BHIKAMCHAND BAGRI Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF CALCUTTA
BHIKAMCHAND BAGRI, CALCUTTA
COMMISSIONER OF INCOME-TAX (CENTRAL), CALCUTTA
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Bachawat, J. -
(1.) THE Reference relates to the two assessment years 1940-41 and 1941-42. THE accounting year corresponding to the assessment year 1940-41 ended on the Ramnavami day of Samvat year 1996 and consisted of the period from 29-3-1939 upto 15-4-1940. THE accounting year corresponding to the assessment year 1941-42 ended on Ramanavami day of Samvat year 1997 and consisted of the period of 16-4-1940 upto 5-4-1941. THE assessee firm is a dealer in stocks and shares. It maintained five sets of books. It kept accounts of its stocks and shares in three different sets of books known as sets Nos. 2, 4 and 5. Admittedly the shares included in sets Nos. 4 and 5 were the stock-in-trade of the assessee's business. THE dispute is whether the shares included in set No. 2 were its stock-in-trade or were capital investments. THE assessee sustained losses on sales of the shares in set No. 2 in the two accounting years. THE assessee claimed that the shares were stock-in-trade and the losses must be taken into account in computing profits and losses of its business. THE Department disputed the assessee's claim and contended that the losses were capital losses arising from sales of investments. THE Tribunal held that the shares in set No. 2 were investment shares and were not stock-in-trade of the assessee upto 21-2-1940 that the shares were converted by the assessee into stock-in-trade on 21-2-1940 that the sales prior to that date should be treated as sales of capital investments, that the losses arising on sales after that date should be allowed to the assessee and that such losses must be computed on the basis of the difference between the market prices on 21-2-1940 and the sale prices. THE question referred to the Court is as follows:
"Whether on the facts found by the Tribunal its inference that the shares in set No. 2 were investment shares and not stock-in-trade upto 21-2-40 was justified in law".
(2.) THIS Reference is made pursuant to an order passed by the High Court under Section 66(2) of the Indian Income-tax Act on the application of the assessee. The Commissioner of Income-tax did not ask the Tribunal to state a case on the question whether the shares in set No. 2 were stock-in-trade after 21-2-1940. The order of the Tribunal that those shares were stock-in-trade after 21-2-1940 is therefore final in view of Section 33(6) of the Indian Income-tax Act. The Commissioner must be regarded as having accepted that part of the decision of the Tribunal ; see Commissioner of Income-tax, West Bengal v. Messrs. Isthmian Steamship Lines, . The shares must therefore be regarded as stock-in-trade during the period from 21-2-1940 upto 15-4-1940 i.e. for part of the accounting year Samvat 1996 and during the whole of accounting year Samvat 1997. THIS fact was in a way pointed out by Chakravarty, C. J., in his judgment calling for a further statement of case. Chakravarty C. J. also thus said that our answer to the question referred will not affect the assessment already made for the year 1941-42. I think what he meant was that our answer will not affect the finding that the shares were stock-in-trade after 21-2- 1940. If our answer be that the inference that the shares were investment shares and not stock-in-trade up to 21-2-1940 was not justified in law, the answer will necessarily affect the finding of the Tribunal that the losses are to be computed on the basis ot the market price as on 21-2-1940. Under Section 66(5) it will be the duty of the Tribunal to dispose ot the case conformably to our judgment.
The admitted facts are as follows; One Suganchand Bagri, son of Bhikamchand Bagri deceased and his four sons constituted a Hindu undivided family. The family was a member of the Calcutta Stock Exchange Limited in the name of Suganchand Bagri and as such did business in stocks and shares. The family was also a member of the East India Jute Association Ltd. and as such carried on business in jute and hessian. It maintained five sets of account books. Set No. 1 called jaidad khata related to house properties. Set No, 2 called the gaddi or Head Office set or 'Bhikamchand Suganchand" set was in respect of assets like shares, gold, silver, jewellery and mortgages. Set No. 3 was kept in the name of Bagri and Co. and was in respect ot transactions in jute and hessian as member of the East India Jute Association Ltd. Set No. 4 was kept in the name of Suganchand Bagri No. 11 and related to transactions in shares with members ot the Calcutta Stock Exchange Ltd. Set No. 5 was kept in the name of Suganchand Bagri No. I and related to transactions in shares with persons other than members of the Calcutta Stock Exchange Ltd.
