TMI Blog1971 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the assessee is entitled to the loss of Rs. 44,190 (Rupees forty-four and one hundred ninety) as business loss in the year of account ? " The assessment year with which we are concerned is 1954-55 corresponding to the account year 2009 Samvat year. The dispute concerns an item of Rs. 44,190 which the assessee claimed as a loss incurred in the year of account from his business of purchase and sale of shares. When the matter came before us on the earlier occasion we found that the department had merely taken into account the position of dealings with by the assessee in the years prior to the assessment year in question. namely, 1954-56. It was urged before us that the dealings of the assessee in the subsequent years to which a reference had been made in the statement of the case could also have been taken note of and that the Tribunal erred in ignoring those facts of the assessee's dealings with shares in the subsequent years. By our order of 16th July, 1969, we accepted the contention of the assessee and, after reframing the question, called for a fresh statement of the case from the Tribunal with advertence to the facts of the assessee's dealings subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on any business in the year of account pertaining to the assessment year 1954-55. The new finding is against the department whereas the previous finding was in favour of the department. Before we proceed to answer the reference, it is necessary to notice one contention which Mr. Hajarnavis raised against the new statement of the case dated 8th June, 1970. He urged that the statement of the case is not in compliance with the judgment of this court dated 16th July, 1969, and that, on the other hand, the Tribunal has not merely stated the facts but has gone further and given a fresh finding. He objected to the finding given in paragraph 16 as being entirely unwarranted and uncalled for having regard to the terms of our judgement dated 16th July, 1969. He also urged that the Tribunal has done something which the judgment of this court expressly asked it not to do, namely, not to take into account the facts and the circumstances of the assessee's dealings in shares for the years 1959-60 and 1960-61. This is clear, he urged, from the first sentence of paragraph 16, which we have quoted above. The last paragraph, moreover, gives a finding which the Tribunal was never called upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to us. We think that it would be just and proper that we should not look at any of those facts pertaining to the year 1959-60 and 1960-61 nor to the new finding given, and come to a decision ourselves. But then it was urged by Mr. Hajarnavis that it cannot be said to what extent the facts, which they were not entitled to consider, namely, for the years 1959-60 and 1960-61, had influenced the Tribunal's mind and that, therefore, the case must go back for their reconsideration, and a fresh statement of the case. Since we have decided to exclude the finding thus given by the Tribunal from our consideration and decide the matter independently ourselves, we do not think that this contention can prevail. We will treat the reference before us as if the new finding had not been there, nor the facts pertaining to the years 1959-60 and 1960-61. Now in order to appreciate the impact of the additional facts stated in the new statement dated 8th June, 1970, upon the case as a whole, it is necessary to recount what were the facts as stated in the earlier statement of the case dated 28th September, 1962. Those facts are as follows : For the years 1942-43 to 1946-47 there were both transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 40,000 and sales of Rs. 12,707 resulting in a loss of Rs. 2,273. This loss was disallowed by the Income-tax Officer holding that the assessee had ceased to do business, but the Appellate Assistant Commissioner held that he was a dealer and was doing business. This finding of the Appellate Assistant Commissioner was accepted by the department since no appeal was filed on their behalf. In 1956-57 there were no purchases but only sales of Rs. 15,744 resulting in.a loss of Rs. 604. It was disallowed by both the Income-tax Officer and the Appellate Assistant Commissioner, but an appeal was pending before the Tribunal. In 1957-58 again there were no purchases, but there were only sales of Rs. 7,685 resulting in a profit of Rs. 1,155 which was taxed by the Income-tax Officer. The assessee did not appeal. In 1958-59 there were both purchases and sales, purchases of Rs. 1,16,735 and sales of Rs. 25,175, resulting in a loss of Rs. 91,778. This loss was disallowed by both the Income-tax Officer and the Appellate Assistant Commissioner and an appeal was filed by the assessee to the Tribunal. Thus, appeals were pending regarding the assessments for the years 1956-57 and 1958-59. These appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him was a business loss. Similarly, in 1957-58 though the assessee did not make any purchases he made sales and earned a profit of Rs. 1,155 and this was taxed by the Income-tax Officer as a business profit. Therefore, once again it was found by the department themselves that in 1957-58 the assessee was doing the business of purchase and sale of shares. The position, therefore, comes to this that for six years prior to the assessment year in question till the year 1947-48 the assessee was undoubtedly doing business. For the next six years till 1953-54 the assessee does not appear to have dealt in shares, though there is nothing to show also that he had ceased to do business. In short, it was a period of inactivity on his part. In the period subsequent to the assessment year in question, i.e., in 1955-56 and 1957-58, the assessee was admittedly found to be a dealer. He was thus found to be a dealer both before the assessment year in question and after the assessment year in question and the question arises whether, because he was inactive during the period 1947-48 to 1953-54, the finding can be justified that he had ceased to do business in the purchase and sale of shares. