THE NEW JAHANGIR VAKIL MILLS CO. LTD. v. THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH,KUTCH & SAURASH
[Citation -1963-LL-0410-3]

Citation 1963-LL-0410-3
Appellant Name THE NEW JAHANGIR VAKIL MILLS CO. LTD.
Respondent Name THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH,KUTCH & SAURASH
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 10/04/1963
Assessment Year 1945-46
Judgment View Judgment
Keyword Tags revenue receipt • sale price • trading activity • original cost
Bot Summary: 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 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. 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. 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. 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. 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), 1962 Supp, 3 S.C.R. 391.


http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7 PETITIONER: NEW JAHANGIR VAKIL MILLSCO., LTD. BHAVNAGAR Vs. RESPONDENT: 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 sale-Res judicata, if appliable to matters of taxation -Taxing authorities if can consider position of assessee before assessment year. HEADNOTE: assessee appellant carried on business of manu- facturing and selling textile piece-goods. In assessment year 1945-46, Income-tax officer added to taxable income of assessee sum of Rs. 1,86,931 which was later on reduced to Rs. 1,23,840 as revenue receipt, representing amount by which sale price exceeded original cost of certain shares and securities purchased and sold by appellant. assessee was held to be dealer in shares and securities. contention of assessee was that it was not dealer in shares and securities in relevant account year or in years past and shares and securities were held by way of investment and investment surplus was in nature of capital receipt. Even if assessee was dealer in shares and securities in relevant account year, Income-tax officer committed error in matter of computation of profits in not taking market value of shares as at opening day of that year as cost thereof. Appellate Assistant Commissioner rejected contentions of appellant and held that number of transactions was sufficiently large to show that assessee was dealer in shares. Appellate Tribunal rejected contentions of appellant. These assertions were then referred to High Court and they were decided against assessec-appellant. 972 Held that assessee was dealer in shares and securities and income from their sale was revenue receipt and not capital receipt. profits of assessee were difference between original cost price of shares to assessee at time of purchase and price realized at time of sale. http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7 Held also that in matter of taxation, there was no question of resjudicata. It was open to taxing authorities to consider position of assessee in 1943 for purpose of determining how gains made in 1944 should be computed, even though subject of assessment proceedings was computation of profits made in 1944. circumstance that in earlier assessment relating to 1943, assessee was treated as investor would not estop assessing authorities from considering, for purpose of computation of profits of 1944, as to when trading activity of assessee in shares began. assessing authorities found that it began in 1943 and on that finding, 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 judgment and order dated April 1 1 and 12. 1960, of Bombay High Court in Income-tax Reference No. 52 of 1959. R. J. Kolah and I.N. Shroff, for appellant. K. N. Rajagopal Sastri, and R.N. Sachthey, for respondent. 1963. April 10. judgment of Court was delivered by S. K. DAS, J.-This is appeal on certificate of fitness granted by High Court of 973 Bombay under s. 66-A (2) of Indian Income-tax Act, 1922. New Jehangir Vakil Mills Co., Ltd.. Bhavnagar, appellant before us and called tile assessee, carried on business of manufacturing and selling textile piecegoods at Bhavnagar in former Bhavnagar State. present appeal is concerned with assessment year 1945-46, account year being calendar year 1944. In said assessment year Income-Tax officer concerned added to taxable income of assessee sum of Rs. 1,86,931/- (which was later reduced to Rs. 1,23,840/-) as revenue receipt, representing amount by which sale price exceeded original cost of certain shares and securities purchased and sold by appellant. It was held that in relevant account year in which shares were sold and profits made as also in preceding years, assessee was dealer in shares and securities. In respect of this addition of Rs. 1,23,840/- assessee raised two contentions. first contention was that it was not dealer in shares and securities in relevant account year or in years past and that shares and securities were held by way of investment and investment surplus was in nature of capital receipt. second contention was that even if assessee was dealer in shares and securities in relevant account year, Income-tax officer committed error in matter of computation of profits in not taking market value of shares as at opening day of that year as cost thereof. These were two questions along with third question http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7 which were referred to High Court under s. 66 (2) of Act. third question does not now survive, and therefore we set out below two questions which fall for decision in this appeal: 1. In event of surplus aforesaid being held to be income assessable to income- tax 974 whether income should be ascertained by taking market value of shares as at opening day of year as cost ? 