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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. 972 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  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 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               974               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  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.  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      976 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 977 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 979 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. 644 982