1971-VIL-315-BOM-DT

Equivalent Citation: [1972] 83 ITR 1

BOMBAY HIGH COURT

Date: 18.01.1971

KARSONDAS RANCHHODDASS (LEGAL HEIR OF RANCHHODDAS JETHABHAI-DECEASED)

Vs

COMMISSIONER OF INCOME-TAX, BOMBAY.

BENCH

Judge(s)  : CHANDRACHUD., KOTVAL.

JUDGMENT

The judgment of the court was delivered by

KOTWAL C.J. - The facts and the circumstances under which this reference arose have already been stated in our order of 16th July, 1969, and it is unnecessary to repeat them. By that order for the reasons stated in the penultimate paragraph we reframed one of the questions and called for a fresh statement of the case. The questions as reframed are as follows :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the business of dealing in shares was not being carried on by the assessee in the year of account ?

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the loss of Rs. 44,190 (Rupees forty-four and one hundred ninety) as business loss in the year of account ? "

The assessment year with which we are concerned is 1954-55 corresponding to the account year 2009 Samvat year. The dispute concerns an item of Rs. 44,190 which the assessee claimed as a loss incurred in the year of account from his business of purchase and sale of shares. When the matter came before us on the earlier occasion we found that the department had merely taken into account the position of dealings with by the assessee in the years prior to the assessment year in question. namely, 1954-56. It was urged before us that the dealings of the assessee in the subsequent years to which a reference had been made in the statement of the case could also have been taken note of and that the Tribunal erred in ignoring those facts of the assessee's dealings with shares in the subsequent years.

By our order of 16th July, 1969, we accepted the contention of the assessee and, after reframing the question, called for a fresh statement of the case from the Tribunal with advertence to the facts of the assessee's dealings subsequent to the assessment year 1955.

These dealings are summarised in a statement which formed part of the first statement of the caw and is marked annexure " B ". In that statement a summary of the dealings by the from the year 1942-43 till the assessment year 1960-61 has been given. The summary was prepared on the basis of the assessment orders for those years. Those assessment orders are included in annexure " A " to the first statement of the case. A glance at annexure " A " shows that only the orders up to the assessment year 1958-59 were included and that the orders for the assessment years 1959-60 and 1960-61 were not included. We, therefore, directed the Tribunal to exclude the facts pertaining to those two assessment years. After giving our findings we had ordered as follows :

" The Tribunal will in the light of what we have said in this judgment and after hearing both the parties submit a fresh statement of the case upon the following questions...." (We have already reproduced the questions above.)

The Tribunal has, as directed, drawn up a fresh statement of the case dated 8th June, 1970, and has stated therein the facts pertaining to the dealings in shares of the assessee for the assessment years from 1955-56 to 1958-59. It has now held in paragraph 16 as follows :

" Looking to the assessment orders for 1955-56 to 1958-59 and statement of purchases and sales of shares for 1942-43 to 1960-61, we would hold that, if the assessee was admittedly held to be a dealer in shares up to the assessment year 1947-48 and again was held to be a dealer in shares in the assessment year 1955-56 and onwards, there is no reason why the assessee should not be held to be a dealer in shares for the assessment year under appeal, namely, 1954-55. There is no evidence before us to show that the assessee converted his stock-in-trade into investments either during the assessment year under appeal or at any time prior thereto. Our finding on the examination of the annexures annexed to the statement of the case dated September 28, 1962, is that the assessee was a dealer in shares for the assessment year 1954-55."

It will be seen that upon the additional facts on which a statement of the case was called for, the Tribunal has come to a different conclusion from the conclusion which it came to in its first order of 2nd July, 1959, where it held that the assessee was not carrying on any business in the year of account pertaining to the assessment year 1954-55. The new finding is against the department whereas the previous finding was in favour of the department.

