1980 PLP 237 (PTD)

New Victoria Cotton Mills Ltd. 4,000 shares Yuvraj Sugar Mills Ltd. 100 " Hindusthan Commercial Bank Ltd. 1,150 " New Savan Sugar & Gur Refining Co. Ltd. 12,000 " The assessee is said to have suffered a loss of Rs. 2,12,221 in these sales. It will appear from the statement of the case that the sales were made either to Karam Chand Thapar & Sons Ltd. or to Karam Chand Thapar & Bros -Ltd. In the preceding years from 1936‑37 own wards, the assessee was hold ing shares either by purchase or by allotment upon application. Since 1939 40, a number of shares were sold almost every year at cost and there was no profit and loss on the sales. The sales were made to one of the following persons (1) Lala Sham Lal Thapar, (2) Ch. Dev Raj Thapar, (3) Ch. Hans Raj Thapar, (4) Karam Chand Thapar & Brothers Ltd., (5) Mohini Thapar Charitable Trust, (6) Modern Agencies Ltd., (7) I. M. Thapar, (8) Karam Chand Thapar & Sons Ltd., and (9) B. M. Thapar. It was pointed out in the statement of the case that there were no agents and brokers or any person for negotiating the sales. The assessee, as stated before, claimed the loss of Rs. 2,12,221 on the sale of shares within the accounting year ending upon 31st March 1948, as business loss, but claim was disallowed by the Income‑tax Officer as also by the Appellate Commissioner. The Tribunal confirmed the order of the Appellate Assistant Commissioner mainly on the ground that the assesses was holding the shares all along for the purpose of investment and the loss arising from the sale thereof was a loss on capital account not allowable against the taxable income. The Tribunal in its order made the following finding "It was argued that the assessee was a dealer in shares as would be apparent from the activities throughout all these years, he having purchased and sold shares from time to time and the loss incurred on the sale in the instant year must be held to be a business loss. We have given the nature of the dealings in this case. We do not understand why a dealer in shares will purchase or subscribe to the shares merely for the purpose of selling these at cost. That is not the method of a businessman. The businessman purchases and sells for profit and, if circumstances are against him, he will no doubt sell these at a loss. But throughout the several years, the assessee never took advantage of the market price; he simply transferred the shares at cost. In fact, the sales were made either to one of his relatives or to a concern in which he was interested. This indicates very clearly that in the past the shares were acquired for no other purpose than to hold these for investment, or in case he was holding too many shares, to transfer the investment to a concern in which he was interested. In the instant year the market fell heavily and, it was uneconomic for him to hold these depreciated shares, so he sold these to the concern in which he was personally interested. Therefore, in our opinion, all along the assesses was holding these shares for investment and the sale was merely a sale of investment and the loss arising there from is a loss on capital account." Mr. Choudhury, the learned counsel for the assessee, urges in the first instance that the Tribunal was wrong in finding without any material in the record that, in the instant year, the market fell heavily and it was un-economic for him to hold these deprecated shares and so he sold them to the concern in which he was personally interested his main contention is that the assesses was a dealer in shams and, transacted the dealing in shares as a business man and that the Tribunal was wrong in not attaching any importance to the volume that the Tribunal was wrong in not attaching any importance to the volume man and that the Tribunal was wrong in not attaching any importance to the volume and nature of the transactions in one particular year. As a matter of fact the shares were all quoted in the market and were bought and sold on the prevailing market price and, as such, the mere fact that the shares were sold at a loss, does not give rise to a conclusion that a transfer of investment was only aimed at. It has also been urged that the finding of the Tribunal to the effect that the transfers were made to the con cerns in which the assessee was interested is not borne out by any material on record. It has been held by Their Lordships of the Supreme Court in Calcutta Discount Company v. Income‑tax Officer (1961) 14 I T R 191 that the question whether sales of certain shares were by way of changing the investment or by way of trading in shares has to be decided on a consideration of different circumstances including the frequency of sales, nature of shares sold; the price received as compared with the cost price and several other relevant facts. It is the duty of the assessee to disclose all the facts which have a bearing on the question, but whether the assesses had the intention to make a business profit as distinguished from the intention to change the form of investment, is really an inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances. The Patna High Court's decision in a case in Raja Bahadur Vishweshwar Singh v. Commissioner of Income‑tax (1956) 30 I T R 202 may be referred to in this connection. At page 204, their Lordships observed that "No hard and fast rule can be laid down to distinguish trading or business transactions from the operations of a prudent investor. The number of transactions is not the sole determining criterion or test, though a systematic and habitual dealing in shares may be an important element which has to be taken into consideration for determining whether the transactions were business transactions within the meaning of the Income‑tax Act. The essential test in such cases is whether the sales and purchases were made not with the intention to invest one's capital, but with the object of selling the shares in future in order to make a profit. The mere fact that in a particular year the assesses was held to be not a dealer in shares and that the profits made by him were not assessed as profits from business will not prevent his being treated as a dealer in shares and the profits made during a subsequent year being treated as profits from business." The observations of their Lordships of the Supreme Court in a case in G. Venkataswami Naidu v. Commissioner of Income‑tax (1959) 36 I T R 594 may also be referred to. Having considered these decisions, it appears that the question whether a transaction is in the nature of a trade is a question of mixed law and fact and it has to be seen whether the Tribunal in the instant case applied the aforesaid legal principles in corning to its conclusion. The decision of the Tribunal was, firstly, based upon the footing that the transaction upon the sale of shares by the assessee cannot be said to be a business transaction, as in the past the shares were sold at cost. Secondly it was held by it that a businessman purchases and sells for profit and if circumstance is against him, he will no doubt sell it at a loss. In coming to such a decision it appears that the Tribunal took into consideration the past transactions. It was submitted by the assesses that in the previous years, i.e. in 1936‑37 and 1938‑39, there were profits in such transactions amounting to Rs. 2.125 and Rs. 667 respectively and they were included in the assessment for those years. Similarly in the assessment for the year 1937‑38 the appellant suffered loss of Rs. 6,580 in this business. This was duly allowed in the assessment. Upon considering the papers placed before the Income‑tax Authorities, it appears that they found that the contention as raised by the assesses for the previous years might be true, but from the year 1939‑40 up to the accounting period for the assessment year 1947‑48, no profit or loss had been shown in share dealings, although purchases and sales of share were made during this period. From these facts the tax authorities came to the conclusion that after the previous years (1938‑39), the appellant stopped making purchases and sales of shares as business dealers and was only an investor in this line. The tax authorities also took into consideration the fact that the assessee did not maintain any accounts for the accounting year and, therefore, the exhaustiveness of the transaction shown in the statement of purchase and sales of shares on the basis of which the loss of Rs. 2,12,221 had been claimed, was held to be open to question. The above decision is based upon the facts placed before the Income tax Authorities. In this case a supplementary paper-book has been filed, in which the statements showing the frequency of purchase and sales socks and shares from the accounting year 1935‑36 to 1948‑49 have been incorporated under the provisions of section

