Appeal No 445 of 1962
Appeal from the judgment and order dated April 1 1 and 12
1960 of the Bombay High Court in Income tax Reference No 52 of 1959
R J Kolah and IN Shroff for the appellant
K N Rajagopal Sastri and RN Sachthey for the respondent
April 10
The judgment of the Court was delivered by section K DAS J
This is an appeal on a certificate of fitness granted by the High Court of 973 Bombay under section 66 A 2 of the Indian Income tax Act 1922
The New Jehangir Vakil Mills Co Ltd Bhavnagar appellant before us and called tile assessee carried on the business of manufacturing and selling textile piecegoods 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 186931 which was later reduced to Rs 123840  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 preceding years the assessee was a dealer in shares and securities
In respect of this addition of Rs 123840 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
These were the two questions along with a third question which were referred to the High Court under section 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 1
In the event of the surplus aforesaid being held to be income assessable to income tax 974 whether the income should be ascertained by taking the market value of the shares as at the opening day of the year as the cost  2
Whether there is any 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 in the years past  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 in the record were not adequate to decide the question
The 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 975 cost
As a result of this valuation in the balance sheet the profits from the sale of shares during 194546 would be Rs 1238401 
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 results might be different
On the basis of the aforesaid remand report the Appellate Assistant Commissioner examined the records of the transactions and observed  There are five different transactions of purchase and two transactions of sale in 1942
The tempo of purchases and sales goes up from 1943
There are purchases of fifteen or twen ty different dates in 1943
There is a similar number of transactions in 1944
Many of the shares purchased in 1943 have been disposed of in 1944
Several scrips purchased in 1944 have been sold within the year
The number of transactions is in my opinion sufficiently numerous to show that the assessee is a dealer in shares
 There was an appeal then to the Tribunal
The Tribunal came to the conclusion that so far as Government securities were concerned the assessee was obliged to keep its large cash invested in Government securities and therefore so far as these securities were concerned the amount realised by their sale was not a revenue receipt and should not be included in the total income of the assessee
It held however that the assessee was a dealer in shares in 1944 and as to the computation of the profits made on the sale of the shares such profits were correctly computed to be the difference between the original cost price of the shares to the assessee at the time of purchase and the price realised at the time of sale and the Tribunal significantly added that this computation was correct on the finding that the 976 assessee was a dealer not only in 1944 but from 1942onward
We may here state that for the years prior to the account year 1944 the department had treated the assessee as an investor and not a dealer in shares and had made assessments accordingly for those years
Those assessments have now become final
When the matter went to the High Court on a case stated by the Tribunal the High Court observed that the crucial year was the year 1943 for if the assessee was a dealer in shares since 1943 and sold some of them in the account year 1944 and made profits thereon then both the questions referred to the High Court must be answered against the assessee
The High Court re framed the second question by substituting the words in the year 1943 for the words in the years past
The High Court further pointed out that in the exercise of its advisory jurisdiction it did riot sit in appeal over the decision of the Tribunal that the assessee was a dealer in shares in the year 1943
It also held that on the materials on record it was open to the Tribunal to come to the conclusion that the assessee was a dealer in shares in 1943 and as to the computation of profits it pointed out that if the assessee was a dealer in 1943 also then it was not open to the assessee to say that the market value of the shares as on the opening day of the year 1944 should be taken as the cost of the shares
Accordingly the High Court answered both the questions against the assessee
Learned counsel for the appellant has addressed us at length on both questions
However it appears to us that by reason of the re framing of the second question the two questions really merge into one namely was the assessee a dealer in shares in 1943 and continued to be such a dealer in 1944 which is the relevant account year  The question no doubt has two aspects
Firstly there is the aspect whether there is any evidence to justify the finding that the 977 assessee was a dealer in shares in 1943
Secondly there is the aspect as to how the profits made from the sale of shares in 1944 should be computed in the assessment year 1945 46
