TMI Blog1949 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... gage or of sale were given in the application filed on that date. On 25th February, 1927, this Court approved the scheme of making a mortgage of the mills to the firm on certain amended terms. The firm was put in possession of the property belonging to the mills. Disputes, however, arose between the liquidators and the firm as to the terms to be agreed upon for the execution of the mortgage and the mortgage deed was never executed. The matter was ultimately taken to the Privy Council and was decided by their Lordships on 5th July, 1929: (Kamlapat Moti Lal v. Union Indian Sugar Mills Company Ltd.) [1929] A.L.J. 1289. Their Lordships held that the shareholders should have been consulted and gave certain directions for the meeting of the shareholders. The shareholders approved of the scheme, but the firm was then not prepared to take the property on mortgage. The liquidators thereupon filed a suit for specific performance of contract. The suit was, however, dismissed by the Subordinate Judge, Kanpur, on 6th January, 1931, and as no appeal was filed against that decision, the decision became final. The result, therefore, was that the firm had paid a sum of ₹ 10,62,000 and from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole of the profits for the previous year were received by the successor, even though the whole or a part of those profits might have been received by his predecessor, in the computation of the profits for the previous year deduction must also be made with respect to all the allowances enumerated in sub-section (2) of Section 10 to which the predecessor may have been entitled. The result was that the answer to the first question was given in favour of the assessee. We may mention that the two references, that is the reference against the order of the Commissioner of Income-tax for the assessment year 1933-34 (Miscellaneous Case No. 528 of 1936) and for the year 1934-35 (Miscellaneous Case No. 529 of 1936) were made at the same time and were connected. The same three questions were referred for answer in both the cases and those questions were as follows:- (1) In the circumstances stated, having regard to the fact that the sale deed (Appendix A) was executed on 18th May, 1932, was the assessee entitled to depreciation on the machinery and buildings in question with effect from 28th December, 1926, the date on which, in pursuance of the mortgage scheme sanctioned by the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.R. 328. It is not dispute that as a result of that decision the assessee cannot claim to have the balance of the unabsorbed depreciation of ₹ 5,62,151 set off against the profits made in the year 1933. The argument, however, is that the decision of this Court in Miscellaneous Case No. 528 of 1936 operates as res judicata and we are bound, therefore, to answer the question in the same way as it was answered in that case. Before we consider the question how far the principle of res judicata applies in tax matters, it may be profitable to analyse the basis of the decision of this Court in 1939. Before the case came up for decision, their Lordships of the Judicial Committee in Commissioner of Income-tax, Madras v. Buckingham Carnatic Company Ltd. [1935] 3 I.T.R. 384 ; 59 Mad. 175 had held that the words being the property of the assessee, a sum equivalent to such percentage on the original cost thereof to the assessee meant the original cost to the actual assessee. Their Lordships had observed as follows: The cost which is to be considered for the purpose of the allowance for depreciation must be the original cost to the person by whom the income-tax is payable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be said that the Court intended to decide the question relating to the sum of ₹ 5,62,151 not only for the year which was then relevant but also for all succeeding years. In that view of the matter there is no question of res judicata, and it being not contended that on the merits the assessee is entitled to claim a set-off of this amount, the first question must now be answered in the negative. In the view that I take of the previous decision in the connected case it is not necessary to discuss the law relating to res judicata in income-tax matters at any length. In view, however, of the large number of rulings cited, I may discuss some of the important ones that were placed before us. There can be no doubt that if any question of right or title which is not peculiar to the year of assessment has been decided by a competent Court, the decision may be treated as res judicata in subsequent years, but the law is well settled that if the decision is of the Income-tax authorities, that decision cannot operate as res judicata. The Income- tax authorities cannot be treated as Courts deciding a disputed point, except for the purpose mentioned in Section 37, and further ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icata when the facts are different. If a question of law once decided between an assessee and the department is to be considered as res judicata for all times, as is argued by Mr. Pathak, we shall have different rules of law for different assessees. To my mind, the decision must be confined to the particular set of facts or to the particular transaction and cannot be made applicable to other facts even if those facts are similar. In the case before us, it was decided by this