2. Whether there is any evidence on record to justify Tribunal s finding that assessee company was dealer in shares not only in year under consideration but in years past ? Now, as to contention whether assessee was dealer or not in shares and securities in calendar year 1944 position appears to be that Income-tax officer found against assessee. There was appeal to appellate Assistant Commissioner who remanded case to Income- tax officer on ground that materials in record were not adequate to decide question. the remand proceedings assessee filed before Income-tax officer statements showing position of transactions relating to shares and securities from 1939 onward. These statements marked as annexure C form part of statement of case. In his remand report dated April 1, 1952 which is also part of statement of case, Income-tax officer examined purchase and sale of shares in different years by assessee and came to conclusion that assessee was dealer in shares at least from year 1942 by reason of frequency and multiplicity of transactions which assessee conducted since that year. It further pointed out that assessee had sold certain shares out of block of shares in year 1943, and after taking out price of shares realised in 1943, remaining amount was shown in balance sheet as value of remaining shares in each block. value of such shares as shown in balance sheet for 1943 was not cost price of assessee. In some cases it was below 975 cost. As result of this valuation in balance sheet, profits from sale of shares during 1945,46 would be Rs. 1,23,8401-. If, however, difference between sale price and market value of shares as on first day of account year was taken into account, results might be different. On basis of aforesaid remand report Appellate Assistant Commissioner examined records of transactions and observed : "There are five different transactions of purchase and two transactions of sale in 1942. tempo of purchases and sales goes up from 1943. There are purchases of fifteen or twen- ty different dates in 1943. There is similar number of transactions in 1944. Many of shares purchased in 1943 have been disposed of in 1944. Several scrips purchased in 1944 have been sold within year. number of transactions is, in my opinion, sufficiently numerous to show that assessee is dealer in shares." There was appeal then to Tribunal. Tribunal came to conclusion that so far as Government securities were http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7 concerned assessee was obliged to keep its large cash invested in Government securities and, therefore, so far as these securities were concerned, amount realised by their sale was not revenue receipt and should not be included in total income of assessee. It held, however, that assessee was dealer in shares in 1944 and as to computation of profits made on sale of shares, such profits were correctly computed to be difference between original cost price of shares to assessee at time of purchase and price realised at time of sale, and Tribunal significantly added that this computation was correct on finding that 976 assessee was dealer not only in 1944 but from 1942onward. We may here state that for years prior to account year 1944, department had treated assessee as investor and not dealer in shares and had made assessments accordingly for those years. Those assessments have now become final. When matter went to High Court on case stated by Tribunal, High Court observed that crucial year was year 1943, for if assessee was dealer in shares since 1943 and sold some of them in account year 1944 and made profits thereon, then both questions referred to High Court must be answered against assessee. High Court re-framed second question by substituting words "in year 1943" for words "in years past". High Court further pointed out that in exercise of its advisory jurisdiction it did riot sit in appeal over decision of Tribunal that assessee was dealer in shares in year 1943. It also held that on materials on record it was open to Tribunal to come to conclusion that assessee was dealer in shares in 1943 and as to computation of profits it pointed out that if assessee was dealer in 1943 also, then it was not open to assessee to say that market value of shares as on opening day of year 1944 should be taken as cost of shares. Accordingly, High Court answered both questions against assessee. Learned counsel for appellant has addressed us at length on both questions. However, it appears to us that by reason of re-framing of second question, two questions really merge into one, namely, was assessee dealer in shares in 1943 and continued to be such dealer in 1944 which is relevant account year ? question no doubt has two aspects. Firstly, there is aspect whether there is any evidence to justify finding that 977 assessee was dealer in shares in 1943. ,Secondly, there is aspect as to how profits made from sale of shares in 1944 should be computed in assessment year 1945-46. It is however manifest that it assessee was dealer in 1943 also, then 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 footing that assessee of that case converted her investment shares into stock-in-trade and carried on trading activity as from April 1, 1946, relevant account year being financial year 1946-47. If assessee in present case was dealer in 1943, then nothing happened on opening day of relevant account year, namely, January 1, 1944 and there is no reason why market value of shares on that date should be taken into consideration in computing profits. Learned counsel for assessee has however pressed argument which may now http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7 be stated. He has submitted that he is not arguing that it was not open to assessing authorities to consider question whether assessee was dealer in shares in 1944 which was relevant account year. What he contends is that it was not open to taxing authorities to consider and find that assessee was dealer in shares in 1943; because for all years prior to 1944 department had already assessed assessee on footing that it was investor of shares and not dealer and those assessments having become final could be re-opened only either under s. 34 or s. 35 of Act. argument is that in assessing assessee for account year 1944 it was open to department to treat assessee as dealer in 1944 but not for any earlier year which was not subject of assessment proceedings Learned counsel states that if he is right in his first contention, then profits made on sale of shares in 1944 must be computed in manner laid down in Commissioner of Income-tax v. Bai Shirinbai K. Kooka(1), (1) [1962] Supp, 3 S.C.R. 391. 