Before we proceed to answer the reference, it is necessary to notice one contention which Mr. Hajarnavis raised against the new statement of the case dated 8th June, 1970. He urged that the statement of the case is not in compliance with the judgment of this court dated 16th July, 1969, and that, on the other hand, the Tribunal has not merely stated the facts but has gone further and given a fresh finding. He objected to the finding given in paragraph 16 as being entirely unwarranted and uncalled for having regard to the terms of our judgement dated 16th July, 1969. He also urged that the Tribunal has done something which the judgment of this court expressly asked it not to do, namely, not to take into account the facts and the circumstances of the assessee's dealings in shares for the years 1959-60 and 1960-61. This is clear, he urged, from the first sentence of paragraph 16, which we have quoted above. The last paragraph, moreover, gives a finding which the Tribunal was never called upon to do. He, therefore, urged initially that this reference should not be accepted and that the matter should be sent down again to the Tribunal to make a fresh reference.

Now the criticism levelled against the Tribunal's new statement of the case and particularly against paragraph 16 thereof, is, in our opinion, somewhat justified. In our judgment of 16th July, 1969, we had expressly asked the Tribunal not to have regard to the dealings of the assessee in shares for the assessment years 1959-60 and 1960-61. This is what we said :

"We may however say that it does appear to us that facts pertaining to the years 1959-60 and,960-61 were not before the Tribunal and there is much justification for the grievance made on behalf of the department that the facts pertaining to these years at any rate not being before the Tribunal should not be looked at. For that very reason it also seems to us that although all the assessment orders pertaining to the assessee from the years 1942-43 to the years 1958-59 have been collected together and placed on record as annexure ' A' the orders for the years 1959-60 and 1960-61 do not find place in annexure 'A'. Omitting these two years, therefore we think that annexure ' B ' will have to be read as part of the statement of the case."

Nonetheless the Tribunal has referred in paragraph 16 to the statement of purchases and sales of shares for those two years. To that extent, no doubt, the Tribunal was in error.

The Tribunal was also in error in giving a finding that the assessee was a dealer in shares for the assessment year 1954-55. In fact this court by its judgment dated 16th July, 1969, had not called for any finding. All that we said in the last paragraph of the judgment was that the Tribunal would, in the light of what we had said in the judgment, submit a fresh statement of the case upon the two questions which we had framed. Therefore, all that had to be done was to submit a statement of the case and not to give any further finding.

The question then is what we should do in the circumstances. We do not think that it is at all just or expedient in the present case to send back the case to the Tribunal for a fresh statement of the case. After all, what the Tribunal can now do is merely to delete the reference to the facts pertaining to the years 1959-60 and 1960-61 and their finding, and return the statement of the case to us. We think that it would be just and proper that we should not look at any of those facts pertaining to the year 1959-60 and 1960-61 nor to the new finding given, and come to a decision ourselves.

But then it was urged by Mr. Hajarnavis that it cannot be said to what extent the facts, which they were not entitled to consider, namely, for the years 1959-60 and 1960-61, had influenced the Tribunal's mind and that, therefore, the case must go back for their reconsideration, and a fresh statement of the case. Since we have decided to exclude the finding thus given by the Tribunal from our consideration and decide the matter independently ourselves, we do not think that this contention can prevail. We will treat the reference before us as if the new finding had not been there, nor the facts pertaining to the years 1959-60 and 1960-61.

Now in order to appreciate the impact of the additional facts stated in the new statement dated 8th June, 1970, upon the case as a whole, it is necessary to recount what were the facts as stated in the earlier statement of the case dated 28th September, 1962. Those facts are as follows :

For the years 1942-43 to 1946-47 there were both transactions of purchase and sale and except in the year 1945-46 there was throughout profit. In 1942-43 the profit was Rs. 2,759 as stated in annexure " B ". but we are informed that it was later on by an order of the Appellate Assistant Commissioner reduced to Rs. 844, but nonetheless it was found to be a profit. The fact of reduction, however, is not on record. In either case it matters little what the amount was. In 1943-44 the profit was Rs. 2,186, in 1944-45 it was Rs. 15,058 and in 1946-47 it was Rs. 17,607. In the year 1945-46 there was a loss of Rs. 6,409. (There is an error in the print at page 70 in showing the amount as profit of Rs. 34,816. The assessment order shows a loss). In 1946-47 the profit was Rs. 17,607 and in 1947-48 it was Rs. 37,304. During this period of activity both the profits and losses were taken into account and the assessee accorcingly taxed so that there can be no doubt or dispute that till the year 1947-48 the assessee was doing in the purchase and sale of shares. In all these years, however, there were both purchases and sales. It is from 1948-49 that the activities of the assessee were more restrained. In 1948-49 there were merely purchases of Rs. 16,297 and in 1949-50 of Rs. 500. There were no no sales in these years and therefore no profit or loss. In 1950-51, sales have been shown to the extent of Rs. 1,200, but it appears that this amount was received by the upon the liquidation of the company as his share of the preference shares held by him, so that this figure can hardly speak much upon the questions before us. Then from 1951-52 to 1953-54, there were no purchases and no sales and therefore no profit or loss. It is this interregnum in the activities of the assessee that has been mainly relied on by the Tribunal in its original order and by the Income-tax Officer.

