The New Jahangir Vakil Millsco., Ltd.
Bhavnagar Vs. The Commissioner of Income-Tax, Bombay North, Kutch & Saura
[1963] INSC 98 (10 April 1963)
10/04/1963 DAS, S.K.
DAS, S.K.
SARKAR, A.K.
HIDAYATULLAH, M.
CITATION: 1964 AIR 318 1964 SCR (2) 971
ACT:
Income Tax-Assessee dealer in shares and
securities-Income from sale shares, if revenue receipt-Profits if be computed
on basis of difference between original cost price and price realized at the
sale-Res judicata, if appliable to matters of taxation -Taxing authorities if
can consider position of assessee before the assessment year.
HEADNOTE:
The assessee appellant carried on the
business of manufacturing and selling textile piece-goods. In the assessment
year 1945-46, the Income-tax officer added to the taxable income of the
assessee a sum of Rs. 1,86,931 which was later on reduced to Rs. 1,23,840 as a
revenue receipt, representing an amount by which the sale price exceeded the
original cost of certain shares and securities purchased and sold by the appellant.
The assessee was held to be a dealer in shares and securities.
The contention of the assessee was that it
was not a dealer in shares and securities in the relevant account year or in
the years past and the shares and securities were held by way of investment and
the investment surplus was in the nature of capital receipt. Even if the
assessee was a dealer in shares and securities in the relevant account year,
the Income-tax officer committed an error in the matter of the computation of
profits in not taking the market value of the shares as at the opening day of
that year as the cost thereof. The Appellate Assistant Commissioner rejected
the contentions of the appellant and held that the number of transactions was
sufficiently large to show that the assessee was a dealer in shares. The
Appellate Tribunal rejected the contentions of the appellant. These assertions
were then referred to the High Court and they were decided against the
assessec-appellant.
972 Held that the assessee was a dealer in
shares and securities and the income from their sale was a revenue receipt and
not capital receipt. The profits of the assessee were the difference between
the original cost price of the shares to the assessee at the time of purchase
and the price realized at the time of sale.
Held also that in the matter of taxation,
there was no question of resjudicata. It was open to the taxing authorities to
consider the position of the assessee in 1943 for the purpose of determining
how the gains made in 1944 should be computed, even though the subject of the
assessment proceedings was the computation of the profits made in 1944. The
circumstance that in an earlier assessment relating to 1943, the assessee was
treated as an investor would not estop the assessing authorities from
considering, for the purpose of computation of the profits of 1944, as to when
the trading activity of the assessee in shares began. The assessing authorities
found that it began in 1943 and on that finding, the profits were correctly
computed.
Commissioner of Income-tax v. Bai Shirinbai
K. Kooka, [1962] Supp. 3 S.C.R. 391, Broken Hill Property Company v. Broken
Hill Municipal Council, [1926] A.C. 94, Boystead v. Commissioner of Taxation,
[1926] A.C. 155. Society of Medical officer of Health v. Hope, [1960] A.C. 551,
Caffoor v. Income-tax Commissioner, [1961] A.C. 584 and Installment Supply (P)
Ltd. v. Union of India, [1962] 2 S.C.R. 644, referred to,
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 445 of 1962.
Appeal from the judgment and order dated
April 1 1 and 12.
1960, of the Bombay High Court in Income-tax
Reference No. 52 of 1959.
R. J. Kolah and I.N. Shroff, for the
appellant.
K. N. Rajagopal Sastri, and R.N. Sachthey,
for the respondent.
1963. April 10. The judgment of the Court was
delivered by S. K. DAS, J.-This is an appeal on a certificate of fitness
granted by the High Court of 973 Bombay under s. 66-A (2) of the Indian
Income-tax Act, 1922.
The New Jehangir Vakil Mills Co., Ltd..