978 because assessee will be treated as dealer for first time in relevant account year 1944. argument appears plaussible at first sight and it may perhaps be conceded that question of computation of profits in case like this is not entirely free from difficulty. However, on very careful consideration of argument we have come to conclusion that it is not worthy of acceptance. As to first aspect of question we see no difficulty. appellate Assistant Commissioner and Tribunal have referred to various transactions relating to shares shown in books of assessee. From those transactions they came to conclusion that assessee was dealer in 1943. High Court has also summarised various transactions in which assessee indulged in year 1943. Having regard to frequency and nature of those transactions it was open to taxing authorities to come to conclusion that assessee was dealer in shares in 1943. We are not prepared to say that rule of "no evidence" can be applied to present case. We therefore consider that High Court correctly answered question relating to this aspect of case. Now, as to computation of profits. Though it is true that question which directly arose before taxing authorities in present case was whether assessee was dealer in 1944, question of position of assessee in 1943 also arose in determining how profits made in 1944 should be computed. It is not therefore quite correct to say that position of assessee in 1943 was completely outside scope of assessment proceedings of 1945-46. In determining or computing profits made by sale of shares in 1944, assessing authorities had to go into question-did assessee start its trading 979 activity on January 1, 1944 or did it start trading activity at earlier date ? If assessee was dealer when shares sold in 1944 were originally purchased, then obviously principle in Commissioner of Income-tax v. Bai Shirin Bai K. Kooka (1), will not apply and profits will be excess of sale price over original cost price. extent to which decision given by Income- tax officer for one assessment year affects or binds decision for another year has been considered by courts several times and speaking generally it may be stated that doctrine of res judicata or estoppel by record does not http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7 apply to such decisions; in some cases it has been held that though Income-tax officer is not bound by rule of res judicata or estoppel by record, he can re-open question previously decided only if fresh facts come to light or if earlier decision was rendered without taking into consideration material evidence etc. As to argument based on ss. 34 and 35, it is enough to point out that assessment relating to year 1943 is not being reopened. That assessment stands. What is being done is to compute profits of 1944, which assessing authorities could do, by finding out when trading activity in shares began? question of profits in 1944 was not and could not be subject of any assessment proceeding relating to 1943, for such profits arose only on sale of shares in 1944. In Broken. Hill Proprietary Company v. Broken Hill Municipal Council (2), question was one of capital value of mine for rating purposes. This question of valuation as between parties was determined by High Court of Australia in previous year. But it was held that decision did not operate as res judicata. reason given was : "The decision of High Court related to valuation and liability to tax in previous (1) [1962] Supp. 3 S.C.R. 391. (2) [1926] A.C. 94. 980 year, and no doubt as regards that year decision could not be disputed. present case relates to new question-namely, valuation for different year and liability for that year. It is not eadem questio and therefore principle of res judicata cannot apply." In another decision reported in same volume, Hoystead v. Commissioner of Taxation (1), one of questions was whether certain beneficiaries under will were joint owners. It was held that though in previous litigation no express decision had been given whether beneficiaries were joint owners, it being assumed and admitted that they were, matter so admitted was so fundamental to decision then given that it estopped Commissioner. latter decision was distinguished in Society of Medical officers of Health v. Hope (2). Both decisions were again considered by judicial Committee in Caffoor v. Income Tax Commissioner (3). decision in Broken Hill Proprietary Company s case (4), was approved and principle laid down was that in matters of recurring annual tax 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 assessment for another year and consequently not to set up estoppel. As to 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 legal authority on question of estoppels in respect of successive years of tax assessment. So to treat it would bring it into direct conflict with contemporaneous decision in Broken Hill case ; and to follow it would involve preferring decision, in which particular point was either assumed without (1) [1926] A.C. 155. http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7 (2) [1960] A.C. 551. (3) [1961] A.C 584. (4) [1926] A.C, 94, 981 argument or not noticed to decision, in itself consistent with much other authority, in which point was explicitly raised and explicitly determined." In Installment Supply (P) Ltd. v. Union of India (1) this court referred to decisions just mentioned and said that it was well settled that in matters of taxation there would be no question of res judicata. On principle stated above, it seems to us that it was open to taxing authorities to consider position of assessee in 1943 for purposes of determining how gains made in 1944. should be computed, even though subject of assessment proceedings was computation of profits made in 1944. circumstance that in earlier assessment relating to 1943 assessee was treated as investor would not in our opinion estop assessing authorities from considering, for purpose of computation of profits of 1944, as to when trading activity of assessee in shares began. assessing authorities found that it began in 1943. On that finding profits were correctly computed and answer given by High Court to question of computation of profits was correctly given. For these reasons appeal fails and is dismissed with costs. (1) [1962] 2 S.C.R. 644 982 NEW JAHANGIR VAKIL MILLS CO. LTD. v. COMMISSIONER OF INCOME-TAX, BOMBAY NORTH,KUTCH & SAURASH
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