Krishna Devi Dalmia vs Income Tax Officer

Avadh Behari Rohatgi, J.—These are four appeals from the order of a learned single judge dated October 31, 1973. At the conclusion of the hearing we announced our decision. We dismissed those appeals. Now we give our reasons. The appellant, Shrimati Krishna Devi Dalmia, is the assessee. She filed income tax returns for the assessment years 1957-58 to 1961-62. She had acquired a large number of shares in certain companies. She sold these shares and realised amounts far in excess of what she had paid for them. To begin with, she took the stand that the excess amount was not liable to tax. But this contention was soon given up. Then she took the position, and this was her case throughout, that this amount would be liable to tax as capital gains as capital gains tax levy had been introduced from 1st April, 1956, in the income tax law. A provisional assessment u/s 23B of the Indian income tax Act, 1922, was made and she paid the amount of capital gains tax.

In due course the ITO made the regular assessment and taxed this amount as business profits. From this order, she appealed to the AAC. Her appeal was dismissed. Then she took the matter in appeal to the income tax Appellate Tribunal. There, as before, her contention was that this amount was merely a capital gain and that the ITO and the AAC were wrong in taxing this amount as a business profit as if she were a dealer in shares. The Tribunal, by order dated March 14, 1963, accepted the appeal and held that the amounts in question were "merely capital accretions " and were not liable to be taxed as business profits. The Tribunal said thus:

From a fair consideration of all the facts in the case, we hold that the sale of shares was for necessities and not with any profit-making motive. In those circumstances, we cannot hold that the assessee was a dealer in shares in this year.

At the end of the order, the Tribunal said:

The assessment will be revised in accordance with the above.

After the making of the order by the Tribunal the ITO treated, as he was bound to treat, the amounts in question as capital gains instead of business income and accordingly revised the assessment on May 2, 1963.

On May 9, 1963, the ITO addressed a letter to the Tribunal u/s 35 of the Indian income tax Act, 1922 (" the Act") seeking a direction that he be ordered to tax the amount in question as capital gains in view of the Tribunal''s positive finding that this was not business income. It was submitted that a direction to this effect should be incorporated in the order of the Tribunal. This application was dismissed by the Tribunal on April 4, 1964, on the ground that the application, in substance, sought a review of the order of the Tribunal and this the Tribunal could not do as it had no power to review its own order.

Immediately, the appellant applied to the ITO on May 31, 1964, for the refund of the amount she had paid as capital gains tax. The ITO refused to refund. The appellant then brought four writ petitions on August 10, 1964, asking for an order of mandamus directing the ITO to rectify the assessments and to refund to her the amount of capital gains tax which had been collected from her. The learned judge dismissed the writ petitions. From this decision the appellant appeals to this court.

It is true that in the beginning the appellant contended that she was not liable to pay any tax on the excess amount realised by her from the sale of shares but this stand was soon abandoned. The consistent stand of the assessee throughout the case was that she was liable to be taxed on the capital gains and not on business profits. This position she adopted throughout before the income tax. authorities. Her pleaders pleaded the case on this footing throughout. Only after the ITO made the application on May 9, 1963, that her hopes were raised. She probably thought that, as the Tribunal had given no direction in its order as to how the amount in question had to be taxed, she was entitled to refund. This is why she made the application for refund to the ITO.

In our opinion, there is no merit in these appeals. Clearly, the Tribunal has held that the surplus amounts accruing to the appellant from the sale of shares were "capital accretions ". If this is so, there can be no manner of doubt that in terms of this finding her assessment had to be revised by the ITO. The only course was to tax the capital accretions as capital gains. The law regarding capital gains tax levy had come into force on 1st April, 1956, and under this law if there was a capital accretion it had to be taxed as capital gains. This position the appellant herself accepted throughout the proceedings and never for a moment did she dispute it. She, in fact, paid capital gain tax on the provisional assessment u/s 23B of the Act. In her letters and representations to the department she said that she understood that the amount in question was subject to capital gains and that this amount she was prepared to pay and that she was not liable to be penalised for any default. She had herself described the surplus as capital receipts. When the ITO made the application on May 9, 1963, she seems to have been advised that she could ask for refund because there was no direction by the Tribunal in its order to tax the amount as capital gains.

We think the application by the ITO u/s 35 was entirely misguided. The ITO had himself taken the right course when he revised the assessment on May 2, 1963, treating the amount in question as subject to capital gains instead of as business income. That he was right in doing so we do not doubt. The Tribunal had clearly found that the sale was for necessities and the surplus amounts in her hands as a result of the sale were in the nature of "capital accretions". The Tribunal directed the ITO to revise the assessment in terms of this finding. This he did on May 2, 1963. We do not understand why an application was made on May 9, 1963, for a direction from the Tribunal when the Tribunal had clearly said that the assessee should be taxed on capital accretions and not on business profits. The making of the application and its consequent dismissal on April 4, 1964, by the Tribunal was the sole reason, so it seems to us, which led the appellant to make the claim for refund.

But if the ITO was misguided in making the application, so was the appellant in making a claim for refund. The order of the Tribunal clearly indicates that it was the assessee''s own case that the surplus was subject to capital gains and not business profits. This case of the assessee the Tribunal accepted in appeal. The ITO, accordingly, revised the assessment. There is no question of refunding the amount to the appellant which she had willingly paid knowing fully well as part of her positive case that she was liable to pay capital gains tax. The order of the Tribunal is final, no doubt. But to say that on this finality the appellant''s claim to refund is well founded is to misread the final order of the Tribunal. There is no justice in the appellant''s claim. Finality is a good thing but justice is better." Lord Atkin has told us. AIR 1933 208 (Privy Council) . For these reasons the appeals are dismissed.