Court that in the year of transfer the assessee was entitled to deduct from the profits made the accumulated depreciation of previous years prior to the date of its purchase. If the same question arose between the assessee and the Department in connection with some other purchase in some subsequent year, it is not possible to argue that as between the assessee and the department it would have to be taken as good law in spite of the decision to the contrary of their Lordships of the Judicial Committee in Indian Iron Steel Co. Ltd. v. Commissioner of Income- tax, Bengal [1943] 11 I.T.R. 328. All that can, therefore, be said is that if in the course of the assessment for one year a general question of right or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. The same principle of setting parties' rights to rest applies and estoppel occurs. The judgment of the High Court of Australia, which was upset by their Lordships of the Judicial Committee, was based on the ground that at the previous hearing the attention of the learned Justice was not directed to the question whether the beneficiaries were taxable as joint owners, and he did not consider it : (see Hoystead v. Federal Commissioner of Taxation [1925] 20 Com. L.R. 537, at p. 552). In In re Koenigsberg Public Trustee v. Koenigsberg [1948] 1 Ch. D. 727 the testator Joseph Koenigsberg executed his will on 23rd June, 1936, and died on 26th April, 1941. By clause 2, he bequeathed certain legacies and by clause 3, the annuities mentioned in the will were to commence from the date of his death. The question was whether the annuities were payable in full. This depended upon the decision of the question whether for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e [1926] A.C. 155, brings out how far the principle of res judicata is to be applied to previous decisions in income-tax cases. Where the decision is as regards the title or the rights of the parties in some property or about the nature of the property, and the decision has nothing to do with fluctuations of the income, nor is it confined to the ascertainment of the value or of the income for any particular year, the decision would operate as res judicata. In contrast to the decision in Hoystead's case [1926] A.C. 155, where it was held that a previous decision of the High Court of Australia operated as res judicata, may be cited the case of Commissioners of Inland Revenue v. Sneath [1932] 2 K.B. 362 where a previous decision of the Commissioners, whether payments out of the income of a lunatic of his committee's remuneration and of the lunacy percentage on his clear annual income payable to the Court under Section 148 of the Lunacy Act, 1890, and the Lunacy Rules, 1892, rule 133, cannot be deducted from a lunatic's gross income for the purpose of an assessment to super-tax, was held not to operate as res judicata to prevent a contrary decision in assessing super-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Miscellaneous Case No. 628 of 1936 in In re Kamlapat Moti Lal [1939] 7 I.T.R. 374 does not operate as res judicata in favour of the assessee. That case did not decide anything beyond this, that the assessee was entitled to set off the unabsorbed depreciation, that had accumulated before the transfer, against the profits earned in the year of transfer. It did not decide that the assessee was entitled to set off any part of that unabsorbed depreciation against the profits earned in any other year. The decision of the Judicial Committee in Buckingham and Carnatic Company's case [1935] 3 I.T.R. 384 ; I.L.R. 59 Mad. 175 was distinguished on this precise ground that it does not apply to a case where assessment is made on a successor in respect of profits earned by his predecessor. The substance of the decision in Miscellaneous Case No. 628 of 1936 [1939] 7 I.T.R. 374 may be expressed thus : Though the assessee is not entitled to set off the unabsorbed depreciation of ₹ 5,62,151 against the profits earned during any other year, according to the decision of the Judicial Committee the assessee is entitled to set it off against the profits earned in the year in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata might have been applied to a decision under the Indian law of Income-tax or under the English law of Income-tax. The decision which was held to operate as res judicata in In re Koenigsberg Public Trustee v. Koenigsberg [1948] 1 Ch. D. 727 was not a decision in an income-tax case, and Hoystead and Others v. Commissioner of Taxation [1926] A.C. 155 was a case from Australia. (4) It is not known whether the procedure adopted by the Department in enquiries in tax cases in Australia partakes of the nature of the enquiries in judicial trials in courts or whether it is like the procedure followed in this country. Without better information on the point it is not possible to say that the same considerations, which applied to Hoystead's case [1926] A.C. 155, apply to decisions in income-tax cases in this country also. Moreover, the precise question, whether the rule of res judicata applies to tax cases also, was not canvassed in Hoystead's case [1926] A.C. 155. It was undisputed that it applied to such cases and the only question canvassed before the House of Lords was whether the requirements of the rule were satisfied or not. For all the reasons mentioned above, I find m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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