Full Judgment Text
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PETITIONER:
THE NEW JAHANGIR VAKIL MILLSCO., LTD. BHAVNAGAR
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH,KUTCH & SAURASH
DATE OF JUDGMENT:
10/04/1963
BENCH:
DAS, S.K.
BENCH:
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 manu-
facturing 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.
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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.
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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,
JUDGMENT:
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
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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
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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 income-
tax
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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 Income-
tax officer on the ground that the materials in the record
were not adequate to decide the question. The 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
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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 twen-
ty 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
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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
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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
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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
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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
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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 Income-
tax 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
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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 im-
possible 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.
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(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.
(1) [1962] 2 S.C.R. 644
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