High Court Of Calcutta
CIT vs. Karam Chand Thapar & Sons Ltd.
Sections 263, 256(1)
Asst. Year 1963-64
Ajit Kumar Sengupta & K.M. Yusuf, JJ.
IT Ref. No. 58 of 1979
12th September, 1988
B.K. Bagchi, for the Revenue : Dr. Debi Pal & M.Sil, for the Assessee
AJIT KUMAR SENGUPTA, J.:
At the instance of the CIT, West Bengal II, Calcutta, the following question of law has been referred to this Court for the asst. yr. 1963-64 under s. 256(2) of the IT Act, 1961 (“the Act”) : “Whether, on the facts and in the circumstances of the case and on a correct interpretation of s. 263 and s. 256(1) of the Act, the Tribunal misdirected itself in law in holding that inasmuch as the question of law said to arise out of the order of the Tribunal for the earlier assessment years had been referred at the instance of the CIT to the High Court, the CIT could not have considered the order of the ITO as erroneous in so far as it was prejudicial to the interests of the Revenue and, in that view, cancelling the order of the CIT made under s. 263?”
2. The facts of the case are as follows : The assessee claimed before the ITO that it was an investor in shares and that the profit or loss arising from the sale of shares was a capital gain or capital loss. The ITO found that similar claims made by the assessee in earlier years had been rejected by him and the assessee had been held to be a dealer in shares. He, accordingly, rejected the assessee’s claim for this year also. The net result of the dealings in shares was a loss of Rs. 17,405. The ITO completed the assessment by treating this loss to be a business loss. The CIT subsequently found that the assessee’s claim that it was an investor in shares had been accepted by the Tribunal in the appeals for the asst. yrs. 1957-58 to 1961-62. The Commissioner, therefore, felt that the loss of Rs. 17,405 suffered by the assessee in share dealings during this year should have been held to be a capital loss and not a business loss, as held by the ITO, while making the assessment. He, therefore, considered the assessment order to be erroneous and prejudicial to the interests of the Revenue and required the assessee to show cause as to why an order under s. 263 be not made. The assessee claimed that the Tribunal’s order for the asst. yrs. 1957-58 to 1961-62 had not been accepted by the Department and the CIT was, therefore, not justified in initiating action under s. 263 on the basis of the Tribunal’s order. The assessee also pointed out that, on giving effect to the Tribunal’s order for the earlier years, the assessee would be found to have suffered a substantial amount of short- term capital loss which would have to be set off in this year and in subsequent years. The assessee, therefore, requested that the proceedings under s. 263 should be dropped. The CIT found no substance in the submissions of the assessee. The assessee had itself claimed that it was an investor in shares and this claim had been accepted by the Tribunal. The CIT, therefore, felt that there was no reason why the loss suffered in share dealings in the year should not be held to be a capital loss. The fact that past losses would have to be set off against the income of this year could not be a valid ground against passing an order under s. 263. The CIT, therefore, passed an order under s. 263. The loss of Rs. 17,485 was found to comprise the following : The amount of short-term capital gain was added to the assessee’s income and the total income was determined at Rs.6,59,090. The assessee, thereafter, appealed to the Tribunal ; it was claimed that the Department had not accepted the Tribunal’s order for the earlier years. The Department had sought for a reference for those years and the request had been allowed by the Tribunal. If the Department felt that the decision of the Tribunal for those years was not correct, the CIT could not, simultaneously, believe, on the basis of the Tribunal’s order, that the view taken by the ITO while making the assessment was erroneous.