In the year of account also there were three transactions as shown in the statement of the case, but they were all of sales amounting to Rs. 78,386-7-0. The total purchase value of the shares as shown in the statement of the case dated 28th September, 1962, was Rs. 1,22,577-2-0 with the result that a loss of Rs. 44,190 was shown by the assessee. Then follows the period till 1958-59 which was in dispute before us when we passed our order of the 16th of July, 1969. The facts pertaining to this period are : In the assessment year 1955-56 there were purchases of Rs. 40,000 and sales of Rs. 12,707 resulting in a loss of Rs. 2,273. This loss was disallowed by the Income-tax Officer holding that the assessee had ceased to do business, but the Appellate Assistant Commissioner held that he was a dealer and was doing business. This finding of the Appellate Assistant Commissioner was accepted by the department since no appeal was filed on their behalf.

In 1956-57 there were no purchases but only sales of Rs. 15,744 resulting in.a loss of Rs. 604. It was disallowed by both the Income-tax Officer and the Appellate Assistant Commissioner, but an appeal was pending before the Tribunal. In 1957-58 again there were no purchases, but there were only sales of Rs. 7,685 resulting in a profit of Rs. 1,155 which was taxed by the Income-tax Officer. The assessee did not appeal. In 1958-59 there were both purchases and sales, purchases of Rs. 1,16,735 and sales of Rs. 25,175, resulting in a loss of Rs. 91,778. This loss was disallowed by both the Income-tax Officer and the Appellate Assistant Commissioner and an appeal was filed by the assessee to the Tribunal. Thus, appeals were pending regarding the assessments for the years 1956-57 and 1958-59. These appeals have now been decided and the assessments for those years as well as for the year 1959-60 are now the subject-matter of the connected Reference No. 83 of 1964 before us. With the latter year we are (as we have said in our order of 16th July, 1969) not here concerned.

These activities of the assessee in respect of his dealings in shares fell naturally into three divisions or parts. In the first part from the year 1942-43 to 1947-48 there were throughout transactions of both purchases and sales and substantial profits resulted to the assessee except in the year 1945-46 when there was a loss. The department assessed the assessee upon these profits and also took into account the loss as business loss in the year 1945-46. Therefore, two facts emerge till the end of the assessment year 1947-48 : (1) that the assessee was a dealer in shares and was doing business in purchasing and selling, though at the same time he was also receiving dividends on the same shares, and (2) that the shares which he held were necessarily his stock-in-trade and were not held by way of capital investment. We say this here because it is the self-same shares which he subsequently sold in the assessment year 1954-55 with which we are concerned. The second period of the assessee's activities is that between the years 1948-49 to 1953-54. During these six years he is shown to have is made purchases in two years, but has not made any sales whatsoever (excluding of course the amount of Rs. 1,200 shown in 1950-51 which he received from the liquidators of a company in liquidation which was really not a voluntary sale). The year 1954-55 is the assessment year in question before us. The third period of the assessee's activities is the period immediately following this period, that is to say, from 1955-56 to 1958-59. Since the assessments of 1956-57 and 1958-59 are the subject-matter of the connected reference and so to say sub judice, we will not take the facts pertaining to those years into account, but the assessee made purchases and sales in 1955-56 resulting in a loss and though that loss was disallowed by the Income-tax Officer it came to be allowed by the appellate order of the Appellate Assistant Commissioner and the department did not appeal against that order. Therefore, the department accepted the finding that in 1955-56 the assessee was a dealer in shares and that the loss sustained by him was a business loss. Similarly, in 1957-58 though the assessee did not make any purchases he made sales and earned a profit of Rs. 1,155 and this was taxed by the Income-tax Officer as a business profit. Therefore, once again it was found by the department themselves that in 1957-58 the assessee was doing the business of purchase and sale of shares.

