SHBLAT, - (1.) THE Judgment of the court was delivered by
(2.) . These appeals, under special leave, arise from the Refe-rences to the High court of Patna under Section 66(2) of the Income Tax Act,1922 and relate to the assessment years 1945-46 and 1946-47. In the firstappeal, the question arising for determination is whether, on the facts andcircumstances of the case, the surplus receipt of Rs. 13,43,469.00, realisedas a result of the sale of gold) is assessable as income) or profits or gains forthe assessment year 1945-46 under Section 4(3) (on) of the Act. In thesecond appeal, two questions arise for determination: one relates to thesurplus receipt of Rfi. 33,481.00 arising out of the sale of some more gold, andthe second relates to the receipt of Rs. 88,522.00 realised by the assesseeas a result of sale of certain shares. All the three questions raise thecommon problem whether the said transactions in gold and shares were byway of realisation of investment or were adventures in the nature of tradeor business. . The assessee was at all meterial times a landholder deriving largeincome from agriculture, royalties of minerals and income from forestsforming part of his estate. Prior to 1937, when be was a minor, his estatewas under the management of a court of Wards. On attaining majority)the estate, which included government securities of the value of about Rs.40 lacs, was handed over to him on 19/08/1937. During the accountyear 1938-39 he sold the whole lot of these securities and realised Rs.44,25,088.00, the sale thus resulting in an excess of Rs. 4,55,305.00. Thisexcess amount was assessed as profit by the Income-tax Officer for the assess-ment year 1939-40. But on appeal against the assessment order, the Appel-late tribunal set aside that order on a finding that the said sale was by wayof a change in investment, and therefore, was not a transaction in the natureof trade or business. On 23/03/1939, the assessee opened an accountin the Imperial Bank of India initially with Rs. 46 lacs, which included thesaid sale proceeds of Rs. 44 lacs and odd and to which on 27/03/1939 headded Rs. 2.60 lacs. The account was opened in the name of his wife andwas called "Account of Rs. 48 lacs floating in the share market"-. In Sep-tember 1939, the assessee purchased shares and debentures of the value ofRs. 34.14 lacs from out of the funds in the said account. He, however, sold794 certain shares for Rs. 5,75,723.00 in October 1939, and then the rest of themin 1940 and 1941 realising Rs. 29,58,677.00 and Rs. 64,201.00 respectively.The first sale fetched a profit of Rs. 5,17,064.00, the second a profit of Rs.25,133.00 and the third a loss of Rs. 1,642.00. The Income-tax Officer broughtto tax the two surpluses in the assessments for the assessment years 1940-41and 1941-42. But the department was again unsuccessful as the tribunalonce again held, on the strength of the correspondence which had passedbetween the assesses, his bankers and his brokers in Calcutta, that the onlypossible conclusion emerging from that correspondence was that the assessee'sintention was not to deal in shares and debentures, and that the said transac-tions were a mere change in investment carried out of a single scheme ofearning a better yield from investments. The tribunal's orders in respectof these assessments for the assessment years 1939-40 to 1941-42 were madepart of the statement of case filed by the tribunal before the High court inthe present reference. . Between 28/06/1940 and 9/11/1940 the assessee purchased68,109 tolas of gold for Rs. 28,47,380.00 from out of the sale proceeds of thesaid shares. The gold so purchased was kept in his family vaults at Padamthe seat of his estate, for nearly 4 years. Between October 9, 1.944 and Octo-ber 20, 1944, he disposed of the bulk of the gold, i. e., 55,494 tolas, for Rs.36,80,174.00, the sale resulting in a surplus of Rs. 13,43,469.00, which is thesubject-matter of the first appeal. The remaining quantity of gold was soldin 19/10/1945, and that sale brought him an excess of Rs. 33,481.00,which is part of the subject-matter of the second appeal.
(3.) . In respect of these two surplus amounts the assessee contended thatthey were the result of a change in investment and could not be said to betransactions in the nature of trade or business. His case was that neither theGovernment securities, nor the shares and debentures purchased out of theirsale proceeds, nor the gold were sold and purchased by way of dealing inthem, that at no time they became his stock-in-trade for any businessor adventures in the nature of trade or business therein, that thetransactions were mere conversions from one investment to another, depen-ding upon the circumstances which prevailed during the respective periodsand that the sale of gold in 1944 and 1945 was occasioned partly due to thetide in the Second World War turning in favour of the allies and partly due :(a) to his having to pay Rs. 7 lacs by way of income-tax, (b) expenses forthe marriage of his younger brother, (c) for payment of Rs. 6 lacs debt to oneGupta, and (d) for purchase of Victory Bonds worth Rs. 14 lacs and odd atthe instance of the government authorities as contribution of his estate tothe war effort. . The tribunal rejected the case that gold had been sold for thereasons given by the assessee or as a change in investment and held that : (1)conversion of shares into gold was not due to any panic resulting from thewar, (2) that there was no pressing necessity for the sale of gold as. alleged byhim, (3) that Victory Bonds were not by way of any war effort since theassessee sold them away within a short .time after purchase, and (4) thatthe sale proceeds of gold were utilised in purchasing shares for which heborrowed an additional amount of Rs. 5.10 lacs in 1945-46 against gold.In this view the tribunal confirmed the I. T. 0's decision that thetwo excess amounts were liable to Income-tax in the two assessmentyears.;