THE NEW JAHANGIR VAKIL MILLS CO., LTD. BHAVNAGAR versus THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH & SAURASHTRA, AHMEDABAD

1963

A;ril JO.

2 S.C.R. SUPRENIE COURT REPORTS

971

THE NEW JAHANGIR VAKIL MILLS co.,-LTD. BHAVNAGAR

v.

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 the sale-Res judicata, if appliable ta matters of taxation at if can consider position of assessee -Taxing authorities before the assessment year.

The assessee appellant carried on the business of manu facturing and selling In the assessment textile pit-ce·goods. 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,

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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

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 'l'he assessing authoritirs found that it began in 1943 and on that finding, the profits were correctly computed.

in shares began.

(}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

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I as J.

S. K .. DAR, ].-This is an appeal on a certi· ficate of fitness granted by the High Court of

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/.

2 S.G.it SUPREME COURt REPORTS 973

the

the

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 In the account year being the calendar year 19±4. Income-Tax Officer year said assessment concerned added to 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.

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These were the two questions along with a the High third question which were referred to 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

974 SUPREME COURT REPORTS [1964) VOL.

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.

income should be ascer

whether the tained by the market value of the shares as at the openi11g day of the year as the cost ?

taking

2. Whether there is anv evidence on record justify the Trib~nal's finding that the to assessee company was a dealer in shares not only in the year under consideration but in the years past ? .

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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 dealer conclusion in shares at least from the year 1942 by reason of the frequency transactions which asscssee conducted since It further pointed out that the assessee that year. 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

and multiplicity the

assessee was

that

the

the

of

a

s.c.R.. SUPREME COURT REPORTS cost. As a result of this valuation in the balance sheet, the profits from the sale of shares during 1945· If, however, the diffe· l,i3,840/·. 46 would be Rs. 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.

975

On the basis of the aforesaid remand report the the

Appellate Assistant Commissioner · examined records of the transactions and observed :

19(;9

New /akanlir Vakil Mills Co., Ltd. Bhaonagar v.

Commissioner of 'Income-tax, Bombay North, Kutth & Sau· tashtra, Ahmedabad

Das J.

"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."

the

their

the conclusion

There was an appeal then to the Tribunal. The that so far as Tribunal came to the asses see Government securities were concerned was obliged to keep its large cash invest~d in Govern ment securities and, therefore, so far as these securi concerned, ties were reali sed by sale was not a revenue receipt and should not be included in the total income of the that the assessee was a a.ssessee. 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

It held, however,

amount

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JHJ

}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.

assessee was a dealer not on! y in l!J44 but from 1942 onward. \Ve may .here state that for the years prior to the account year l!)H, the department had treated the assessee as an investor and not a dealer in shares and had made assessments accordingly for those years. 'I hose 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 wa~ the year l 94il, for if the assessee was a dealer in shares since 1943 and sold some of them in the account year l!l44 and made profits thereon, then both the questions referred to the High Court must be 'answered against the asses see. The High Court re-framed the second question by substituting the words "in the year l!J43" for the words "in the years past". The High Court further pointed out that in the exercise of its advisory juris· diction it did uot sit in appeal over the decision of the Tribunal that the asscssee was a dealer in shares It also held that on the materials in the year 1943. on record it was opeu 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 taken as the cost of the shares. Accordingly, the High Court answered both the questions against the asscssee.

I !H4 should be

Learned counsel for the appellant has addressed us at length on both questions. However, it appears to us that hy reason of the re-framing of the second question, the two questions really merge into one, namely, was the ~essec a dealer in shares in 194 3 and continued to be such a dealer in 11144 which is the relevant account year ~ The question no doubt has two aspects. Firstly, there is the aspect whether there i; any evidence to justify the finding that the

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1963

New· Jalwnzir V •kil Mills Cn, Ltd. Bha1JT1agar v. Commissiontr of lncome~tax, Bombay North, Kutch & Sau~ rashlra, Ahmeda6ad

Das J.

\, .. .

•

2·S.C.ll.

SUPREME COURT REPORTS 077

in

her

investment

·shares m

the sale of shares

the assessment year 1945·46.

assessee was a dealer 1943 . Secondly, there is the: aspect as to how the profits in 1944 should be made from It is computed in however manifest that if the assessee was a dealer in HJ43 also, then the principle laid down by this court in Commissioner OJ lncorne-tax v. Bai Shirin bai K. Kooka (1 ), will not apply, for that decision proceeded on the footing that the assessee of that shares into a case converted stock-in-trade and carried on a trading activity as from April 1, 1946, the relevant account, year If the assessee in being the financial year 1946-4 7. 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 the assessee has how profits. Learned counsel for ever 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 Com missioner of Income-tax v. Bai Shirinbai K. Kooka( 1

),

ti) [19621 Supp. 3 s.c.R. !9lo

........

