Raja Bahadur Visheshwara Singh&
Ors Vs. Commissioner of Income-Tax, Bihar and Orissa  INSC 298 (15
CITATION: 1961 AIR 1062 1961 SCR (3) 287
Income Tax-Purchase and sale of shares and
securities with surplus money-Such transactions, if amount to investment or
business in shares-Test-Excess sale proceeds-If amount to business profit or
mere accretion to capital-Indian Income- tax Act, 1922 (11 of 1922), s. 66(2).
The appellant used to invest his cash surplus
in shares and securities and maintained an account book called Book No. 1
relating thereto. During the period from 1930 to 1941-42 he purchased a large
number of shares and securities which by the accounting year 1941-42 were of a
value Rs. 1491 lacs.
He sold certain shares and securities of the
value of several lacs and made certain amount of profit on those sales. In 1940
the appellant borrowed a large amount of money from his brother, the Maharaja of
Darbhanga and opened a new account named account No. 2 which contained all
entries regarding shares purchased and sold out of the money borrowed from the
Maharaja. In the assessment year 1944-45 to 1948-49 the profits made by the (1)
 3 S.C.R. 279.
288 appellant from purchase and sale of
shares amounted to several lacs and the Income-tax Officer held those to be
liable to income-tax as business profits. The Appellate Assistant Commissioner
upheld the assessments but excluded the profits for the years 1944-45. On
appeal by both the parties the Appellate Tribunal held on the evidence that the
appellant was to be regarded as a dealer in shares and securities and therefore
the profits were assessable to income-tax. The High Court stated the following two
questions under s. 66(2) of the Income-tax Act and answered them in the
affirmative:- "(1) Whether in the circumstances of the case, there is
material to support the finding of the Appellate Tribunal that the assessee was
a dealer in shares and securities with respect to each of the account and,
therefore, liable to be taxed? (2)Whether having regard to the finding of the
Appellate Tribunal in respect of 1941-42 assessment, it- was open to the
Appellate Tribunal in the present case to hold that the profits and
transactions of sale and purchase of shares and securities amounted to profits
of business and so liable to be taxed?" On appeal by special leave the
appellant contended inter alia, that being a Zamindar the buying and selling of
shares was not his normal activity and he did not carry on any such business
but his purchases and sales were in the nature of investments of his surplus
monies and therefore the excess amounts received by sales were capital receipts
being merely surplus and not profits.
Held, that on the materials produced and on
the facts proved the appellant must be held to have been rightly assessed.
The principle applicable to such transactions
is that when an owner of an ordinary investment chooses to realise it and
obtains a higher price for it than the original price paid by him, the enhanced
price is not a profit assessable to income tax, but where as in the present
case what is done is not merely a realisation or a change of investment but an
act done in what is truly the carrying on of a business the amount recovered as
appreciation will be assessable.
G.Venkataswami Naidu & Co. v. The
Commissioner of Income- tax,  Supp. 1 S.C.R. 464, Oriental Investment
Company Ltd. v. The Commissioner of Income-tax,  S.C.R. 49, Raja Bahadur
Kamakshya Narain Singh v. Commissioner of Income-tax, Bihar and Orissa, (1943)
L.R. 70 I.A. 180, discussed.
The substantial nature of the transactions,
the manner in which the books were maintained, the magnitude of the shares
purchased and sold and the ratio between the purchases and sales and the
holding justified tile Tribunal to come to the conclusion that the appellant
was dealing in shares as business. The High Court could not interfere with
those findings and it rightly answered the questions in the affirmative.
There is no such thing as res judicata in
income-tax matters 289 and it was quite open to the Appellate Tribunal to give
the finding that it did.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 137 to 141 of 1958.
Appeals by special leave from the judgment
and order dated April 26, 1956 of the Patna High Court in Misc. Judicial Cases
Nos. 362 to 366 of 1955.
A. V. Viswanatha Sastri, S. K. Majumdar and
I. N. Shroff, for the appellants Nos. 2 to 4 (In all the appeals).
Hardayal Hardy and D. Gupta, for the
respondent (In all the appeals).
1960. December 15. The Judgment of the Court
was delivered by KAPUR, J.-The assessee who is the appellant has brought these
five appeals against the judgment and order of the High Court of Patna by which
it answered the two questions stated under s. 66(2) of the Indian Income-tax
Act against the appellant and in favour of the Commissioner of Income- tax.
The appellant is the son of the late
Maharajadhiraja of Darbhanga and the brother of the present Maharaja. The
father died in 1929 and the appellant was given by way of maintenance the
Estate of Rajnagar. He was also given a yearly allowance of Rs. 30,000 which
was later raised to Rs.
48,000. From 1929, the appellant invested his
cash surplus in shares and securities, the account of which was entered in what
is called Account Book No. 1. From the year 1930 onwards up to the year 1941-42
the appellant purchased a large number of shares and securities which by the
accounting year 1941-42 were of the value of Rs. 14.91 lacs.