The position, therefore, comes to this that for six years prior to the assessment year in question till the year 1947-48 the assessee was undoubtedly doing business. For the next six years till 1953-54 the assessee does not appear to have dealt in shares, though there is nothing to show also that he had ceased to do business. In short, it was a period of inactivity on his part. In the period subsequent to the assessment year in question, i.e., in 1955-56 and 1957-58, the assessee was admittedly found to be a dealer. He was thus found to be a dealer both before the assessment year in question and after the assessment year in question and the question arises whether, because he was inactive during the period 1947-48 to 1953-54, the finding can be justified that he had ceased to do business in the purchase and sale of shares. So far as the Income-tax Officer is concerned, his finding for the assessment year in question 1954-55 was :

" There is no business in purchase and sale of shares either during the accounting year or during the past six accounting years. The assessee seems to have stopped his business in the purchase and sale of shares at the close of S.Y. 2002 (i.e., assessment year 1947-48) ".

The Appellate Assistant Commissioner did not accept this finding. It seems that one Mulraj Pragji Hariani, the son-in-law of the assessee, was similarly doing business in stocks and shares and the assessee and Mulraj were making identical purchases and sales in each year. The companies in which the shares were purchased were identical ; the number of shares purchased or sold was identical and on identical dates and in Mulraj's case the Income-tax Officer had held that he was a dealer and the department had accepted that finding. The Appellate Assistant Commissioner, therefore, held that there was no reason why a contrary finding should be given in the assessee's case. He held that the assessee was a dealer. He also pointed out one important fact, namely, that the shares which the assessee had sold in the year 1954-55 were the same shares which he had purchased and which were with him at the end of the year 1947-48 and in respect of which the Income-tax Officer had then found that the assessee was a dealer in shares. He held that that finding was final and there is nothing shown how those shares were converted into a capital investment. The Tribunal disposed of the whole matter in the following cryptic order :

" After 1947-48, the assessee has not been assessed in respect of income from dealings in shares. Even if the assessee was a dealer in shares in earlier years, we think that this business was not being carried on by him in the year of account."

The main point, therefore, upon which the Income-tax Officer, and the Tribunal relied was that there was a period of inactivity for a period of seven years from 1947-48 to 1953-54 and, therefore, the assessee had ceased to do business.

The question whether an assessee is carrying on business in stocks and shares or whether he has merely invested money with a view to earn an income is a question which has to be determined in each case upon its facts and circumstances. The business may be carried on for some periods of time and there may be a lull in the business or a period of inactivity which may betoken an intention either : (1) to cease doing business altogether, or (2) merely not to do business, because, conditions are adverse, coupled with an intention to resume it when conditions improve. A period of inactivity, therefore, is not conclusive in deciding whether a person is or is not doing business. It is merely a circumstance which can and ought to be taken into account along with the other circumstances. If after the period of inactivity it is found that he has resumed the business, that circumstance would, however, be important. When there is no positive indication to the contrary it would show that the person who was carrying on business previously had merely resumed his activities and that is what has happened in the present case. The assessee was undoubtedly a dealer till 1947-48. He was found to be a dealer also in the years 1955-56 and 1957-58. There is absolutely nothing to show that he had any intention to cease to do business in the interval. There is no evidence that he carried on any other business in the interval. Why then must it be held that he had abandoned his accustomed business in the interval ? The Income-tax Officer and the Tribunal merely had regard to the fact that he was a dealer till 1947-48 and then they found a period of inactivity for six years till 1953-54. Therefore, they concluded that the assessee had ceased to do business. They did not take into account the subsequent facts pertaining to the years subsequent to 1954-55 when he has been found to carry on the same business. The fact that the assessee had not done any business from 1948-49 to 1953-54 may, in a given case, lead to the inference that he had ceased to do business as well as to the inference that he had merely suspended the business with the intention to resume it, but when it is found that he had in fact resumed the business in 1955-56 and 1957-58 it is impossible to hold that by the mere lull in his activity he had ceased to do business. On the other hand, there are two periods of activity before and after the interregnum or period of inactivity and it seems to us almost conclusive in the present case that during the period of inactivity the assessee had not given up his intention to do further business. The facts are overwhelmingly in favour of that conclusion.

