution at the meeting of its board of directors on June 10, 1967, that 2,800 shares in Indian Iron and Steel Co. Ltd., 69,665 shares in Binani Metal Works Ltd., 93 shares in Multimetals Ltd., 1,130 shares in Metal Distributors Ltd., 200 shares in Metal Corporation of India Ltd. and 1,000 shares in Wellman Incandescent India Ltd., which were hitherto held as investment, may from now onwards be held as stock-in-trade and that appropriate transfer entries be made in the account books for this purpose. It was further resolved that the transfer entries should be made on the basis of the market value of the shares on the date of the resolution, i.e. June 10, 1967, and the value of these shares on the last day of each accounting year should be taken on the basis of the cost or market value, whichever was lower. On this basis, transfer entries were made in the books of the company and the assessee claimed a loss of Rs. 2,45,667 in share dealing. The Income-tax Officer, in the course of assessment proceedings for the assessment year 1968-69, however, came to the conclusion that there was an earlier sale of a large block of shares in Multimetals Ltd. on May 6, 1967, i.e., about a month earlier when 41,800 shares were sold for Rs. 4,15,492, and, therefore, the assessee was a dealer in shares not with effect from June 10, 1967, as was claimed before him but with effect from the beginning of the account year, i.e., November 12, 1966. The Income-tax Officer, therefore, recast the share trading account, made a deduction for under valuation of opening stock of shares in Binani Metal Works Ltd. and Metal Distributors Ltd. to the extent of Rs. 82,592 and an addition for overvaluation of stock of Multimetals Ltd. to the extent of Rs. 2,19,450 on the basis of the market value of these shares at the beginning of the previous year, i.e., November 12, 1966. There was thus a net addition of Rs. 1,36,858 in the assessment.

4. The above order of the Income-tax Officer was contested before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, after considering the facts, held as under :

' It is seen that while the Income-tax Officer had made additions to the trading account and profit on sale of shares of M/s. MultimetalsLtd. by recasting the account for purposes of determining profits there from (which has been considered in the earlier paras of this order) the ITO did not add Rs, 65,000 and Rs. 882 being the excess amount, according to him, in the value in transfer to stock-in-trade in shares in Binani Metals Works Ltd. and Metal Distributors Ltd. The excess worked out after considering the price at which the shares were transferred to the trading account were cum-dividend quotation because the accounts of .M/s. Binani Metal Works Ltd. closed on June 10, 1967, and of M/s. Metal Distributors Ltd. on June 9, 1967, and the date of transfer to the trading account by the appellant was on June 10, 1967. From the dates noted above, it will be seen that they were the closing dates of the accounts and as the final account after audit is not made up immediately on close of the accounts and as, while preparing the final audited accounts, the figures as per books of account may undergo changes due to adjustment, etc., the real profit available to the companies for the year ending on June 10, 1967, and June 9, 1967, could not be known on those dates or on June 10, 1967, i.e., the date on which the transfers were made by the appellant to the trading account. Unless the final position is known, the amount of dividend expected to be declared could not be guessed correctly arid so it cannot be said that the rates at which the appellant made the transfers were cum-dividend quotations. Besides, it is not mentioned in the assessment order that the Income-tax Officer's finding is that the rates were cum dividend rates on the basis of quotation in the stock exchange. In the circumstances, it cannot be said that the transfer of shares in M/s. Binani Metal Works Ltd. and M/s. Metal Distributors Ltd. by the appellant were not at normal rates. Hence, the excess price considered by the Income-tax Officer but not added is not required to be deducted from the deduction allowed in the earlier part of this order.'

5. The Department appealed to the Appellate Tribunal and it was contended that, even prior to June 10, 1967, the assessee-company had sold 41,800 shares in Multimetals Ltd. for Rs. 4,15,492. According to the Department, it was not correct to ignore this transaction while working out the profit in the share dealing account as the assessee had taken a hypothetical date of June 10, 1967. On behalf of the assessee, it was submitted that the transfer of shares in six companies from investment to stock-in-trade took place as a result of the resolution, of the board of directors on June 10, 1967, and not earlier. It was, therefore, contended that the market value of the shares of the six companies as on June 10, 1967, has rightly been adopted for working out the profits. According to the assessee, a new business could be started from any date chosen bythe assessee and there was nothing wrong or illegal about it. The Tribunal considered the facts and held as under :

'We have considered the rival submissions. We find from the assessment order that the assessee, according to its return, had claimed a business loss of Rs. 3,26,858 when, according to its own version, the loss from dealing in shares according to the trading account prepared by it on the basis of the market value of the shares on June 10, 1967, was only Rs. 2,45,667. This contradicts the statement made before us by Sri Bhide in the course of arguments that, prior to June 10, 1967, the assessee-company did 'not have any business and its only income was from investments. It is by now well-settled that, in considering the taxability or otherwise of any income and the extent of the income which is liable to tax, the treatment given by the assessee in the account books is not conclusive. In fact, the Hon'ble Supreme Court in the case of Juggilal Kamlapat v. CIT : [1969]73ITR702(SC) , have gone to the extent that, where there was a collusive device, the income-tax authorities are even entitled to pierce the veil of corporate entity and look at the reality of the transactions in order to find out the income liable to tax after paying regard to the economic realities behind the legal facade. Viewed in this context, we find that the resolution of the board of directors dated June 10, 1967, and the entries in the account books transferring shares in six companies from the investment to the share trading account on the basis of the market value on June 10, 1967, was merely a collusive device and is not conclusive on the point as to when the business of dealing in shares was started, i.e., whether it was started from June 10, 1967, or earlier. On the other hand, we find that there were large sales of 41,800 shares in Multi-metals Ltd. on May 6, 1967, i.e., prior to June 10, 1967, for Rs. 4,15,492. The Revenue authorities were, therefore, in our opinion, entitled to hold that the business of dealing in shares did not commence from June 10, 1967, but earlier. Once the claim of the assessee is found to be incorrect, it was for the assessee to establish the date from which the business of dealing in shares commenced. Here, it is necessary to point out that the assessee's claim that it did not have any business prior to June 10, 1967, was not correct as already described above and it had account books in which there were other business losses also apart from the business in dealing in shares which started on November 12, 1966, and ended on November 1, 1967. In these circumstances, according to our view, the Income-tax Officer was justified in holding that the business of dealing in shares also commenced on November 12, 1966, and in recasting the trading account in share dealing accordingly. The addition made by theIncome-tax Officer on this account, therefore, appears to be justified and was wrongly deleted by the Appellate Assistant Commissioner whose order is reversed while that of the Income-tax Officer is restored.'