Bhavnagar, appellant before us and called tile assessee, carried on the
business of manufacturing and selling textile piecegoods at Bhavnagar in the
former Bhavnagar State. The present appeal is concerned with the assessment
year 1945-46, the account year being the calendar year 1944. In the said assessment
year the Income-Tax officer concerned added to the taxable income of the
assessee a sum of Rs. 1,86,931/(which was later reduced to Rs. 1,23,840/-) as a
revenue receipt, representing an amount by which the sale price exceeded the
original cost of certain shares and securities purchased and sold by the
appellant. It was held that in the relevant account year in which the shares
were sold and profits made as also in the preceding years, the assessee was a
dealer in shares and securities. In respect of this addition of Rs. 1,23,840/the
assessee raised two contentions. The first contention was that it was not a
dealer in shares and securities in the relevant account year or in the years
past and that the shares and securities were held by way of investment and the
investment surplus was in the nature of a capital receipt. The second
contention was that even if the assessee was a dealer in shares and securities
in the relevant account year, the Income-tax officer committed an error in the
matter of the computation of profits in not taking the market value of the
shares as at the opening day of that year as the cost thereof.
These were the two questions along with a
third question which were referred to the High Court under s. 66 (2) of the
Act. The third question does not now survive, and therefore we set out below
the two questions which fall for decision in this appeal:
1. In the event of the surplus aforesaid
being held to be income assessable to incometax 974 whether the income should
be ascertained by taking the market value of the shares as at the opening day
of the year as the cost ?
2. Whether there is any evidence on record to
justify the Tribunal's finding that the assessee company was a dealer in shares
not only in the year under consideration but in the years past ? Now, as to the
contention whether the assessee was a dealer or not in shares and securities in
the calendar year 1944 the position appears to be that the Income-tax officer
found against the assessee. There was an appeal to the appellate Assistant
Commissioner who remanded the case to the Incometax officer on the ground that
the materials in the record were not adequate to decide the question. The
remand proceedings the assessee filed before the Income-tax officer statements showing
the position of transactions relating to shares and securities from 1939
onward. These statements marked as annexure 'C' form part of the statement of
the case. In his remand report dated April 1, 1952 which is also a part of the
statement of the case, the Income-tax officer examined the purchase and sale of
shares in different years by the assessee and came to the conclusion that the
assessee was a dealer in shares at least from the year 1942 by reason of the
frequency and multiplicity of the transactions which the assessee conducted
since that year.
It further pointed out that the assessee had
sold certain shares out of a block of shares in the year 1943, and after taking
out the price of the shares realised in 1943, the remaining amount was shown in
the balance sheet as the value of the remaining shares in each block. The value
of such shares as shown in the balance sheet for 1943 was not the cost price of
the assessee. In some cases it was below 975 cost. As a result of this
valuation in the balance sheet, the profits from the sale of shares during
1945,46 would be Rs. 1,23,8401-. If, however, the difference between the sale
price and the market value of the shares as on the first day of the account
year was taken into account, the results might be different.
On the basis of the aforesaid remand report
the Appellate Assistant Commissioner examined the records of the transactions
and observed :
"There are five different transactions
of purchase and two transactions of sale in 1942.
The tempo of purchases and sales goes up from
1943. There are purchases of fifteen or twenty different dates in 1943. There
is a similar number of transactions in 1944. Many of the shares purchased in
1943 have been disposed of in 1944. Several scrips purchased in 1944 have been
sold within the year. The number of transactions is, in my opinion,
sufficiently numerous to show that the assessee is a dealer in shares."
There was an appeal then to the Tribunal. The Tribunal came to the conclusion
that so far as Government securities were concerned the assessee was obliged to
keep its large cash invested in Government securities and, therefore, so far as
these securities were concerned, the amount realised by their sale was not a
revenue receipt and should not be included in the total income of the assessee.
It held, however, that the assessee was a dealer in shares in 1944 and as to
the computation of the profits made on the sale of the shares, such profits
were correctly computed to be the difference between the original cost price of
the shares to the assessee at the time of purchase and the price realised at
the time of sale, and the Tribunal significantly added that this computation
was correct on the finding that the 976 assessee was a dealer not only in 1944
but from 1942onward.
We may here state that for the years prior to
the account year 1944, the department had treated the assessee as an investor
and not a dealer in shares and had made assessments accordingly for those
years. Those assessments have now become final.