It is however manifest that it  the assessee was a dealer in 1943 also then the principle laid down by this court in Commissioner of Income tax vs Bai Shirinbai K Kooka 1 will not apply for that decision proceeded on the footing that the assessee of that case converted her investment shares into a stock in trade and carried on a trading activity as from April 1 1946 the relevant account year being the financial year 1946 47
If the assessee in the present case was a dealer in 1943 then nothing happened on the opening day of the relevant account year namely January 1 1944 and there is no reason why the market value of the shares on that date should be taken into consideration in computing the profits
Learned counsel for the assessee has however pressed an argument which may now be stated
He has submitted that he is not arguing that it was not open to the assessing authorities to consider the question whether the assessee was a dealer in shares in 1944 which was the relevant account year
What he contends is that it was not open to the taxing authorities to consider and find that the assessee was a dealer in shares in 1943 because for all years prior to 1944 the department had already assessed the assessee on the footing that it was an investor of shares and not a dealer and those assessments having become final could be re opened only either under section 34 or section 35 of the Act
The argument is that in assessing the assessee for the account year 1944 it was open to the department to treat the assessee as a dealer in 1944 but not for any earlier year which was not the subject of the assessment proceedings Learned counsel states that if he is right in his first contention then the profits made on the sale of shares in 1944 must be computed in the manner laid down in Commissioner of Income tax vs Bai Shirinbai K Kooka1 1 1962 Supp 3 SCR 391 978 because the assessee will be treated as a dealer for the first time in the relevant account year 1944
The argument appears plaussible at first sight and it may perhaps be conceded that the question of the computation of profits in a case like this is not entirely free from difficulty
However on a very careful consideration of the argument we have come to the conclusion that it is not worthy of acceptance
As to the first aspect of the question we see no difficulty
The appellate Assistant Commissioner and the Tribunal have referred to various transactions relating to shares shown in the books of the assessee
From those transactions they came to the conclusion that the assessee was a dealer in 1943
The High Court has also summarised the various transactions in which the assessee indulged in the year 1943
Having regard to the frequency and nature of those transactions it was open to the taxing authorities to come to the conclusion that the assessee was a dealer in shares in 1943
We are not prepared to say that the rule of no evidence can be applied to the present case
We therefore consider that the High Court correctly answered the question relating to this aspect of the case
Now as to computation of profits
Though it is true that the question which directly arose before the taxing authorities in the present case was  whether the assessee was a dealer in 1944 the question of the position of the assessee in 1943 also arose in determining how the profits made in 1944 should be computed
It is not therefore quite correct to say that the position of the assessee in 1943 was completely outside the scope of the assessment proceedings of 1945 46
In determining or computing the profits made by the sale of shares in 1944 the assessing authorities had to go into the question did the assessee start its trading 979 activity on January 1 1944 or did it start the trading activity at an earlier date  If the assessee was a dealer when the shares sold in 1944 were originally purchased then obviously the principle in Commissioner of Income tax vs Bai Shirin Bai K Kooka 1 will not apply and the profits will be the excess of the sale price over the original cost price
The extent to which a decision given by an Income tax officer for one assessment year affects or binds a decision for another year has been considered by courts several times and speaking generally it may be stated that the doctrine of res judicata or estoppel by record does not apply to such decisions in some cases it has been held that though the Income tax officer is not bound by the rule of res judicata or estoppel by record he can re open a question previously decided only if fresh facts come to light or if the earlier decision was rendered without taking into consideration material evidence etc
As to the argument based on sections 34 and 35 it is enough to point out that the assessment relating to the year 1943 is not being reopened
That assessment stands
What is being done is to compute the profits of 1944 which the assessing authorities could do by finding out when the trading activity in shares began The question of the profits in 1944 was not and could not be the subject of any assessment proceeding relating to 1943 for such profits arose only on the sale of the shares in 1944
In Broken
Hill Proprietary Company vs Broken Hill Municipal Council 2 the question was one of the capital value of a mine for rating purposes
This question of valuation as between the parties was determined by the High Court of Australia in a previous year
But it was held that the decision did not operate as res judicata