/96J

Jfov l•Mtitir Y.Ail Mills C•. ltd. Blwn(Jt•' •• <Awunilsion.r of f&DllfU·llJJt, Bombay North, Kutch ft1 s.z.. 11Jhlr•, Alrmedaid

/)., /.

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978 SUPREME COURT REPORTs [1964] Vot·

the assessee will be treated as a dealer relevant account year

time in

the

the first

because for 1944.

The argument appears plaussi ble 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 sec no difficulty. The appellate Assistant Commissioner and the Tribunal have referred to various transac· in the books of the tions relating to shares shown assessee. From those transactions thev came to the conclusion that the assessee was a de~ler in 1943. The High Court has also summarised the various transactions in which the assessee indulged in the year 1943. Having regard 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 arc 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.

to the

of also

the assessee was a

Now, as to computation of profits. Though it is true that the question which directly arose' the present case was before the taxing authorities in dealer in 1944, the whether assessee the pos1uon 9uestion m 1943 the arose It is not profits made in 1944 should be computed. therefore quite correct to say that the position of the assessee in 1943 was completely outside the scope of the assessment proceedings of 1945-4fi. In deter mining 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

determining . how

the

of

in

1993

New Jahan:ir Vckil Alt/ls Co, Ltd. Bh1vn111ar •• C1mmissi1n,, •f Inc.me-t•x, •omb•y .Nsrth, Kutch f'i Sttu raJhtra, Ahmeclabtid

...

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2 S.C.R. SUPREME COURT REPORTS

979

activity on January I, 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 Commi ssioner of Income-tax v. Bai Shirin Bai K. Kooka ), will not apply and the profits will be the excess 1 ( of the sale price over, the original cost price. The extent to which a decision 5iven by an Income-tax 0 fficer 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 the rule of res judicdta or Officer is not· bound by 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 to the year point out that the assessment relating 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. !Jroken Hill Municipal Council (2 ), the question wa~ 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

(I) [1962) Supp. S 8.0.R. 391.

(2) [11126] A.O. 94.

196>

,,V1w J~ir Vakil ,\fiJls Co., Lid Bliat11agor v. rommimOfltr of lrJCme-lox, ButnbaJ Nerllt, Kutch & Sou rahlr•, A.hnudlbd

Da.s ,J.

980 SUPREME COURT REPORTS [1964] VOL. ·

year, and no doubt as regards that year the <lecision could not be disputed. The present case relates to a new question-namely, the valuation for a different year and the liability It is not eadem questio and for that year. therefore the principle of ·res j111lioota cannot apply.''

In another decision reported in the same volume, Hoystead v. Commissioner of 1'11xatio11 (1 ), one of the questions was whether {;ertain beneficiaries under It was held that though a will were joint owners. in a previous litigation no express decision had been the beneficiaries were joint owners, given whether it being assumed and admitted that they were, the matter so admitted was so fundamental Lo the decision then given that it estopped the Commissioner. The latter decision was distinguished in Society of Medicfll Officers of Health v. I/ope ('). Both the decisions were again considered by the Judicial Committee in Cajfoor v. 'l'ax Cmmnissio ner (8). The decision in Broken Hill Proprietary Company's ca.~e ('),was approved and thr. 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 to set up an another year and consequently not estoppel. As to the decision in Eloyste;;d's case (1), it was stated :

Income

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"Their Lordships arc of opinion that it is im possible for them to treat lloyste,(l{/,'s wse as constituting a legal authority on the question of estoppcls in respect of successive years of tax treat it would bring it into assessment. So to the contemporaneous direct conflict with decision in the Broken llill case ; and Lo follow it would involve preferring a decision, in which the particular point was either assumed without

•

(ll (1926] A.C. 1~5. (S)( 1961) A.O. 584,

C2Hl960] A.C. 551. (6) (1921) A.C, 9',

1963

~New Jahangir Vakil Mills Ca., Ltd. Bhav1tagar v. Gommissioner of lncome·tax, Bombay North, /(utch & 3au· rashtra, Ahmerlabad

Das J.

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2 S.C.R.

SUPREME COURT REPORTS

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 Instalment 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 judica~a.

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 19H 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 assess ment relating to 1943 the assessee was treated as an investor would not in our opinion estop the assessing from considering, for the purpose of authorities 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 answ~r 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 dismis

sed with costs.

11i [IQ62J 2 a.c.a. a~.