1963 (4) TMI 60 - SC - Income Tax

In the event of the surplus being held to be income assessable to income-tax 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? 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 ? Held that - Appeal dismissed. 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 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.

Issues Involved:

1. Whether the assessee was a dealer in shares and securities in the relevant account year 1944 and in the years past.
2. The correct method of computing profits from the sale of shares in the assessment year 1945-46.

Detailed Analysis of the Judgment:

1. Whether the assessee was a dealer in shares and securities in the relevant account year 1944 and in the years past:

The Income-tax Officer initially found that the assessee was a dealer in shares and securities. This decision was appealed to the Appellate Assistant Commissioner, who remanded the case back to the Income-tax Officer due to inadequate materials on record. Upon remand, the assessee provided statements detailing transactions from 1939 onwards. The Income-tax Officer, in his remand report, concluded that the assessee had been a dealer in shares since at least 1942, based on the frequency and multiplicity of transactions.

The Appellate Assistant Commissioner, upon reviewing the remand report, observed numerous transactions in 1942, 1943, and 1944, indicating that the assessee was a dealer in shares. The Tribunal upheld this finding, distinguishing between Government securities and shares, and concluded that the assessee was a dealer in shares in 1944.

The High Court, upon reviewing the Tribunal's findings, reframed the second question to focus on the year 1943. It held that there was sufficient evidence for the Tribunal to conclude that the assessee was a dealer in shares in 1943 and thus in 1944. The High Court answered both questions against the assessee.

2. The correct method of computing profits from the sale of shares in the assessment year 1945-46:

The core issue was whether the profits should be computed based on the market value of shares as on the opening day of the year 1944 or the original cost price. The Tribunal and the High Court held that if the assessee was a dealer in shares in 1943, the profits should be computed as the difference between the original cost price and the sale price.

The assessee argued that since it was treated as an investor in previous years, the market value on the opening day of 1944 should be used. However, the court noted that the position of the assessee in 1943 was relevant to determine how the profits in 1944 should be computed. The principle from Commissioner of Income-tax v. Bai Shirinbai K. Kooka was distinguished, as it applied to a case where the trading activity began in the relevant account year.

The court emphasized that the doctrine of res judicata does not apply to income tax assessments for different years. The assessment for 1943 was not being reopened; rather, the position in 1943 was considered to compute the profits for 1944. The court cited several precedents to support the principle that decisions in one assessment year do not estop the authorities from considering relevant facts in another year.

Conclusion:

The Supreme Court upheld the findings of the lower authorities and the High Court, concluding that the assessee was a dealer in shares in 1943 and 1944. Consequently, the profits for 1944 were correctly computed as the difference between the original cost price and the sale price. The appeal was dismissed with costs.

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