It is now settled law that there may be a long period of inactivity and still the business may continue. See Inderchand Hari Ram v. Commissioner of Income-tax, where the Allahabad High Court remarked :

" It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern though it may, for some time, be quiet and dormant. The mere fact that a businessman has not been able to obtain a contract and the business has for some time been, in that sense, dormant would not mean that it has ceased to exist if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business will be successful. How long he shall remain in hope and in what manner he must carry on his work to gain success is primarily his own concern. The mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purposes of his business. "

Much the same view was also taken in a recent decision of the Madras High Court, Mrs. Sarojini Rajah v. Commissioner of Income-tax, where also a long interval of time had resulted in the Tribunal holding that the assessee had ceased to be a dealer in shares. Veeraswami J. (now the Chief Justice), after referring to the nature and relevant considerations in the report of the Royal Commission on the Taxation of Profits and Income, 1955, in England, held at page 511 in just such a case like this :

" In our opinion, the only reasonable and necessary inference is that she traded in shares with a commercial motive of making profit. It is no doubt true that there was an interval between 1948-49 and 1953-54 during which there were no transactions in shares by the assessee, but that, as we think, can hardly make any difference to the fact that her purchase and sale of shares was and has been with a commercial motive. The Tribunal evidently noticed her dealing in shares in the subsequent years, but has not taken it into account in deciding the character of the holding of shares in Vanguard in her hands."

Under these circumstances, it seems to us impossible to infer from the interregnum between 1948-49 and 1953-54 that the assessee had ceased to do business in shares. In fact, he has subsequently been held to be doing business in shares and we can only infer from that fact that during the period of inactivity also his intention to do business did not cease.

There is also another important circumstance, which as we have pointed out, was noticed by the Appellate Assistant Commissioner, but to which we have not been able to find any answer in the order of the Tribunal and that is, that upon the very findings of the Income-tax Officer the shares which the assessee sold in the year of account were all shares purchased during the year 1946. A reference to the table of purchases and sales of shares shown in paragraph 2 of the statement of the case dated 28th September, 1962, shows that the three sets of shares with which we are concerned in the present case were purchased on 25th July, 1946, 18th July, 1946, and 19th July, 1946. During these years undoubtedly the assessee was a dealer in shares. He has been so held by successive orders of the authorities themselves till 1947-48. Therefore, these shares were his stock-in-trade till the end of 1947-48. They came to be sold in the year of account 1954-55. How these shares which were his stock-in-trade suddenly took on the characteristic of a capital investment is for the department to have explained and there is absolutely nothing on record from which it can be held that the nature of the stock-in-trade of the assessee changed. This, it would seem to us, is one of the criteria which will have to be taken into account in judging whether a person is doing business in shares or has invested in them merely by way of capital investment. If the origin of the holding is once established it would seem that it would be for the department to establish that it has changed its nature and character. This is clear from a decision in V. S. R. W. Firm v. Commissioner of Income-tax, which no doubt was the reverse of the present case, but serves to illustrate our point. In that case the shares were found to be held by the assessee as a capital investment, but the department sought to tax the profit as a business profit. The Madras High Court found that there was no evidence to show that the shares originally purchased as an investment were at any time converted into stock-in-trade of the assessee's share business and they remarked at page 726 :

It is true that what is originally a capital investment may be converted into a trading stock by the conduct of the assessee in dealing with it. But evidence of such conduct must be cogent, clear and unequivocal, and it would be dangerous on the part of the taxing authorities to infer that a capital has acquired the character of stock-in-trade merely from the fact that the assessee had dealt with another capital stock as a trading commodity. "

We cannot but conclude in the circumstances that the shares held by the assessee, which were his stock-in-trade at the end of the assessment year 1947-48 and which have been found to be also his stock-in-trade in at least two years after the assessment year in question, namely, in 1955-56 and in 1957-58, where his stock-in-trade in the assessment year 1954-55 and that when he sold them and sustained a loss, the loss was a business loss.

