The New Jahangir Vakil Mills Co., Ltd. Bhavnagar v. The Commissioner Of Income-Tax, Bombay North, Kutch & Saurashtra, Ahmedabad

2 S.C.R. SUPRENIE COURT REPORTS THE NEW JAHANGIR VAKIL MILLS co.,-LTD. BHAVNAGAR THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH & SAURASHTRA, AHMEDABAD (S. I\. DAS, A. K. SARKAR and M. HIDAYATULLAJI jj.) Income Tax-Aase,.ee dealer in shares and securities-In-come 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 ta matters of taxation -Taxing authorities if can consider position of assessee before the assessment year. The assessee appellant carried on the business of manu-facturing and selling textile pit-ce·goods. In the assessment year 1945-46, the Income-tax Officer added to the taxable income of the assessee a sum of Rs. L86,931 which \-Vas later on reduced to Rs. 1,23,840 as a revenue receipt, representing an amount by which the sale price exceeded the orginal cost of certain shares and securities purchased and sold by the appellant. The assessee was held to be a dealer in shares and sec,µrities. The contention of the a'isessee 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 1narket value of the shares as at the opening day of that year as the cost thereof. The Appellate Assistant Commssioner rejected the contentions of the appellant and held that the number of transactions was sufficiently large to show that the assess<e 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 assesscc-appellant, A;ril JO. 1963 N1w JtWM:ir Vokii Mill• C.., l.td llhaunag~r v. Commi;siOAtr of /nCfmt ·tax, B•mha1 NMlii Ku1c .. , &! Sau· ra1h1,a, !lmtttlabad I as J. 972 SUPREME COURT REPORTS (1964] VOL. Held that the asscssee ,,·as a dealer in shares and securities and the income from their sale \\·.as a rcvr.nue receipt and not capital receipt. The profits of the assessee were the difference bet\\'Cr.n the original cost prict· of the shares to the assessce at the time of purchase and thr price rcalizec.J at the tiine of sale. field also that in the nlattcr or taxation, there \'/as no question of resjudicata" It \V<lS open to the taxing auth·,rities to consider the position of the aS!es'ce in 1943 for the purpose of detrrmining hov.· 1he gains made in 1944 should be com-puted, even though the suh_ject of the assessmcut proceedings \\'as the cornputation of the profits n1a<le in 1914. l"hc circu-mstance that in an t"arlicr assessment relating to 1943, the assessee \\'as treated as an investor \VOuld not estop the assessin~ authorities from consirle1 in~, for the purpose of computation of the profits of 194·1 1 as to when thr: trading activity of the assesscc in shares began. 'l'he assessing authoritirs found that it began in 1943 and on that finding, the profits were correctly computed. (}ornmissioner of Income-tax v. Bai ,<)hiriHbai K. Kooka, 11952] Supp. 3 S.C.R. 391, Broken l/ill Prop<rly Company v. Broken Hill Municipal Council, [1926] A.C. 94, Hoyst<ad v. Commi-.q°<mcr n.f Tu.ration, [ 1926] A.C. 15:>. Society of Medical Officu of lle"lth v. Hope, (1960] AC. 551, Cuffonr v. Inr.mne· tax Commi,.oimier, ( 1961 J A.C. 584 and ln .. talme11t Supply (l') Ltd. v. Union of India, [1962] 2 S.C .. R. 644, referred to. Cn·rr, APPELLATE Jc!USDIC'l'Io:>": Civil Appeal No. 445 of 1962. Appeal from the judgment and order dated April I I and 12. I !JOO, of the Bombay High Court in Income-tax Reference ;\lo. :i2 of 195!!. R . ./. l<:f!/Jih and /.S. Shroff, for the appellant. K. N. Rrijugf!pnl Sastri, anJ H.S. Sachthey, for the respondent. 1963. April 10. The .Judgment of the Court was delivered by S. K .. DAR, ].-This is an appeal on a certi· ficate of fitness granted by the High Court of 2 S.G.it SUPREME COURt REPORTS 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 the 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 19±4. 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 tthe shares were sold and profits made as also in the wo preceding years, the assessee was a dealer in 8hares 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 ~hares 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 income-tax 1963 NeUJ Jahan.gir Vdil MillJ Co., Lid. Bharma1ar v, Commissiontr f1j Income-tax, Bombtiy North, K11.t&h & Sau· rashJra, ~hmrd.Oa-1 Das/. 1963 New faMngu l"ahJ 1'J1lls (.o., Ltd Bh~:1:11oga1 v. Commi..ssion11 of lncrnne·lox, Bc.mboy North, J(ulclJ & Sau-ro.slitra, AhmttJabod Das J. 974 SUPREME COURT REPORTS [1964) VOL. whether the income should be ascer-tained by taking the market value of the shares as at the openi11g day of the year as the cost ? Whether there is anv evidence on record to justify the Trib~nal's finding that the assessee company was a dealer in shares not only in the year under consideration but in the years past ? . 1944 . Now, as to the contention whether the asscssee was a dealer or not in shares 1nd securities in the calendar year I UH the position appears to be that the Income-tax Officer found against the assessce. There was an appeal 10 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. In the remand proceedings the asscssec 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 I, 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 <tssessee 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 asscssee 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 remai-ning shares in each block. The value of such shares as shown in the balance sheet for 19·!3 was not the cost price of the assessce. In some cases it was below SUPREME COURT REPORTS 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. l,i3,840/·. If, however, the diffe· rence 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 concerned the asses see was obliged to keep its large cash invest~d in Govern-ment securities and, therefore, so far as these securi-ties were concerned, the amount reali-sed by their sale was not a revenue receipt and should not be included in the total income of the a.ssessee. 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 pro· fits were correctly computed to be the difference bet-ween the original cost price of the shares to the. asaes-see at the time of purchase and the price.realised at the time of sale, and the Tribunal sign.1ficantly added that this computation was correct on the finding that the 19(;9 New /akanlir Vakil Mills Co., Ltd. Bhaonagar v. Commissioner of 'Income-tax, Bombay North, Kutth & Sau· tashtra, Ahmedabad Das J. }if1w Jahangir Vuki• .~1iUs Co , l.t1 Bhaunoiar y, l'cmmiSJi3'fn of lnCAm•· la.(, Bombay JVorlh Kutch & Sau· rasJrtra_ Alimllafftl Das J. 976 SUPREME COURT REPORTS (1964] VOL.