During this period the appellant sold shares
and securities in the accounting years 1936-37 and 1939-40 of the value of 1.48
lacs and 1.69 lacs respectively. He made certain amount of profits on these
sales but under orders of the Commissioner of Income-tax in the former case and
of the Income-tax Tribunal in the latter case, these sums were not assessed to
income-tax. In the 290 accounting years 1942-43 to 1946-47 the appellant
purchased and sold some shares and securities. The entries in Account No. 1
stood as follows:- Total value of Total cost of Total cost of shares &
securities shares and securities sold cost at the securities pur during the
beginning of the chased during the year.
1350 Fs. Rs. 14.66 lacs Nil Rs. 4.68 lacs
942-43 (13 items) 1351 Fs. Rs. 9.98 lacs Rs. 2.37 lacs. Rs. 416 lacs 1943-44 (4
items) (12 items) Rs. 3-05 lacs. Rs. 069 lacs 1352 FS. Rs. 8.20 lacs (2 items)
and (3 items) 1944-45 other call money.
1353 Fs. Rs. 10.52 lacs Nil Rs. 1.03 lacs
1945-46 (3 items) 1354 Fs. Rs. 9.50 lacs Rs. 15 83 lacs. Rs. 3.39 lacs 1946-47
( 9items) (2 items) and in all these years the appellant made profits which
varied from Rs. 2,56,959 in the accounting year 194243 to Rs. 33,174 in the
accounting year 1946-47.
On July 16, 1940, the appellant arranged an
overdraft with the Mercantile Bank of India and actually withdrew Rs.
10,000 for the purchase of shares. But his
brother the Maharaja advanced to him without interest Rs. 10 lacs and thus the
overdraft was paid off. A new Account was opened in the books of the appellant
named No. 2 Investment Account which contained all entries in regard to shares
purchased and sold from out of the money borrowed from the Maharajadhiraj. In
this account entries of the different years were as follows:- 292 was held not
to. be taxable. Thus in the second period the assessee was held not to be
carrying on any trade. In the third period, i.e., the assessment years 1944-45
to 1948-49 the profits made by the appellant from purchase and sale of shares
were as follows:- 1944-45...Rs.2,62,000 and odd 1945-46...Rs.3,95,000 and odd
1946-47...Rs.1,57,000 and odd 1947-48...Rs.1,33,000 and odd 1948-49...Rs.
76,000 and odd The Income-Tax Officer held these to be liable to income-tax as
business profits. On appeal the Appellate Assistant Commissioner excluded the
profits for the years 1944-45 and 1945-46 but for the years 1946-47 to 1948-49
the assessments were upheld. Both parties appealed to the Appellate Tribunal.
It held on the evidence that the appellant was to be regarded as a dealer in
shares and securities and therefore the profits were assessable to income-tax.
The appellant applied for a case to be stated under s. 66(1) of the Income-tax
Act. This application was dismissed but the High Court made an order under s.
66(2) of the Income-tax Act to state a case on two questions of law. The
questions were as follows:
(1)...Whether in the circumstances of the
case, there is material to support the finding of the Appellate Tribunal that
the assessee was a dealer in shares and securities with respect to each of the
accounts and, therefore, liable to be taxed? (2)...Whether, having regard to
the findings of the Appellate Tribunal in respect of 1941/42 assessment, it was
open to the Appellate Tribunal in the present case to hold that the profits and
the transactions of sale and purchase of shares and securities amounted to
profits of business and so liable to be taxed ? The High Court held that the
facts and circumstances which the Tribunal took into consideration in arriving
at the finding were the material before the Tribunal to support the finding and
the first question 293 was answered in the affirmative and therefore against
the appellant. In regard to the second question the answer was again in the
affirmative and against', the appellant who has come to this Court by special
It was argued on behalf of the appellant that
he was not carrying on the business of buying and selling shares but his
purchases and sales were in the nature of investments of his surplus monies and
therefore the excess amounts received by sales were capital receipts being
merely surplus and not profits. It was also submitted that the appellant being
a zamindar the buying and selling of shares was not his normal activity; that
he had a large income and it was his surplus income which he was investing in
buying the shares and whenever he found it profitable he converted his holdings
and securities and for a number of years from 1931-32 he had been buying shares
but he did not sell them; that the very nature of investments was such that
they had to be constantly changed so that the monies invested may be used to
the best advantage of the investor; and that the sales were really for the
purpose of reemploying the monies that he had invested to his best advantage.
Counsel for the appellant relied upon certain
cases in support of his submission that the first question raised was of a
wider amplitude and that it had been erroneously restricted by the High Court
and that its true import was the same as of the questions which were raised in
the following cases decided by this Court. He relied on G. Venkataswami Naidu
& Co. v. The Commissioner of Income-tax (1), Oriental Investment Co., Ltd.
v. The Commissioner of Income-tax, Bombay (2). In the former case the assessee
purchased four plots of land adjacent to the mills of which he was the Managing
Agent. On various dates and about five years later sold them to the mills in
which he realized about Rs. 43,000 in excess of his purchase price. This was
treated by the Income-tax authorities as purchase with a view to sell at a
profit. The question referred was whether there was material for the (1) 
Supp. 1 S.C.R. 646.