35. It will appear from these statements that during the years 1939‑40 many shares, which were purchased, were sold at cost. It also appears that shares in Hindusthan Commercial Bank Limited were purchased in 1943‑44 and the shares in New Victoria Cotton Mills Limited and New Savan Sugar; end Gur Refining Co., Ltd. were purchased in 1946‑

41. Similarly he shares in Yuvraj Sugar Mills Ltd. were purchased in the accounting year, viz. 1947‑

48. The shares in these concerns were accordingly sold at a loss as contended by the assessee in his capacity as a dealer in shares and such transactions were nothing but business transactions of the assessee. The said documents along with other materials were taken into consideration by the Tribunal in coming to a conclusion that the sale of these shares at a loss were not in the nature of a trade, and that sale of shares was merely in his capacity as an investor. These materials in our opinion show that the assessee's sale of shares at cost and at a loss is nothing but an investment and he had no intention to enter into such transactions as a businessman. Therefore, the inference which has been drawn from the bundle of facts by the Tribunal appears to be a correct inference. It appears also that the Tribunal did not come to its finding on a single fact in isolation, 'hut assessed the cumulative effect of all the facts in their setting as a whole. This being the positron, the finding of fact which, in our opinion, is based on evidence and is not perverse cannot be interfered with. It cannot also be said that the conclu sions by the Tribunal were based no misappreciation of evidence anal the principle of law as stated before. It has been urged that the Income‑tax Authorities were in error in taking into consideration the conduct of the assessee with regard to past transac tions, in order to find as to what was the real intention of tire assessee. In our opinion, the conduct in the past is a significant feature as to how the shares were dealt with and tine sale thereof at cost price in the past is a rele vant fact for the purpose of making appropriate assessment of income‑tax. The next argument which has been advanced in this case is that inas much as in. the previous accounting years, viz. 1935‑36 to 1937‑38, the profit and loss arising out of sales of shares were taken into consideration there appears to be no reason why this fact should not be taken into account for assessment, during the assessment ear in question. The Appellate Assistant Commissioner was not oblivious of this fact and carne to his con clusion that this was perfectly true, but inasmuch as no profit or loss was shown in the share dealings from 1939‑40 to 1947‑48, the question as to whether profit and loss in previous years were taken into consideration for assessment was irrelevant. Their finding was affirmed by the Tribunal. On such a submission being made by the assessee it is necessary to consider whether the principles of res judicata can be invoked, in a case like this. "the controversy on this point is set at rest, in view of the decision of the Supreme Court in Raja Bahadur Visheshwara Singh v. Commissioner of income‑tax (1961) 41 I T R 685, Their Lordships, inter alia, at page 692, observed as follows:‑ 'The second question is wholly unsubstantial. There is no such thing as res judicata in income‑tax matter. The Appellate Tribunal has placed in a tabulated form the activities of the appellant showing the buying and selling and the magnitude of holdings and it cannot be said, therefore, that it was not open to the Appellate Tribunal to give the finding that it did. The result of our discussion above may be summed up as follows:- (1) During the periods 1935-37 to 1937-38, there were profits as well as losses. In the Income tax assessment, such profits and loss were shown and Income tax was paid on profits, and losses were allowed to be deducted. (2) Then starts a considerable length of time between the previous year from 1939‑40 up to the accounting period for the assessment year 1947‑48 when shares were invariably sold at cost and there was neither profit and loss during the said period. The Tribunal infers from this fact that during this period the assessee had ceased to be a dealer in shares. (3) It also found that it could not be said that during the accounting year the assessee became once again a dealer, because the usual paraphernalia of business was not in existence‑‑there were no brokers or agents employed by the assessee, in respect of the share transactions, no account books during the accounting year were maintained, and no record of share transactions was preserved. If on the above materials, which were before the Tribunal, that is, the substantial nature of the transactions, the manner in which the books were accounting year and the nature of purchase and sale of shares, it came to the finding that the assessee was not a dealer in shares but merely an investor, it cannot be inferred with by this Court. Nor can it be said that the Tribunal s finding was based on no materials or was perverse. In the result, the question is answered in the negative. The applicants will pay costs to the respondent. Certified for counsel. SANKER PRASAD MITRA, J‑‑ I agree. Question answered in the negative.