ITA no.1 of 2017 IN HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE Deeplok Financial Services Ltd. Versus Commissioner of Income Tax-II, Kolkata BEFORE: Hon ble JUSTICE ANIRUDDHA BOSE Hon'ble JUSTICE ARINDAM SINHA Date: 4th April, 2017. Mr. Sharma, Adv. ..for Assessee. Mr. Lodhe, Adv. ..for Revenue. Arindam Sinha, J.: assessee being aggrieved by order dated 27th November, 2015 passed by Income Tax Appellate Tribunal, Kolkata Bench, Kolkata, in ITA no.1279/KOL/2010 pertaining to assessment year 2006-07 has preferred this appeal. substantial question of law suggested by assessee is as follows:- Whether on facts and circumstances of case Tribunal erred in affirming order of AO disregarding conversion of trading shares into investment shares and treating long term capital gain of Rs.22,27,819/- arising from sale of those shares as profit of trading in shares and bringing same to tax? assessee is company which is engaged in business of leasing, finance and investment. On 1st April, 2004, i.e. during previous assessment year 2005-06 following shares were transferred by assessee from its trading stock into investments:- 1. Hind Lever Chem Limited 10,370 shares; 2. Chambal Fertilisers Chem Limited 38,000 shares; 3. Eveready Industries Limited 14,580 shares; and 4. Shrachi Securities Limited 48,000 shares. Out of above shares, entire shares of Hind Lever Chem Ltd. and Shrachi Securities Ltd. and 5,000 shares of Chambal Fertilisers Chem Ltd. were sold by assessee in previous year relevant to assessment year 2005-06. balance 33,000 shares of Chambal Fertilisers Chem Ltd. and 14,580 shares of Eveready Industries Ltd. were sold by assessee during year under consideration and profits arising from sales were claimed to be exempted from tax as long term capital gains. In assessment completed under section 143(3) for previous assessment year, claim of assessee for conversion of shares from stock-in-trade into investment was not accepted by Assessing Officer. That decision was appealed against and carried up to Tribunal which confirmed same. assessee though preferred delayed appeal to this Court but was unsuccessful in having delay condoned and thereby lost that right of appeal. For assessment year under consideration Assessing Officer following assessment order of previous year held accordingly on this claim of conversion by assessee. CIT(A) allowed assessee s appeal but on further appeal, Tribunal by impugned order held as follows:- It is true that in various judicial pronouncements cited by ld. Counsel for assessee, conversion of shares from stock in trade into investment has been accepted despite there being no specific provision to recognize such conversion. However, in asessee s own case, Tribunal has not accepted such conversion in immediately preceding year, i.e. A.Y. 2005-06 and it, therefore, follows that shares sold by assessee during year under consideration continued to constitute its stock-in-trade and not investment. Consequently profit arising from sale of said shares, in our opinion, is chargeable to tax in hands of assessee as its business income as rightly held by Assessing Officer and not long- term capital gain as held by ld. CIT(Appeals). We, therefore, set aside impugned order of Ld. CIT(Appeals) on this issue and restore that of Assessing Officer. appeal of Revenue is accordingly allowed. So it was that appeal was admitted on following substantial question of law formulated. Whether Tribunal was correct in holding that profit arising from sale of said shares is chargeable to tax in hands of assessee as its business income and not long term capital gain since in assessee s own case in previous assessment year conversion of shares was not accepted by Tribunal? We however intend to answer both above questions upon having heard parties in this appeal. Mr. Sharma, learned Advocate appeared on behalf of assessee and submitted, conversion claimed by his client, of shares as stock-in- trade into investment, had been shown in books to be conversion at fair market value of shares as on date of conversion. He relied on several decisions, first of them being in case of Sir Kikabhai Premchand vs. CIT reported in (1953) 24 ITR 506 (SC) to submit, Supreme Court had held that person cannot transact with himself. It is only after asset is dealt with to third party can profit or loss be ascertained on basis thereon. There was no bar imposed by Income Tax Act, 1961 on assessee from converting its stock-in- trade into investment. That conversion could not be deemed to be transaction but when asset is dealt with, profit or loss is to be ascertained and in case of capital asset, if there is profit then to be assessed as capital gain. That if shares be disposed of at value other than value at which it was transferred from business stock, question of capital loss or capital gain would arise. He also relied on case of CIT vs. Dhanuka & Sons reported in (1980) 124 ITR 24 (Cal) by which Division Bench of this Court on considering Kikabhai Premchand (supra) and several other judgments had expressed:- 14. Further, in our view, there cannot be any actual profit or loss in such transfers where no third party is involved and items are kept in different account of assessee himself. question of gain or loss would arise in facts of instant case only in future when stocks transferred to investment account might be dealt with by assessee. If such shares be disposed of at value other than value at which it was transferred from business stock, question of capital loss or capital gain would arise. He submitted, assessee could convert its stock-in-trade into investment. There being no provision in law for same could not be interpreted to be bar. So much so that CBDT by its Circular no.6/2016 dated 29th February, 2016 had said in paragraph 3 therein as follows:- 3 . (a) . (b) In respect of listed shares and securities held for period of more than 12 months immediately preceding date of its transfer, if assessee desires to treat income arising from transfer thereof as Capital gain, same shall not be put to dispute by Assessing Officer. However, this stand, once taken by assessee in particular Assessment Year, shall remain applicable in subsequent Assessment Years also and taxpayers shall not be allowed to adopt different/contrary stand in this regard in subsequent years; (c) . On point of resjudicata Mr. Sharma relied on case of Snow White Food Products Co. Ltd. vs. CIT reported in (1982) 10 Taxman 37 (Cal), in particular to extracted portion from paragraph 10 of that judgment. In any event, it is well settled that principles of res judicata