1956 (4) TMI 66 - HC - Income Tax

Summary

Issues Involved:
1. Whether there is material to support the finding that the assessee was a dealer in shares and securities and therefore liable to be taxed.
2. Whether the Appellate Tribunal could hold that the profits from the transactions amounted to business profits and were liable to be taxed, given the findings in respect of the 1941-42 assessment.

Issue-wise Detailed Analysis:

1. Material to Support the Finding of Dealer in Shares and Securities:
The court examined whether there was material to support the Appellate Tribunal's finding that the assessee was a dealer in shares and securities. The assessee, a zamindar, had been involved in purchasing shares and securities from 1930-31 onwards. The Appellate Tribunal divided the assessment periods into three: 1930-31 to 1940-41, 1941-42 to 1943-44, and 1944-45 to 1948-49.

During the first period, there were purchases but no sales except in 1938-39, which were initially included in the income but later excluded as capital accretion. In 1940, the assessee arranged an overdraft with the Mercantile Bank and subsequently received Rs. 10,00,000 from his brother, which was used for purchasing shares. Separate account books were maintained for these transactions.

In the second period, there were purchases and sales, and the Income-tax Officer considered the profits as business profits. However, the Appellate Tribunal, considering the arrangement with the bank and the advance from the assessee's brother, concluded that the assessee was a prudent investor and not engaged in business.

In the third period, the Appellate Tribunal found the net profits from share transactions for the years 1944-45 to 1948-49 to be business profits. The Tribunal considered the substantial borrowing, the involvement of the assessee's brother's expert personnel, and the systematic and habitual dealing in shares as indicators of business activity. The Tribunal concluded that the assessee was engaging in an operation of business in a regular scheme of profit-making.

The court emphasized that it does not sit in appeal over the Tribunal's decision and that if there was material to support the finding, it must be upheld. The Tribunal had considered the facts and circumstances, including the significant borrowing and the systematic transactions, to conclude that the assessee was a dealer in shares and securities. The court found that there was material to support the Tribunal's finding and answered the first question against the assessee.

2. Tribunal's Findings in Light of 1941-42 Assessment:
The court examined whether the Tribunal could hold that the profits from the transactions amounted to business profits, given the findings in the 1941-42 assessment. The rule of res judicata does not apply in income tax cases, allowing the Income-tax Officer to reopen assessments if fresh facts come to light.

The Tribunal had fresh materials for the assessment years 1944-45 to 1948-49, which were different from those considered in the 1941-42 assessment. The Tribunal found that the assessee had engaged in substantial borrowing and systematic transactions, indicating business activity. The court held that the Tribunal was entitled to come to a different conclusion based on the fresh materials and answered the second question against the assessee.

Conclusion:
The court concluded that there was material to support the Tribunal's finding that the assessee was a dealer in shares and securities and that the Tribunal could hold the profits as business profits based on fresh materials. Both questions were answered against the assessee, and the Income-tax Department was entitled to costs.