Counsel on behalf of the department raised two points which may now be dealt with. He first of all pointed out that, for the purposes of income-tax, each individual year of account is a separate legal entity which must be separately dealt with and that no finding given in one year can bind the department in another year. He said that there is nothing like res judicata in income-tax proceedings binding the department from year to year. He relied upon a decision of the Supreme Court in Raja Bahadur Visheshwara Singh v. Commissioner of Income-tax, where the Supreme Court held that the fact that the Appellate Tribunal had not treated the assessee as a dealer in shares for one year, namely, 1941-42, did not operate as res judicata or preclude the Tribunal from holding that he was a dealer in shares for the subsequent years 1944-45 to 1948-49. He also referred to the decision of the Supreme Court in Dwarkadas Kesardeo Morarka v. Commissioner of Income-tax, where the Supreme Court observed that in the matter of assessment of income-tax each year's assessment is complete, and the decision arrived at in a previous year on the material then before the taxing officer cannot be regarded as binding in the assessment for subsequent years. No doubt, the decisions of the income-tax authorities of each year are in no way binding upon them in a subsequent year, because each year of account is a separate entity in income-tax law and has to be treated separately untrammelled by the decisions given in the earlier years. Res judicata does not operate in income-tax proceedings, but res judicata is only a rule of evidence which when it applies legally precludes a court or Tribunal from reconsidering the same subject-matter between the same parties where once a decision has been given, but that is not the same thing as saying that when a conclusion has to be reached, such as the conclusion whether a person is carrying on business or not, that conclusion should not be arrived at upon a consideration of all the facts and circumstances prior as well as subsequent relevant to that conclusion. Included in all the facts and circumstances relevant for consideration on the question whether the assessee is carrying on business or not, must necessarily be his conduct both before and after the year of assessment and while no doubt any finding given in earlier years would not be binding upon the department, the department cannot refuse to look at the circumstances both before and after the transactions in dispute before it. That it must look at the facts and circumstances before and after the year of assessment is merely a part of the rule that the true intention of the assessee must be ascertained for the purpose of determining whether the assessee was carrying on business or not. It has nothing to do with res judicata which is a rule of evidence which legally precludes a court from deciding over again a point which it has decided. Because the principle of " res judicata " does not apply in the case of income-tax proceedings it does not follow that the department must not look to facts and circumstances relative to prior and subsequent assessment years.

We also do not think that this contention is open to the department to-day in view of our order dated 16th July, 1969, where we have held that the facts regarding the dealings of the assessee subsequent to the assessment year in question before us, i.e., 1954-55, can be looked at. But since that order of ours dated 16th July, 1969, the Supreme Court has itself laid down the same principle in Investment Ltd. v. Commissioner of Income-tax. In that case the assessee was claiming an allowance for the loss suffered in the sale of certain securities in the assessment year 1953-54. The tax authorities, namely, the Income-tax Officer and the Appellate Assistant Commissioner, held that it was not a business loss. The Tribunal held that the loss suffered by the sale of securities was of a capital nature. The High Court also confirmed the view taken by the Tribunal. The Supreme Court reversed these decisions pointing out that both in the previous and subsequent years the authorities had held that the assessee-company was doing business. At page 536 they held :

" The transactions in securities were within the competence of the company. In computing the taxable income of the company in assessment years 1952-53, 1954-55 and 1955-56, the Income-tax Officer held that the shares and securities were the stock-in-trade of the company, and the loss suffered in transactions relating thereto was a permissible allowance. It is true trial an order made in assessing the income of one year regarding the nature of a transaction or the income received therefrom is not conclusive in another year. But that finding is good and cogent evidence of the nature of the transactions in shares and securities in the year of account 1953-54 and of the receipts therefrom. " (underlining ours)

Thus the Supreme Court held that although the findings of the previous years may not be res judicata and may not bind the departmental authorities, they could be looked into as good and cogent evidence of the nature of the transactions in the shares and securities. That is all we have done in the present case. For the same reason we had called for the additional statement of the case by our order dated 16th July, 1969. Taking all the facts into account we must hold that in the year of account 1954-55, the assessee was a dealer in shares. The loss that he claimed would be a business loss and would be allowable to him.