When the matter went to the High Court on a
case stated by the Tribunal, the High Court observed that the crucial year was
the year 1943, for if the assessee was a dealer in shares since 1943 and sold
some of them in the account year 1944 and made profits thereon, then both the
questions referred to the High Court must be answered against the assessee. The
High Court re-framed the second question by substituting the words "in the
year 1943" for the words "in the years past". The High Court
further pointed out that in the exercise of its advisory jurisdiction it did
riot sit in appeal over the decision of the Tribunal that the assessee was a
dealer in shares in the year 1943. It also held that on the materials on record
it was open to the Tribunal to come to the conclusion that the assessee was a
dealer in shares in 1943 and as to the computation of profits it pointed out
that if the assessee was a dealer in 1943 also, then it was not open to the
assessee to say that the market value of the shares as on the opening day of
the year 1944 should be taken as the cost of the shares. Accordingly, the High
Court answered both the questions against the assessee.
Learned counsel for the appellant has
addressed us at length on both questions. However, it appears to us that by
reason of the re-framing of the second question, the two questions really merge
into one, namely, was the assessee a dealer in shares in 1943 and continued to
be such a dealer in 1944 which is the relevant account year ? The question no
doubt has two aspects. Firstly, there is the aspect whether there is any
evidence to justify the finding that the 977 assessee was a dealer in shares in
1943. ,Secondly, there is the aspect as to how the profits made from the sale
of shares in 1944 should be computed in the assessment year 1945-46. It is
however manifest that it' the assessee was a dealer in 1943 also, then the
principle laid down by this court in Commissioner of Income-tax v. Bai
Shirinbai K. Kooka (1), will not apply, for that decision proceeded on the
footing that the assessee of that case converted her investment shares into a
stock-in-trade and carried on a trading activity as from April 1, 1946, the
relevant account year being the financial year 1946-47. If the assessee in the
present case was a dealer in 1943, then nothing happened on the opening day of
the relevant account year, namely, January 1, 1944 and there is no reason why
the market value of the shares on that date should be taken into consideration
in computing the profits. Learned counsel for the assessee has however pressed
an argument which may now be stated. He has submitted that he is not arguing
that it was not open to the assessing authorities to consider the question
whether the assessee was a dealer in shares in 1944 which was the relevant
account year. What he contends is that it was not open to the taxing
authorities to consider and find that the assessee was a dealer in shares in
1943;
because for all years prior to 1944 the
department had already assessed the assessee on the footing that it was an
investor of shares and not a dealer and those assessments having become final
could be re-opened only either under s. 34 or s. 35 of the Act. The argument is
that in assessing the assessee for the account year 1944 it was open to the
department to treat the assessee as a dealer in 1944 but not for any earlier
year which was not the subject of the assessment proceedings Learned counsel
states that if he is right in his first contention, then the profits made on
the sale of shares in 1944 must be computed in the manner laid down in
Commissioner of Income-tax v. Bai Shirinbai K. Kooka(1), (1) [1962] Supp, 3
S.C.R. 391.
978 because the assessee will be treated as a
dealer for the first time in the relevant account year 1944.
The argument appears plaussible at first
sight and it may perhaps be conceded that the question of the computation of
profits in a case like this is not entirely free from difficulty. However, on a
very careful consideration of the argument we have come to the conclusion that
it is not worthy of acceptance. As to the first aspect of the question we see
no difficulty. The appellate Assistant Commissioner and the Tribunal have
referred to various transactions relating to shares shown in the books of the
assessee. From those transactions they came to the conclusion that the assessee
was a dealer in 1943. The High Court has also summarised the various
transactions in which the assessee indulged in the year 1943. Having regard to
the frequency and nature of those transactions it was open to the taxing
authorities to come to the conclusion that the assessee was a dealer in shares
in 1943. We are not prepared to say that the rule of "no evidence"
can be applied to the present case. We therefore consider that the High Court correctly
answered the question relating to this aspect of the case.
Now, as to computation of profits. Though it
is true that the question which directly arose before the taxing authorities in
the present case was' whether the assessee was a dealer in 1944, the question
of the position of the assessee in 1943 also arose in determining how the
profits made in 1944 should be computed. It is not therefore quite correct to
say that the position of the assessee in 1943 was completely outside the scope
of the assessment proceedings of 1945-46. In determining or computing the
profits made by the sale of shares in 1944, the assessing authorities had to go
into the question-did the assessee start its trading 979 activity on January 1,
1944 or did it start the trading activity at an earlier date ? If the assessee
was a dealer when the shares sold in 1944 were originally purchased, then
obviously the principle in Commissioner of Income-tax v. Bai Shirin Bai K.