The assessee, thus, claimed that there was no warrant for the CIT to take action under s. 263. The Department supported the order of the CIT and claimed that, if the CIT had not acted under s. 263, there would have been a loss of revenue. The Tribunal found that its order for the earlier years holding that the assessee was an investor in shares and that the shares were its capital assets had not been accepted or acted upon by the CIT. The Tribunal, therefore, felt that the CIT could not be justified in considering that the order passed by the ITO holding the assessee to be a dealer in shares was erroneous and prejudicial to the interests of the Revenue. The Tribunal, accordingly, held that the requirements of s. 263 had not been satisfied and cancelled the order passed by the CIT. At the hearing, Mr. Bagchi, learned advocate appearing for the Revenue, has contended that, for the earlier years, that is to say, for the years 195556 to 1965-66, the Tribunal, the High Court as well as the Supreme Court consistently held that the assessee is an investor in shares and, accordingly, the loss, if any, should be on capital account. He has also submitted that, when the CIT passed an order under s. 263 of the Act, he was aware of the decision of the Supreme Court in the case of the assessee in Karam Chand Thapar and Bros. (P.) Ltd. vs. CIT (1971) 82 ITR 899 for the asst. yr. 1955-56 holding that the assessee was an investor in shares. He has submitted that, in that view of the matter, although the CIT might have not accepted the earlier order and made a reference application contending that the loss would be a business loss and not a capital loss, it did not preclude the CIT from passing an order under s. 263 having regard to the orders passed by the Tribunal, this Court and the Supreme Court. He has also relied on two decisions, one in the case of CIT vs. Shriram Development Co. (1986) 52 CTR (MP) 208 : (1986) 159 ITR 812 (MP) and the other in the case of CIT vs. Smt. Lakshmi Narayanan (1986) 52 CTR (Mad) 240 : (1986) 157 ITR 816 (Mad) in support of his contention that the CIT can look into subsequent decisions for holding whether the order passed by the ITO was erroneous in so far as it was prejudicial to the interests of the Revenue or not.
Dr.Debi Pal, the learned advocate appearing for the assessee, has contended that the CIT, in his application under s. 256(1), has stated that he was aggrieved by the decision of the Tribunal holding that the assessee is an investor. The contention of the CIT was that the assessee should have been held to be a dealer in shares. In other words, the contention of the CIT in the application under s. 256(1) was that the Tribunal erred in law in holding that the loss was a capital loss whereas it ought to have been held that the loss was a business loss. Having made that reference application, the CIT could not, in the same breath, again contend that the order of the ITO, for the subsequent year, that is to say, the year under reference when he has held that the loss in question was a business loss was so far as it was prejudicial to the interests of the Revenue. This stand will be contrary to the stand taken by the CIT in his application under s. 256(1). He also submitted that, in the order of the CIT, there is no reference to any previous decision of the High Court or the Supreme Court and, accordingly, it cannot be said that the CIT considered that the order passed by the ITO was erroneous. He has relied on a decision of the Supreme Court in the case of Barium Chemicals Ltd. vs. A. J. Rana (1972) 42 Comp Cas 245 ; AIR 1972 SC 591. There the Supreme Court observed as follows (at page 252) : “The words ‘considers it necessary’ postulate that the authority concerned has thought over the matter deliberately and with care and it has been found necessary as a result of such thinking to pass the order. The dictionary meaning of the word ‘consider’ is to view ‘attentively, to survey, examine, inspect (arch.), to look attentively, to contemplate mentally, to think over, meditate on, give heed to, take note of, to think deliberately, bethink oneself, to reflect’ (vide Shorter Oxford Dictionary). According to Words and Phrases (Permanent Edn., Vol. 8A) to ‘consider’ means to think with care. It is also mentioned that to
‘consider’ is to fix the mind upon with a view to careful examination ; to ponder, study, meditate upon, think or reflect with care. It is, therefore, manifest that careful thinking or due application of the mind regarding the necessity to obtain and examine the documents in question is a sine qua non for the making of the order. If the impugned order were to show that there has been no careful thinking or proper application of the mind as to the necessity of obtaining and examining the documents specified in the order, the essential requisite to the making of the order would be held to be nonexistent. A necessary corollary of what has been observed above is that the mind has to be applied with regard to the necessity to obtain and examine all the documents mentioned in the order. An application of, the mind with regard to the necessity to obtain and examine only a few of the many documents mentioned in the order, while there has been no such application of mind in respect of the remaining documents, would not be sufficient compliance with the requirements of the statute. If, however, there has been consideration of the matter regarding the necessity to obtain and examine all the documents and an order is passed thereafter, the Court would stay its hands in the matter and would not substitute its own opinion for that of the authority concerned regarding the necessity to obtain the documents in question.”
7. He has submitted that, in this case, there is no consideration of the relevant fact at all by the CIT in passing his order under section 263 of the Act and, accordingly, the Tribunal was justified in holding that the order passed under s. 263 was not properly or validly passed by the CIT.