Another interesting contention on behalf of the department was that the assessee, upon the facts and circumstances of this case, must be held to have been a dealer in shares or doing business in shares in respect of only one company, namely, the Scindia Steam Navigation Co. Ltd., but not in respect of shares in other companies. This argument is based upon the order of the Income-tax Officer for the assessment year 1942-43 wherein the Income-tax Officer had observed :

" The order of the Tribunal for the assessment year 1942-43 (I.T.A. No. 619 of 1948-49) is illuminating. The Income-tax Officer had added to the total income of the assessee Rs. 2,759, as profits arising from the sale of shares. There were two items involved, namely : (1) sale of 450 Scindia Steam Navigation Co. shares with a profit. of Rs. 1,915 and (2) purchase and sale within a week of 500 shares of Scindia Steam Navigation Co. Ltd., with a profit of Rs. 844. The assessee's contention was, as always up to the assessment year 1947-48, that he was not a dealer in shares, and the profit, if any, on sale of shares was only a capital gain which is not taxable. The Appellate Assistant Commissioner upheld the Income-tax Officer's addition but the Tribunal drew a line of distinction between the two items involved. The purchase of 450 shares had been made on various dates from September 15, 1939, to May 15, 1940, and the sale had been made on August 27, 1941. The Appellate Assistant Commissioner had held that the interval between the purchase and sale was not sufficiently long as to establish that the purchase was by way of investment. "

Relying upon these observations counsel urged that we should consider the transactions of the assessee in respect of each company separately and see whether in the case of each company he dealt in their shares by way of business or by way of capital investment. Alternatively, he argued---and that is another shade of the same argument---that wherever it can be found that there is a quick turnover and there is a short time between the purchase and sale, in the case of shares of a particular company it should be held that the shares were acquired for the purpose of business, but that where shares are retained for long periods, it should be held that they were held by way of capital investment.

We are unable to accept these contentions. So far as the order of the Income-tax Officer is concerned, we may say that those were not his findings. They were merely the reasons why he held that the total loss claimed in that year by the assessee of Rs. 44,190 was not a business loss. Apart from that, we have already shown that this order of the Income-tax Officer was not wholly upheld by the Appellate Assistant Commissioner and that it was set aside so far as the 450 Scindia Steam Navigation Co. shares were concerned in which he made a profit of Rs. 1,915. Moreover, we think that the whole contention which counsel has raised on behalf of the department is not open to the department for the simple reason that they never raised this point at any stage before. It is certainly not found to have been raised before the Appellate Assistant Commissioner in the present case nor before the Tribunal nor is it an issue which arises out of the two questions referred for our decision. There is also not the slightest mention of this point in any part of the two statements of the case. In our opinion, the issue which was thrashed out between the assessee and the department before the tax authorities as well as before the Tribunal so far as this year is concerned, was whether the transactions, which were involved in this year of assessment, were entered into by the assessee as a dealer in shares, or whether they were entered into by way of capital investment. There is no distinction drawn between the shares of one company and the shares of another company, nor, was any distinction drawn between the shares of a company which were bought and sold in a short time and which were bought and sold after a long period of time. No doubt, these may be considerations which may be taken into account in judging whether the assessee was doing business or not, but we do not think that we can accede to the contention that it should be determined in the case of each company whether the assessee was dealing in shares by way of business or not and that the mere length of time for which the assessee held the shares is decisive. For these reasons we reject the contention. In view of our discussion it is clear that none of the reasons which have prevailed with us were taken into account by the Tribunal. Its order in paragraph 4 is very cryptic and hardly gives any reason for holding that business was not being carried on by the assessee in that year of account. Its finding almost amounts to an " ipse dixit ". For these reasons we are unable to agree with the order of the Tribunal.

We answer the questions referred as follows:

Answer to question No. 1-No.

Answer to question No. 2-Yes.

The Commissioner will pay the costs of the assessee.

 

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