THE NEW JAHANGIR VAKIL MILLS CO., LTD. BHAVNAGAR vs. THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH & SAURASHTRA, AHMEDABAD

CIVIL APPEAL No. 445/1962Supreme Court[1964] 2 S.C.R. 97110 April 1963Bench: 3 JudgesAuthor: S.K. DAS, A.K. SARKAR, M. HIDAYATULLAH11 pages
AI SummaryDismissed

What were the facts?

The assessee, The New Jahangir Vakil Mills Co., Ltd., Bhavnagar, a manufacturer of textile piecegoods, is in appeal against the assessment year 1945-46 (account year 1944). The Income-Tax Officer added Rs. 1,86,931 (later reduced to Rs. 1,23,840) to the taxable income, treating it as a revenue receipt from the sale of shares and securities. The assessee contended it was an investor, not a dealer, and the surplus was a capital receipt. Alternatively, if considered a dealer, the cost of shares should be their market value on the opening day of the account year. The Appellate Assistant Commissioner and the Appellate Tribunal rejected these contentions, holding the assessee to be a dealer in shares. The matter was referred to the High Court, which decided against the assessee.

What did the Supreme Court hold?

The Tribunal held that the assessee was a dealer in shares and securities, and the income from their sale was a revenue receipt, not a capital receipt. The profits were to be computed as 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 Tribunal further held that in matters of taxation, the doctrine of res judicata does not apply. It was open to the taxing authorities to consider the assessee's position in 1943 for determining how gains made in 1944 should be computed, even though the subject of assessment was the profits of 1944. The fact that the assessee was treated as an investor in an earlier assessment for 1943 did not estop the assessing authorities from considering when the trading activity in shares began. The assessing authorities found that trading activity began in 1943, and on this finding, the profits were correctly computed. The High Court's answer to the question of profit computation was upheld. The appeal was dismissed.

What were the issues?

1. Whether the surplus from the sale of shares and securities is a revenue receipt assessable to income-tax, and if so, whether the profit should be computed by taking the market value of the shares as at the opening day of the year as the cost. 2. Whether there is sufficient 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 also in preceding years. Assessee's arguments: The assessee argued that it was not a dealer in shares and securities in the relevant account year or past years, and the shares were held as investments, making the surplus a capital receipt. If it were a dealer, the cost of shares for profit computation should be their market value on the opening day of the account year. The assessee relied on the principle that previous assessments treating it as an investor should bind the revenue. Revenue's arguments: The revenue contended that the assessee was a dealer in shares, evidenced by the frequency and multiplicity of transactions. They argued that the profit should be the difference between the sale price and the original cost price. The revenue argued that the doctrine of res judicata does not apply to tax matters, and taxing authorities can consider past activities to determine the nature of current transactions.

Which sections of the Income-tax Act were involved?

Section 66-A(2),Section 66(2)

AI-generated summary — verify with the full judgment below

• - . 2 S.C.R. SUPRENIE COURT REPORTS 971 THE NEW JAHANGIR VAKIL MILLS co.,-LTD. BHAVNAGAR v. THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH & SAURASHTRA, AHMEDABAD (S. I\. DAS, A. K. SARKAR and M. HIDAYATULLAJI jj.)

Income Tax-Aase,.ee dealer in shares and securities-In- come 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 ta matters of taxation -Taxing authorities if can consider position of assessee before the assessment year.

The assessee appellant carried on the business of manu- facturing and selling textile pit-ce·goods.

In the assessment year 1945-46, the Income-tax Officer added to the taxable income of the assessee a sum of Rs. L86,931 which \-Vas later on reduced to Rs. 1,23,840 as a revenue receipt, representing an amount by which the sale price exceeded the orginal cost of certain shares and securities purchased and sold by the appellant. The assessee was held to be a dealer in shares and sec,µrities.

The contention of the a'isessee was that it was not a dealer in shares and securities in the relevant account yea

The order continues below.

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