The reason given was  The decision of the High Court related to a valuation and a liability to a tax in a previous 1 1962 Supp 3 SCR 391
2 980 year and no doubt as regards that year the decision could not be disputed
The present case relates to a new question namely the valuation for a different year and the liability for that year
It is not eadem questio and therefore the principle of res judicata cannot apply
 In another decision reported in the same volume Hoystead vs Commissioner of Taxation 1 one of the questions was whether certain beneficiaries under a will were joint owners
It was held that though in a previous litigation no express decision had been given whether the beneficiaries were joint owners it being assumed and admitted that they were the matter so admitted was so fundamental to the decision then given that it estopped the Commissioner
The latter decision was distinguished in Society of Medical officers of Health vs Hope 2
Both the decisions were again considered by the judicial Committee in Caffoor vs Income Tax Commissioner 3
The decision in Broken Hill Proprietary Company s case 4 was approved and the principle laid down was that in matters of recurring annual tax a decision on appeal with regard to one year s assessment is said not to deal with eadem questio as that which arises in respect of an assessment for another year and consequently not to set up an estoppel
As to the decision in Hoystead s case 1 it was stated  Their Lordships are of opinion that it is im possible for them to treat Hoystead s case as constituting a legal authority on the question of estoppels in respect of successive years of tax assessment
So to treat it would bring it into direct conflict with the contemporaneous decision in the Broken Hill case  and to follow it would involve preferring a decision in which the particular point was either assumed without 1 2 3 4  981 argument or not noticed to a decision in itself consistent with much other authority in which the point was explicitly raised and explicitly determined
 In Installment Supply P Ltd vs Union of India 1 this court referred to the decisions just mentioned and said that it was well settled that in matters of taxation there would be no question of res judicata
On the principle stated above it seems to us that it was open to the taxing authorities to consider the position of the assessee in 1943 for the purposes of determining how the gains made in 1944
should be computed even though the subject of the assessment proceedings was the computation of the profits made in 1944
The circumstance that in an earlier assessment relating to 1943 the assessee was treated as an investor would not in our opinion estop the assessing authorities from considering for the purpose of computation of the profits of 1944 as to when the trading activity of the assessee in shares began
The assessing authorities found that it began in 1943
On that finding the profits were correctly computed and the answer given by the High Court to the question of the computation of the profits was correctly given
For these reasons the appeal fails and is dismissed with costs


Summary:
The assessee appellant carried on the business of manu facturing and selling textile piece goods
In the assessment year 1945 46 the Income tax officer added to the taxable income of the assessee a sum of Rs 186931 which was later on reduced to Rs 123840 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
The assessee was held to be a dealer in shares and securities
The contention of the assessee was that it was not a dealer in shares and securities in the relevant account year or in the years past and the shares and securities were held by way of investment and the investment surplus was in the nature of capital receipt
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
The Appellate Assistant Commissioner rejected the contentions of the appellant and held that the number of transactions was sufficiently large to show that the assessee was a dealer in shares
The Appellate Tribunal rejected the contentions of the appellant
These assertions were then referred to the High Court and they were decided against the assessec appellant
972 Held that the assessee was a dealer in shares and securities and the income from their sale was a revenue receipt and not capital receipt
The profits of the assessee were 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
Held also that in the matter of taxation there was no question of resjudicata
It was open to the taxing authorities to consider the position of the assessee in 1943 for the purpose of determining how the gains made in 1944 should be computed even though the subject of the assessment proceedings was the computation of the profits made in 1944
The circumstance that in an earlier assessment relating to 1943 the assessee was treated as an investor would not estop the assessing authorities from considering for the purpose of computation of the profits of 1944 as to when the trading activity of the assessee in shares began
The assessing authorities found that it began in 1943 and on that finding the profits were correctly computed
Commissioner of Income tax vs Bai Shirinbai K Kooka 1962 Supp
3 SCR 391 Broken Hill Property Company vs Broken Hill Municipal Council  Boystead vs Commissioner of Taxation Society of Medical officer of Health vs Hope  Caffoor vs Income tax Commissioner and Installment Supply P Ltd vs Union of India   referred to