Kooka (1), will not apply and the profits will be the excess of the sale price
over the original cost price. The extent to which a decision given by an Incometax
officer for one assessment year affects or binds a decision for another year
has been considered by courts several times and speaking generally it may be
stated that the doctrine of res judicata or estoppel by record does not apply
to such decisions; in some cases it has been held that though the Income-tax
officer is not bound by the rule of res judicata or estoppel by record, he can
re-open a question previously decided only if fresh facts come to light or if
the earlier decision was rendered without taking into consideration material
evidence etc. As to the argument based on ss. 34 and 35, it is enough to point
out that the assessment relating to the year 1943 is not being reopened. That
assessment stands. What is being done is to compute the profits of 1944, which
the assessing authorities could do, by finding out when the trading activity in
shares began? The question of the profits in 1944 was not and could not be the
subject of any assessment proceeding relating to 1943, for such profits arose
only on the sale of the shares in 1944.
In Broken. Hill Proprietary Company v. Broken
Hill Municipal Council (2), the question was one of the capital value of a mine
for rating purposes. This question of valuation as between the parties was
determined by the High Court of Australia in a previous year. But it was held
that the decision did not operate as res judicata. The reason given was :
"The decision of the High Court related
to a valuation and a liability to a tax in a previous (1) [1962] Supp. 3 S.C.R.
391.
(2) [1926] A.C. 94.
980 year, and no doubt as regards that year
the decision could not be disputed. The present case relates to a new
question-namely, the valuation for a different year and the liability for that
year. It is not eadem questio and therefore the principle of res judicata
cannot apply." In another decision reported in the same volume, Hoystead
v. Commissioner of Taxation (1), one of the questions was whether certain
beneficiaries under a will were joint owners. It was held that though in a
previous litigation no express decision had been given whether the
beneficiaries were joint owners, it being assumed and admitted that they were,
the matter so admitted was so fundamental to the decision then given that it
estopped the Commissioner. The latter decision was distinguished in Society of
Medical officers of Health v. Hope (2). Both the decisions were again
considered by the judicial Committee in Caffoor v. Income Tax Commissioner (3).
The decision in Broken Hill Proprietary Company's case (4), was approved and
the principle laid down was that in matters of recurring annual tax a decision
on appeal with regard to one year's assessment is said not to deal with eadem
questio as that which arises in respect of an assessment for another year and
consequently not to set up an estoppel. As to the decision in Hoystead's case
(1), it was stated :
"Their Lordships are of opinion that it
is impossible for them to treat Hoystead's case as constituting a legal
authority on the question of estoppels in respect of successive years of tax
assessment. So to treat it would bring it into direct conflict with the
contemporaneous decision in the Broken Hill case ; and to follow it would
involve preferring a decision, in which the particular point was either assumed
without (1) [1926] A.C. 155.
(2) [1960] A.C. 551.
(3) [1961] A.C 584.
(4) [1926] A.C, 94, 981 argument or not
noticed to a decision, in itself consistent with much other authority, in which
the point was explicitly raised and explicitly determined." In Installment
Supply (P) Ltd. v. Union of India (1) this court referred to the decisions just
mentioned and said that it was well settled that in matters of taxation there
would be no question of res judicata.
On the principle stated above, it seems to us
that it was open to the taxing authorities to consider the position of the
assessee in 1943 for the purposes of determining how the gains made in 1944.
should be computed, even though the subject of the assessment proceedings was
the computation of the profits made in 1944. The circumstance that in an
earlier assessment relating to 1943 the assessee was treated as an investor
would not in our opinion estop the assessing authorities from considering, for
the purpose of computation of the profits of 1944, as to when the trading
activity of the assessee in shares began. The assessing authorities found that
it began in 1943. On that finding the profits were correctly computed and the
answer given by the High Court to the question of the computation of the
profits was correctly given.
For these reasons the appeal fails and is
dismissed with costs.
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