There was a disruption of the Hindu undivided family. The deed of dissolution of the Hindu undivided family is dated 11-10-1938. On the disruption of the Hindu undivided family its business including its assets was taken over as a going concern by a firm consisting of Suganchand and his four sons. The firm was constituted by a partnership deed dated 15-2-1940. The partnership deed recites that the partnership came into existence on the Ramnavami day in the year 1938, that is to say, at the commencement of the Samvat year 1995. The Hindu undivided family made an application to the Income-tax Officer under Section 25A(1) of the Indian Income-tax Act for recording the partition. On such application the Income-tax Officer passed an order on 24-1-1942 that for purposes of Section 25A(1) of the Indian Income-tax Act the partition took place at the end of Samvat year 1995, that is to say, on 28-3-1939 and that during Samvat year 1995 the family must be taken to be a Hindu undivided family. In view of this order read with Section 25A(3) the family must be deemed for the purposes of the Income-tax Act to continue as a Hindu undivided family during Samvat year 1995 and the assessee firm must be deemed to have come into existence at the commencement of Samvat year 1996. In the meantime a return which must be deemed to be the return of the Hindu undivided family was filed on 21-2-1940 for the assessment year 1939-40 corresponding to the accounting year Samvat 1995. The return disclosed a profit of Rs. 2750/- arising on sales of 125 shares in the Imperial Bank (Conty). in that accounting year. These shares were held in set No. 2. The sale proceeds amounted to Rs. 47,750/-. The Income-tax Officer excluded this profit from the assessment. His action was upheld by the Appellate Assistant Commissioner but was cancelled by the Appellate Tribunal with directions to make a fresh order. A summary of those orders is given in the subsequent order of the Income-tax Officer dated 10-9-1943. When the matter went back to the Income-tax Officer he held that the shares in set No. 2 were in the nature of investment shares and were not the stock-in-trade of the business of the Hindu undivided family and by his order dated the 10th September, 1943 again refused to add the profit of Rs. 2750/- to the income of the assessee. His order was confirmed by the Appellate Assistant Commissioner but was set aside by the Appellate Tribunal. The Tribunal by their order dated 8-8-1944 held that the shares included in set No. 2 were the stock-in-trade of the business in shares carried on by the Hindu undivided family.
(3.) IN the meantime the assessee firm had filed returns of income in respect of the assessment years 1940-41 and 1941-42. The assessee firm produced the same five sets of books of account. IN the return for the assessment year 1940-41 the assessee claimed a deduction of losses amounting to Rs. 5,70,575/- arising from sales of shares in set No. 2 during Samvat year 1996 ending on 15-4-1940. The nett loss of Rs. 5,70,575/.- consisted of losses of Rs. 5,98,179/- and profits of Rs. 27,604/-. IN the return for the assessment year 1941-42 the assessee claimed to deduct losses amounting to Rs. 6,760/- arising from sales of shares in set No. a during Samvat year 1997 ending on 4-4-1941. The nett loss of Rs. 6,760/- consisted of losses of Rs. 9,767/- and profits of Rs. 3,007/-. The INcome-tax Officer following his previous decision held that the losses were of a capital nature and by separate orders dated 21-9-1943 disallowed the assessee's claim for deduction of these losses. On appeal the Appellate Assistant Commissioner following the decision of the Appellate Tribunal, by two separate orders dated 13-11-1944, held that the losses should be allowed in computing the profits of the assessee's business in shares and that the assessment should be revised accordingly and set aside the order of the INcome-tax Officer disallowing the losses. The Department preferred two appeals to the Appellate Tribunal. On 28-5-1945 the Calcutta Bench of the Tribunal recommended formation of a larger Bench. Accordingly a larger Bench of the Tribunal consisting of three members was formed. By order dated 28-1-1947 the Appellate Tribunal held that the materials on the record were not sufficient to enable the Tribunal to determine and dispose of the appeals and passed an order of remand directing the INcome-tax Officer to make an enquiry and to submit a report with regard to certain matters. On or about 5-6-1948 the INcome-tax Officer submitted a report to the Tribunal. By the order dated 10-5-1950 the Tribunal disagreed with the findings arrived at by the previous Tribunal in the order dated 8-8-1944. The Tribunal held that the shares included in set No. 2 were the assessee firm's capital investments and were not its stock-in-trade upto 21-2-1940. Subsequently this Court on the application of the assessee directed the Tribunal to state a case. The Tribunal submitted an agreed statement of case on 22-8-1952. By an order dated 24-11-1955 this Court directed the Tribunal to submit a further statement of case. The further statement of case was submitted by the .Tribunal on or about 30-7-1956.
The question whether a transaction is an adventure in the nature of trade is a mixed question I of law and fact, see G. Venkataswarni Naidu and Co. v. Commissioner of Income-tax, and Saroj Kumar v. Income-tax Commissioner, West Bengal, . The tendency to regard such a question as a finding of pure fact is now deprecated, Edward v. Bairstow (1955) 36 Tax Cas 207: 1956 AC 14 at p. 38.;
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