NEW JEHANGIR VAKIL MILLS CO LIMITED BHAVNAGAR Vs. COMMISSIONER OF INCOME TAX BOMBAY NORTH KUTCH AND SAURASHTRA AHMEDABAD

JUDGEMENT

(1.) This is an appeal on a certificate of fitness granted by the High Court of Bombay under S. 66-A 2. of the Indian Income-tax Act, 1922. The New Jehangir Vakil Mills Co. Ltd., Bhavanagar, appellant before us and called the assessee, carried on the business of manufacturing and selling textile piece-goods 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 two 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.

(2.) These were the two questions along with a third question 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:

(3.) 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 on the record were not adequate to decide the question. In 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 cost. As a result of this valuation in the balance sheet, the profits from the sale of shares during 1945-46 would be Rs. 1,23,840/-. 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 result might be different.