Back
PATNA HIGH COURT
S.K.Das and Kanhaiya Singh JJ.
Raja Bahadur Vishweshwara Singh Of Rajnagar
Versus
Commissioner Of Income Tax
Miscellaneous Judicial Case No. 362 of ; 363 of ; 364 of ; 365 of ; 366 of ;
Decided On : APRIL 26, 1956
INCOME TAX - Business profits - Whether assessee was a dealer in shares and securities - Whether profits from sale of shares were business profits - Whether Appellate Tribunal had material to support its finding - Whether Tribunal was bound by its earlier finding in respect of assessment year 1941-42 - Held, yes - Questions answered against assessee.
Fact of the Case:
The assessee, a zamindar, purchased and sold shares and securities from 1930-31 to 1948-49. The Income-tax Officer held that the profits from the sales were business profits and, therefore, assessable to income-tax. The Appellate Assistant Commissioner excluded the profits from the assessments for 1944-45 and 1945-46, relying on the Appellate Tribunal's finding with regard to the 1941-42 assessment. The Appellate Tribunal, however, held that the assessee was a dealer in shares and securities and the profits from such share dealing were assessable to income-tax as profits from business.
Finding of the Court:
The High Court held that there was material to support the finding of the Appellate Tribunal that the assessee was a dealer in shares and securities. The Court also held that the Tribunal was not bound by its earlier finding in respect of the assessment year 1941-42, as there were fresh materials before the Tribunal on which they were entitled to come to a conclusion different from that of their predecessor.
Issues: 1. Whether there was material to support the finding of the Appellate Tribunal that the assessee was a dealer in shares and securities? 2. Whether the Tribunal was bound by its earlier finding in respect of assessment year 1941-42?
Ratio Decidendi: 1. The Appellate Tribunal had material before them to support their finding that the assessee was a dealer in shares and securities. The Tribunal considered the following facts and circumstances in arriving at their finding: - The assessee had been purchasing shares and securities from 1930-31 to 1948-49. - The assessee had entered into an agreement with a bank for a large loan to finance his share trading activities. - The assessee had two accounts, one for shares purchased with the loan and one for shares purchased with his own funds. The transactions in both accounts were substantial. - The assessee had sold shares for the purpose of cashing in on the improved markets. - The assessee had purchased shares when market conditions reached rock-bottom levels. 2. The Tribunal was not bound by its earlier finding in respect of the assessment year 1941-42, as there were fresh materials before the Tribunal on which they were entitled to come to a conclusion different from that of their predecessor.
Final Decision: Both questions were answered against the assessee.
Das, J.
1. These are five miscellaneous judicial cases in which this Court required the Appellate Tribunal to state a case on the following two questions of law:
(1) Whether in the circumstances of the case there is material to support the finding of the Appellate Tribunal that the assessee was a dealer in shares and securities with respect to each of the accounts and, therefore, liable to be taxed.
(2) Whether, having regard to the findings of the Appellate Tribunal in respect of 1941-42 assessment, it was open to the Appellate Tribunal in the present cases to hold that the profits and the transactions of sale and purchase of shares and securities amounted to profits of business and so liable to be taxed.
2. The relevant facts are these. The assessee is a zamindar, being the brother of the present Maharajadhiraj of Darbhanga. He owns and possesses a big zamindari property, known as the Rajnagar estate, under a maintenance grant. The assessee had been purchasing shares and securities from the Fasli year 1336 onwards (corresponding to the assessment year 1930-31). In their statement of the case, the Appellate Tribunal has divided the assessment for the years 1930-31 to 1948-49 into three period, the periods being (1) 1930-31 assessment year to 1940-41 assessment year; (2) 1341-42 assessment, year to 1943-44 assessment year and (3) 1944-45 assessment year to 1948-43 assessment year. During the first period there were purchases of shares year after year, but there were no sales except in the fasli year 1344 (corresponding to 1938-39 assessment year). The profits arising on the sales in the Fasli year 1344 amounted to Rs. 83,807/- That amount was, included in the assessees total income for the year 1938-39 by the Income-tax Officer. The Commissioner of Income-tax confirmed this inclusion by an order under Sec.33, as it then stood but by a revised order dated 22-5-1941, the Commissioner of Income-tax excluded this sum of Rs. 83,807/- from the assessees total income for 1938-39 on the ground that the amount was capital accretion and not "business profits." On 16-7-1940, the petitioner arranged with the Mercantile Bank Ltd., Calcutta, to allow him to overdraw his account by Rs. 10,00,000.00 on the guarantee of his brother, the Maharajadhiraj of Darbhanga, and against deposit of shares to be bought by the assessee. This overdraft arrangement was made for the purpose of buying shares and securities, and under this arrangement certain shares of the value of Rs. 10,000.00 were bought on 22-7-1940, and the value was debited to the assessees account in the Mercantile Bank of India Ltd.
Within five days of the aforesaid purchase, however, that is, on 27-7-1940, the assessee obtained in cash a sum of Rs. 10,00,000.00 from his brother, without Interest, and paid the amount into his account with the Mercantile Bank of India Ltd., thereby wiping out the overdraft of Rs. 10,000/-. The overdraft arrangement with the Mercantile Bank came to an end and out of the sum of Rs. 10,00,000.00 provided by the assessees brother the assessee purchased and sold shares and securities tor large amounts.
A separate set of account books was opened on 22-7-1940, which were styled "No. 2. Investment Account" and the purchase and sale of shares made out of the sum of Rs. 10,00,000.00 were recorded in those books. There was another set of books called No. 1 Investment Account. In these books were entered the purchases and sales of shares which the assessee had been making since the 1930-31 assessment year.
3. In the second period, namely, the period from 1941-42 to 1943-44, there were purchases of shares in all the three years, but sales only in two years, and the excess receipts in 1347 and 1348 Pasli were Rs. 79,418/- and Rs. 39,326/- respectively. These sums were the subject-matter of assessment for the assessment years 1941-42 and 1942-43.
The Income-tax Officer held that they were business profits and, therefore, assessable to income-tax. After an unsuc
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
