Case: Dwarkadas Kesardeo Morarka Vs. Commissioner of Income Tax, Central Bombay

The appellants are a registered firm carrying on the business ofand speculation in silver and shares. The partners of the appellant firm were also partners of Messrs. Morarka & Co., who were the managing agents of the Sholapur Spinning and Weaving Company Ltd. hereinafter called the Sholapur Mills. The firm commenced business in August, 1942. In Samvat year 2000 (November, 1943, to October, 1944) the appellants purchased seventeen ordinary shares of the Sholapur Mills and thereafter they purchased 82 more ordinary shares between November, 1944, and October, 1948 By November, 1948, the appellants held 99 ordinary shares. The appellants also purchased at diverse times 6, 780 preference shares of the Sholapur Mills. All these shares were entered in the books of account of the appellants asand valued accordingly at the end of each accounting period. During all these years, not a single share, ordinary or preference, was sold by the appellants. The following table sets out the profit and loss in respect of these shares calculated by the appellants according to the method of valuation of stock adopted by the appellantsYear of Assessment year Ordinary shares Preference sharesAccount(Maru) Rs.6 Loss 30, 8027 Loss 35,48 Profit 72, 5450 Loss 3, 21, 831 Loss 12, 0202. The appellants submitted their returns forin respect of the assessment years48 with theOfficer respectively on July 27, 1948, November 11, 1948, and May 23, 1949. In the proceedings for assessment of tax in the assessment years7, theOfficer disallowed the loss claimed holding that the shares formed the appellants capital investment. In the assessment yearax Officer excluded from the return the amount of profit alleged to have resulted to the appellants in the corresponding year of account. But in appeals to the Appellate Assistant Commissioner by three orders dated May 4, 1951, the shares of the Sholapur Mills were held to beand the profits or losses computed according to the method of valuation adopted by the appellants were directed to be taken into account in assessing the taxable income. These orders were not challenged in appeals to theAppellate TribunalIn the assessment yearthe appellants did not furnish return and they were assessed to tax under section 23(4) of theAct. For the assessment yearthe appellants furnished their return claiming that they incurred a loss of Rs. 3, 33, 851 in the shares of the Sholapur Mills. This was computed on the alleged difference between the market value of the shares at the close of the previous year of account and the market value at the end of the accounting period, the shares being treated asax Officer found that the appellants had inflated the loss by Rs. 1, 85, 000 and that the shares being capital investment and notthe loss could not be allowed as a revenue deduction. The Appellate Assistant Commissioner disagreed with the view of theOfficer and held that the shares were theof the appellants, but agreeing with theOfficer he held that the loss had been inflated by, Rs. 1, 85, 000. Against this order, theOfficer appealed to theAppellate Tribunal which reversed the order of the Appellate Assistant Commissioner and restored the order of theOfficer. The Tribunal held that the mere fact that in the previous years the shares were treated asand the profits and losses in respect, thereof were included in the taxable income of the appellants did not preclude the Tribunal from arriving at the conclusion that the shares were capital investment. They substantially confirmed the view of theOfficer on the facts found. An application submitted by the appellants for a reference under section 66(1) of theAct of the following questions was rejected by the Tribunal:" (1) Whether the Tribunal misdirected itself in law and/or acted without any evidence in finding that the investment of the assessee in the shares of the Sholapur Mills was a capital investment and not its?(2) Whether in any event in view of the assessments made for the years48 and the Appellate Assistant Commissioners order for these three years, it was open to the department to hold for the assessment yearsthat the said shares do not represent the assessees?(3) Whether the Tribunal misdirected itself in law in omitting to consider certain material facts which were taken into account by the Appellate Assistant Commissioner and expressly mentioned in the Appellate Assistant Commissioners order, including the fact that the assessee had been holding shares in several other companies asand this position has been accepted by the department although in those shares there have been no sales ? "3. The appellants then petitioned the High Court for an order directing the Tribunal to draw up a statement of the case and to refer to the High Court the three questions which the Tribunal was requested to submit. The High Court summarily rejected this petition. Against that order, this appeal has been preferred with special leave

Reasoning: 4. In our view, the High Court was right in refusing to call for a statement of the case under section 66(2) of theAct. The conclusion of the Tribunal was based on inferences of fact raised from materials before the taxing authorities. The conduct of the appellants clearly indicated that even though they were dealing in shares of other companies, the shares of the Sholapur Mills were treated by them as capital investment for the purpose of maintaining their managing agency. The number of shares held by the appellants went on increasing from time to time and not a single share was ever sold. The Tribunal pointed out that the returns for the assessment years48 were filed by the appellants after they knew that there were wide fluctuations in the quotation of the shares of that company. They also referred to the circumstance that the appellants were interested in the managing agency of the Sholapur Mills and that every member of the family of the appellants was holding shares of that company. The conclusion of the Tribunal was amply supported by evidence. It cannot be said that because in the previous years the shares were held to bethey must be similarly treated for the assessment yearIn the matter of assessment ofeach years assessment is complete and the decision arrived at in a previous year on materials before the taxing authorities cannot be regarded as binding in the assessment for the subsequent years. The Tribunal is not shown to have omitted to consider the material facts. The decision of the Tribunal was on a question of fact and no question of law arose which could be directed to be referred under section 66(2) of theAct. The appeal therefore fails and is dismissed with costs.