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be a lull in the business or a period of inactivity which may betoken an intention either : (1) to cease doing business altogether, or (2) merely not to do business, because, conditions are adverse, coupled with an intention to resume it when conditions improve. A period of inactivity, therefore, is not conclusive in deciding whether a person is or is not doing business. It is merely a circumstance which can and ought to be taken into account along with the other circumstances. If after the period of inactivity it is found that he has resumed the business, that circumstance would, however, be important. When there is no positive indication to the contrary it would show that the person who was carrying on business previously had merely resumed his activities and that is what has happened in the present case. The assessee was undoubtedly a dealer till 1947-48. He was found to be a dealer also in the years 1955-56 and 1957-58. There is absolutely nothing to show that he had any intention to cease to do business in the interval. There is no evidence that he carried on any other business in the interval. Why then must it be held that he had abandoned his accustomed business in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h v. Commissioner of Income-tax, where also a long interval of time had resulted in the Tribunal holding that the assessee had ceased to be a dealer in shares. Veeraswami J. (now the Chief Justice), after referring to the nature and relevant considerations in the report of the Royal Commission on the Taxation of Profits and Income, 1955, in England, held at page 511 in just such a case like this : " In our opinion, the only reasonable and necessary inference is that she traded in shares with a commercial motive of making profit. It is no doubt true that there was an interval between 1948-49 and 1953-54 during which there were no transactions in shares by the assessee, but that, as we think, can hardly make any difference to the fact that her purchase and sale of shares was and has been with a commercial motive. The Tribunal evidently noticed her dealing in shares in the subsequent years, but has not taken it into account in deciding the character of the holding of shares in Vanguard in her hands." Under these circumstances, it seems to us impossible to infer from the interregnum between 1948-49 and 1953-54 that the assessee had ceased to do business in shares. In fact, he has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted into a trading stock by the conduct of the assessee in dealing with it. But evidence of such conduct must be cogent, clear and unequivocal, and it would be dangerous on the part of the taxing authorities to infer that a capital has acquired the character of stock-in-trade merely from the fact that the assessee had dealt with another capital stock as a trading commodity. " We cannot but conclude in the circumstances that the shares held by the assessee, which were his stock-in-trade at the end of the assessment year 1947-48 and which have been found to be also his stock-in-trade in at least two years after the assessment year in question, namely, in 1955-56 and in 1957-58, where his stock-in-trade in the assessment year 1954-55 and that when he sold them and sustained a loss, the loss was a business loss. Counsel on behalf of the department raised two points which may now be dealt with. He first of all pointed out that, for the purposes of income-tax, each individual year of account is a separate legal entity which must be separately dealt with and that no finding given in one year can bind the department in another year. He said that there is nothing like res judicata in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on business or not. It has nothing to do with res judicata which is a rule of evidence which legally precludes a court from deciding over again a point which it has decided. Because the principle of " res judicata " does not apply in the case of income-tax proceedings it does not follow that the department must not look to facts and circumstances relative to prior and subsequent assessment years. We also do not think that this contention is open to the department to-day in view of our order dated 16th July, 1969, where we have held that the facts regarding the dealings of the assessee subsequent to the assessment year in question before us, i.e., 1954-55, can be looked at. But since that order of ours dated 16th July, 1969, the Supreme Court has itself laid down the same principle in Investment Ltd. v. Commissioner of Income-tax. In that case the assessee was claiming an allowance for the loss suffered in the sale of certain securities in the assessment year 1953-54. The tax authorities, namely, the Income-tax Officer and the Appellate Assistant Commissioner, held that it was not a business loss. The Tribunal held that the loss suffered by the sale of securities was of a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. shares with a profit. of Rs. 1,915 and (2) purchase and sale within a week of 500 shares of Scindia Steam Navigation Co. Ltd., with a profit of Rs. 844. The assessee's contention was, as always up to the assessment year 1947-48, that he was not a dealer in shares, and the profit, if any, on sale of shares was only a capital gain which is not taxable. The Appellate Assistant Commissioner upheld the Income-tax Officer's addition but the Tribunal drew a line of distinction between the two items involved. The purchase of 450 shares had been made on various dates from September 15, 1939, to May 15, 1940, and the sale had been made on August 27, 1941. The Appellate Assistant Commissioner had held that the interval between the purchase and sale was not sufficiently long as to establish that the purchase was by way of investment. " Relying upon these observations counsel urged that we should consider the transactions of the assessee in respect of each company separately and see whether in the case of each company he dealt in their shares by way of business or by way of capital investment. Alternatively, he argued---and that is another shade of the same argument---that wherever it can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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