are not applicable in revenue matters and findings of fact in earlier year are not binding in assessments in subsequent years and can be resisted on new evidence. Mr. Lodhe, learned Advocate appeared on behalf of Revenue and submitted that neither above questions were substantial questions of law nor were they involved in this case because when in previous assessment year claim of conversion by assessee was turned down by Tribunal, assessee s delayed appeal was dismissed by Division Bench of this Court on 5th May, 2015 on reason of choice made by assessee. petitioner made conscious choice of not preferring appeal and accepting order, which is now sought to be challenged. When petitioner chose not to prefer appeal at appropriate time, he cannot be allowed to file appeal after expiry of more than 1500 days simply because he is now advised otherwise. It is not case where petitioner was prevented from presenting appeal within period of limitation. It is case where petitioner chose not to challenge order within prescribed period of limitation. Therefore, we are not inclined to admit appeal after such long delay. That being position Tribunal did not commit any error in restoring order of Assessing Officer on claim since said claim stood rejected in previous assessment year. He also relied on said circular dated 29th February, 2016 to submit that once shares of assessee were treated as part of stock-in-trade, same shall remain applicable in subsequent assessment years and assessee should not be allowed to adopt different and contrary stand in subsequent years. Section 45(2) of Act provides for conversion by owner of capital asset into or its treatment by him as stock-in-trade of business carried on by him as chargeable to income-tax as income of his previous year in which such stock-in-trade is sold or otherwise transferred by him and fair market value of asset on date of such conversion or treatment shall be deemed to be full value of consideration received or accruing as result of transfer of capital asset. Act however does not provide for conversion of stock-in-trade into capital asset. Whether or not such omission would operate as bar on assessee is question that can be answered on basis of view taken by learned Single Judge of this Court in case of Maniruddin Bepari vs. Chairman of Municipal Commissioners, DACCA decided on 16th April, 1935 and reported in 40 Calcutta Weekly Notes (CWN) 17 being as follows:- It is fundamental principle of law that natural person has capacity to do all lawful things unless his capacity has been curtailed by some rule of law. It is equally fundamental principle that in case of statutory corporation it is just other way. corporation has no power to do anything unless those powers are conferred on it by statute which creates it. This view finds support from Kikabhai Premchand (supra) where situation at hand was contemplated as would appear from following as expressed in dissenting view: When asset is withdrawn from stock-in-trade of business position in my opinion would be no different. So far as this business is concerned asset would go out and cease to be part of its stock-in-trade and this again would be measure of profit or loss as case may be of business qua that particular asset . In Dhanuka & Sons (supra) same situation was contemplated where on stock transferred in investment account, question of capital loss or capital gain, was held, would arise if such shares be disposed of at value other than value at which it was transferred from business stock. We, on noticing that Tribunal did not really hold otherwise but had held against assessee on point of resjudicata, had formulated above question. Nevertheless for reasons aforesaid we answer question suggested by assessee in affirmative and in its favour. In that regard said circular dated 29th February, 2016 has no application because assessee s stand was not accepted by Revenue. So far as formulated question relating to resjudicata is concerned, in answering same reference may be had to decision in Amalgamated Coalfields Ltd. & Anr. vs. Janapada Sabha Chhindwara reported in AIR (1964) SC 1013 in which Supreme Court said, inter alia, as follows:- ..Where liability of tax for particular year is considered and decided does decision for that particular year operate as res judicata in respect of liability for subsequent year? In sense, liability to pay tax from year to year is separate and distinct liability; it is based on different cause of action from year to year, and if any points of fact or law are considered in determining liability for given year, they can generally be deemed to have been considered and decided in collateral and incidental way. trend of recent English decisions on whole appears to be, in words of Lord Radcliffe, that it is more in public interest that tax and rate assessments should not be artificially encumbered with estoppels (I am not speaking, of course, of effect of legal decisions establishing law, which is quite different matter), even though in result, some expectations may be frustrated and some time wasted. (vide Society of Medical Officers of Health v. Hope Valuation Officer[[1960] 2 W.L.R. 404, 563.]. basis for this view is that generally, questions of liability to pay tax are determined by Tribunals with limited jurisdiction and so, it would not be inappropriate to assume that if they decide any other questions incidental to determination of liability for specific period, decisions of those incidental questions need not create bar of res judicata while similar questions of liability for subsequent years are being examined . That apart, this assessee lost its right of appeal to this Court on question arising in previous assessment year on account of delay in preferring same. There was no adjudication on merits, of its claim of conversion, on appeal to High Court. only reason given by Tribunal in rejecting claim of assessee for previous assessment year, as would appear from its order dated 13th May, 2011 (copy handed up), is that to Tribunal it appeared there is no provision in Act in respect of conversion of stock-in-trade into investment and its treatment. Hence, it held that lower authorities rightly made addition as there was understatement of income by analyzing assessee s trading and investment account in shares. Thus, before us there is no impediment for assessee to seek adjudication on point. question formulated is answered accordingly and in favour of assessee. appeal is disposed of. (Aniruddha Bose, J.) (Arindam Sinha, J.) Deeplok Financial Services Ltd. v. Commissioner of Income-tax-II, Kolkata