(2)  S.C.R. 49.
294 assessment of that amount as income
arising from an adventure in the nature of trade. The High Court held that that
was the nature of the transaction. On appeal this Court held that before the
Tribunal could come to the conclusion that it was an adventure in the 'nature
of trade, it had to take into consideration the legal requirements associated
with the concept of the trade or business and that such a question was a mixed
question of law and fact.
It was also held that where a person invests
money in land intending to hold it and then sells it at a profit it is a case
of capital accretion and not profit derived from an adventure in the nature of
trade but if a purchase is made solely and exclusively with the intention to
resell it at profit and the purchaser never had any intention to hold the
property for himself there would be a strong presumption that the transaction
is in the nature of trade but that was also a rebuttable presumption. The
purchase in the absence of any rebutting evidence was held to fall in the
latter category, i.e., adventure in the nature of trade. In the Oriental
Investment case(1) the assessee was an investment company. It had purchased
certain shares and sold them and qua those shares it claimed to be treated as
an investor and not a dealer on the ground that it did not carry on any
business in the purchase and sale of shares. The assessee's applications for
reference to the High Court-were rejected on the ground that no question of law
arose out of the order of the Tribunal. It was held that the question whether
the assessee's business amounted to dealing in shares and in properties or was
merely an investment was a mixed question of law and fact and the legal effect
of the facts found was a question of law and this Court ordered the case to be
stated on two questions that it framed. One of the questions was similar to the
first question in the present case but the second question was a wider one,
i.e., whether the profits and losses arising from the sale of shares etc.
could be taxed as business profits.
The question which the High Court had to
answer (1)  S.C.R. 49.
295 in the present case was a narrow one and
the answer to that on the material before the Court was rightly given in the
affirmative. But even if the question is taken to be wider in amplitude, on the
materials produced and on the facts proved the appellant must be held to have
been rightly assessed. Counsel for the appellant argued that the amounts
received by him in the accounting years were in the nature of capital
accretions and therefore not, assessable. In support, Counsel for the appellant
relied on the following cases:-Raja Bahadur Kamakshya Narain Singh v. The
Commissioner of Income-Tax, Bihar & Orissa (1) where Lord Wright observed
that profits realised by the sale of shares may be capital if the seller is an
ordinary investor changing his securities but in some instances it may be
income if the seller of the shares is an investment company or an insurance
company. The other cases relied upon were Californian Copper Syndicate Limited
v. Harris (2); Cooper v. Stubbs (3); Leeming v. Jones (4) and Edwards v.
Bairstow & Harrison (5). ....It is not necessary to discuss these cases
because..the principle applicable to such transactions is that...when an owner
of an ordinary investment chooses to realise it and obtains a higher price for
it than he originally acquired it at, the enhanced price is not a profit
assessable to income tax but where as in the present case what is done is not
merely a realisation or a change of investment but an act done in what is truly
the carrying on of a business the amount recovered as appreciation will be
In July 1948 the appellant had borrowed,
though without interest, a large sum of money to the extent of about Rs. 10,00,000,
no doubt from his brother. He started a new account calling it No. 2 Investment
Account. For the assessment years under appeal shares purchased and sold were
of a large magnitude ranging from Rs. 4.68 lacs to Rs. 69 thousands in what is
called the first account and from Rs. 9,64,000 or even if Port Trust Debentures
are excluded (1)  L.R.70 I.A. 180,194. (2)  5 T.C. 259.
(3)  10 T.C. 29, 57. (4)  15 T.C.
333 (5).. 36 T.C. 207.
296 Rs. 3,60,000 to Rs. 30,000. The magnitude
and the frequency and the ratio of sales to purchases and total holdings was
evidence from which the Income-tax Appellate Tribunal could come to the
conclusion as to the true nature of the activities of the appellant. The
principle which is applicable to the present case is what we have said above
and on the evidence which was before the Tribunal, i.e., the substantial nature
of the transactions, the manner in which the books had been maintained, the
magnitude of the shares purchased and sold and the ratio between the purchases
and sales and the holdings, if on this material the Tribunal came to the
conclusion that there was material to support the finding that the appellant
was dealing in shares as a business, it could not be interfered with by the
High Court and in our opinion it rightly answered the question against the
appellant in the affirmative.
The second question is wholly unsubstantial.
There is no such thing as res judicata in income-tax matters. The Appellate
Tribunal has placed in a tabulated form the activities of the appellant showing
the buying and selling and the magnitude of holdings and it cannot be said
therefore that it was not open to the Appellate Tribunal to give the finding
that it did.
In our opinion the High Court rightly held
against the appellant. The appeals are therefore dismissed with costs.
One hearing fee in this Court.