We have considered the rival contentions. The CIT, in his order dated March 4, 1970, passed under s. 263 has referred to the orders passed for earlier years. It is necessary for us to set out the order of the CIT which reads as follows : “Sri Roy submitted that the Department has not yet finally accepted the judgment of the Tribunal for 1957-58 to 1961-62 and, therefore, action under s. 263 is not justified. Besides, on giving effect to the Tribunal’s order, there will be substantial short-term capital losses to be carried forward from earlier years and set off in subsequent years. I do not find substance in the above submissions. Since, according to the assessee’s own contention, the losses or gains from transactions in shares are capital losses or capital gains and such contentions for 1957-58 to 196162 were accepted by the Tribunal, there is no reason why the loss of 1963-64 should not be considered as capital loss only for the reason that the decision of the Tribunal for earlier years was disputed. It had never been the contention of the assessee that the loss of 1963-64 was not a capital loss. Regarding the carry- forward and set-off of losses of earlier years in view of the Tribunal’s orders for 1957-58 to 1961-62, the same may be allowed by the ITO in accordance with the provisions of the Act. That the assessee is entitled to carry forward earlier years’ losses, if any, is not a valid ground against the passing of an order under s. 263 for 1963-64. The contentions of the assessees are, therefore, rejected.”
8. It will be evident from the said order of the CIT that it was never the contention of the assessee for the asst. yrs.
1957-58 to 1961-62 that losses or gains from transactions in shares are not capital losses of capital gains. As a matter of fact, the contention of the assessee was that the losses or gains arising from the transactions should be assessed as capital loss or capital gain, as the case may be. This contention of the assessee has been accepted by the Tribunal. We may also mention that, for the assessment years beginning from 1955-56 till 1965- 66, the Tribunal had consistently held that the losses or gains arising from identical transactions would be assessed either as capital losses or capital gains, as the case may be. The ITO passed an order contrary to the assessee’s own contention. It is true that, at the material time, the Commissioner made an application under s. 256(1) challenging the decision of the Tribunal in respect of the earlier assessment years. But, the action for the asst. yr. 1963-64 could not be postponed by the CIT until the finality of the proceedings for the earlier years. He might have thought that the Tribunal was not justified in holding that the loss or gain arising from the transactions in question was a capital loss or a capital gain. But it did not preclude him from considering, in the light of the decision of the Tribunal for the earlier years as to whether the assessment order for the asst. yr. 1963-64 was erroneous in so far as it was prejudicial to the interests of the Revenue. The order of the ITO, contrary to the findings of the Tribunal for the earlier assessment years, even though the CIT might have challenged the order by preferring an application under s. 256(1), was erroneous. The ITO did not follow the order passed by the Tribunal for the earlier years holding that the loss was a capital loss. He ignored that it was held for the earlier year by the Tribunal and the High Court that the assessee was an investor in shares and, accordingly, loss or gain arising from transactions in shares would be either a capital loss or a capital gain. We are of the view that the CIT has given sufficient indication in the order as to why he was setting aside the order under s. 263. Had not the assessment order been set aside, an anomaly would have arisen.
On identical facts, the assessee would have been an investor in shares for some years but a dealer in shares for the assessment year under reference. The losses or gains derived by the assessee in identical transactions would have been treated differently. This could not have been the intention and, accordingly, in our view, the CIT rightly thought that the assessment which was made by the ITO, contrary to the findings of the Tribunal for the earlier years, is erroneous in so far as it was prejudicial to the interests of the Revenue. The assessee was found and held to be an investor in shares for the asst. yrs. 1964-65 and 1965-66 and earlier years by this Court. The said decisions of this Court in the case of the assessee are CIT vs. Karam Chand Thapar and Sons Ltd. (1978) 115 ITR 250 and CIT vs. Karam Chand Thapar and Sons Ltd. (1987) 64 CTR (Cal) 167 : (1987) 166 ITR 636. The same view was taken by this Court prior to the order passed by the Tribunal in the case of Karam Chand Thapar and Bros. (P.) Ltd. vs. CIT (1968) 70 ITR 328. This view was affirmed by the Supreme Court. The decision of the Supreme Court is relied on in Karam Chand Thapar and Bros. (P.) Ltd. vs. CIT (1971) 82 ITR 899.
For the reasons aforesaid, we are of the view that the Tribunal fell in error in holding that the CIT had no jurisdiction to pass the order under s. 263 because the CIT had initiated an application under s. 256(1) taking a contrary stand. For the reasons aforesaid, the question referred to this Court in this reference is answered in the affirmative and in favour of the Revenue. There will be no order as to costs.
Leave is given to Orr Dignam and Co. to file vakalatnama within two weeks from date.
K. M. YUSUF J.
[Citation : 186 ITR 368]