HIDAYATULLAH - (1.) JUDGMENT The judgment of the court was delivered by
(2.) MESSRS. Emerald & Co. Ltd., Bombay (hereinafter referred to as the assessee company) have filed this appeal with special leave of this court against the judgment of the High court of Judicature at Bombay dated 27/09/1955, i" Income-tax Reference No. 23 of 1955- I" that reference, the following question was considered by the High court: " Whether the computation of the loss by the assessee company at Rs. 35,801.00 is in accordance with law or whether the loss computed by the Income-tax Officer/Tribunal is in accordance with law?" The High court (Chagia, C.J., and Tendolkar, J.), decided that the loss by the assessee company computed by the Income-tax Officer was according to law. The facts leading to, this appeal areas follows: The assessee company deals in shares, and values the closing stock of shares at cost price. It dealt in 1950-1951 in the shares of the Bombay Dyeing and Manufacturing Co. Ltd. On November 11, 1950, it purchased 50 shares of the said company for Rs. 49,101.00. On 9/01/1951' the said company issued one bonus share of the face value of 259 Rs. 250.00 in respect of one share held by its shareholders. The assessee company; therefore, received 50 bonus shares of the face value of Rs. 250.00 in respect of the shares held by it. The assessee company then sold the 50 shares purchased by it on 12/01/1951, for Rs. 26,125.00. On 5/03/1951, the assessee company purchased loo shares of the said company for Rs. 48,359.00- In the books of account, the assessee company debited the face value of the bonus shares (Rs. 13,500) to the share account. For the assessment year 1951-1952, the Income-tax Officer, following the decision of the Bombay High court in Manecklal Chunilal & Spms ltd. (Income-tax Reference No. 16 of 1948), computed the profit of the company at Rs. 1,760.00. The assessee company had declared for the same year a loss of Rs. 1,365.00. It appears that in dealing with the question, the Department valued at nil the bonus shares. The assessee company did not appeal. In the accounting year 1951-1952, the assessee company held 150 shares of the said company including loo shares purchased on 5/03/1951 The assessee company thereafter purchaser 200 shares of the said company in two lots for Rs. 99,939.00 The assessee company then sold, also in two lots, the 300 shares for a total sum of Rs. 1,20,550.00. At the end of the accounting year, the bonus shares remained with the assessee company, and applying the same calculation as previously, including the cost of the bonus shares at the face value of Rs. 12,500.00, it declared a loss of Rs. 35,801.00 for the assessment year 1952-1953. The Income-tax Officer, following the course which was adopted in the previous year, computed the loss at Rs. 27,766.00. The appeal of the assessee company against the second assessment was taken finally to the Appellate tribunal at Bombay, which computed the loss at Rs. 27,748.00, but in view of the slight difference, did not interfere with the order of the Income-tax Officer who had placed the loss at Rs. 27,766.00.
(3.) THE tribunal, however, came to the conclusion on application by the assessee company, that the question of law stated above arose from the facts of the Case, and referred it accordingly. The Bombay High court following the decision given earlier by the same court in Manecklal & Sons Ltd. (Income-tax Reference No. 16 of 1948) dated 23/03/1949, held that the computation of the loss incurred by the company was made correctly by the Department. In other words, the High court did not accept the calculation of the Joss as made by the assessee company or the Income tax Appellate tribunal. It was contended before us that the High court was in error in accepting the calculation made by the Income-tax Officer. For the assessee company, it was contended that the calculation made by the assessee company was according to law, while on behalf of the Department the Solicitor-General claimed that the calculation made by the tribunal was perfectly correct, regard being had to the transactions and the method of accounting of the assessee company. ;