6. In the course of hearing of this reference, Dr. Pal, learned counsel appearing for the assessee, drew our attention to the decision of the Appellate Assistant Commissioner who had recorded that on June 10, 1967, when the board of directors of the company passed a resolution converting certain shares from investment portfolio into stock-in-trade, the assessee had informed the Income-tax Officer about such conversion. The Appellate Assistant Commissioner further found that no definite material had been brought on record to show that the assessee converted investment into stock-in-trade prior to June 10, 1967. Dr. Pal, in fact, wants us to reverse the finding of the Tribunal.

7. We have already extracted the findings of the Tribunal. The Tribunal has given adequate and proper reasons as to why it disagreed with the order of the Appellate Assistant Commissioner. The Tribunal has observed that, in the light of facts found by it, the resolution of the board of directors dated June 10, 1967, and entries in the account books transferring shares in six companies from the investment to the share trading account was merely a collusive device. It has not been shown to us as to how this finding of the Tribunal is unreasonable and/or perverse. The Tribunal has further found that the assessee-company had suffered losses in several business dealings even prior to June 10, 1967, and, therefore, it could not be said that the share dealing business commenced only on June 10, 1967. The mere fact that the assessee-company sold 41,800 shares in Multimetals Ltd. on May 6, 1967, cannot also support the assessee's plea that the share business can at best be said to have started on that day, if not on June 10, 1967. The Income-tax Officer has also referred to the fact that the assessee had sold shares in several companies even in the earlier years. On these facts and circumstances, if the Tribunal has held that the assessee can at best be said to have commenced its share dealing business on November 12, 1966, the first day of the accounting year relevant to the assessment year 1968-69, such inference of the Tribunal cannot be said to be unusual or unreasonable. Apart from the resolution passed by the board of directors of the company on June 10, 1967, there is no other material on record to show that the assessee-company commenced its business in share dealing only on the day on which such resolution was passed. We are of the view that the Tribunal was right in holding that it was for the assessee to establish the date from whichthe business of dealing in shares commenced. Since the assessee was engaged in several business activities and since its relevant previous year commenced on November 12, 1966, we do not think that the order of the Tribunal can be said to be perverse in so far as it held that the assessee must be deemed to have commenced its business on the 1st day of the accounting year relevant to the assessment year under reference. It is not necessary to see the order of the Tribunal through a microscope. The Tribunal found that there was large scale sale of shares in May, 1967, or before June, 1967. The assessee did not show evidence as to from which date the business of share dealing commenced. In other words, the assessee did not come with clean hands. The assessee had account books in which there were other businesses apart from the business in dealing in shares which commenced on November 12, 1966, and ended on November 1, 1967. The assessee could have shown from its account books for the period from November 12, 1966, to June 10, 1967, that it had share dealings from November 12, 1966, to May 6, 1967. The Tribunal considered the totality of circumstances. From the totality of circumstances, the Tribunal held that the ITO was justified in holding that the business of dealing in shares commenced on November 1, 19G6. For the reasons best known to the assessee, it did not produce its account books to prove that the business in shares commenced only from May 6, 1967.

8. In any event, even if two views were possible on the facts found by the Tribunal, we shall not be justified in taking a view different from the one which has been taken by the Tribunal.

9. In Parry's (Calcutta) Employees' Union v. Parry and Co. Ltd., : (1966)ILLJ535Cal , this court held that the perverse finding is one which is not only against the weight of evidence, but is altogether against the evidence itself. A wrong finding is not necessarily a perverse finding. Nor is it perverse merely because it is possible to take a different view on the findings.

10. In Collector of Central Excise, Coimbatore v. Protein Products of India Ltd. [1989] 74 STC 98, it was held by the Supreme Court that if the Tribunal has taken into consideration all relevant factors and committed no error in law in reaching its conclusion, there was no warrant for interference by a superior court, although a different view is possible on the same facts and circumstances.

11. In Sir Shadilal Sugar and General Mills Ltd. v. CIT : [1987]168ITR705(SC) , the Supreme Court held that the conclusion of facts arrived at by the Tribunal after due consideration of evidence is notopen to interference by the High Court on a reference unless it appears to the High Court that there was no evidence before the Tribunal on which it, as a reasonable person, could come to the conclusion to which it has come. The Tribunal functions as a judicial body under the Act and it is invested with authority to determine finally all questions of fact. Change of perspective in viewing a thing does not transform a question of fact into a question of law. When a conclusion had been reached on an appreciation of a number of facts established by evidence, whether that was sound or not must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole.

12. For the foregoing reasons, the first question is answered by saying that the conclusion of the Tribunal was justified in law and is not unreasonable or perverse. The second and third questions are answered in the affirmative and in favour of the Revenue.

13. There will be no order as to costs.

Bhagabati Prasad Banerjee, J.

14. I agree.


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