Malik, C.J. - (1.) THE Income-tax Appellate Tribunal has referred the following two questions for opinion : (1) Whether in the circumstances of the case the profits from the sale of three gold bars said on 27th April 1943, arose from an 'adventure in the nature of the trade' within the meaning of S. 2 (4), Income-tax Act, and was liable to income-tax ? (2) Whether the profits arising from the transaction of the sale of gold bars made on 27th April 1943, could be taxed before the entire profits from the sale of the gold bars were determinable ?"
(2.) THE assessee Messrs. Lalitram Mangi Lal, Proprietor Budhoo Lal of Kanpur, status, individual carries on business in cloth in Kanpur. In the account year ending June 1943, assessment year 1944-45, he had on 29th October 1942, purchased one gold bar at Rs. 61-8-0 per tola, two gold bars on 30th October 1912, at Rs. 61-11-0 per tola and five gold bars on 6th November 1942. at Rs. 61-9-0 per tola. Three bars, out of those purchased, were sold by the assessee on 27th April 1943 at Rs. 89-8-0 per tola. In July 1943. the eldest daughter of the assessee was married and he utilised two bars in getting ornaments made for the marriage, THE remaining three bars the assessee sold on 22nd October 1944 at Rs. 66-14-0 per tola. THE total price of the eight bars came to Rs. 1,24,454-9-0, out of which three bars were sold on 22nd April 1913, for Rs. 67,125 and three bars on 20th October 1944, for Rs. 50,090-15-3. I have already said that two bars were utilised by him in his daughter's marriage on 3rd July 1943. The Income-tax Officer was of the opinion that these gold bars were purchased with the sole object of being sold at a profit and this was a venture in the nature of trade. He has held that the assessee had sold for Rs. 67,125 one bar that he had purchased on 29th October 1942, and the two bars on 30th October 1942, the total purchase price of the three bars being Rs. 46,218-12-0. He deducted certain expenses that the assessee had incurred and held that the assessee had made a total profit of Rs. 20,888 and that was assessable. There was an appeal. The case came up before Appellate Tribunal, Allahabad Bench and the Tribunal was of the opinion that the sum of Rs. 20,888 was the income which was liable to be taxed. The assessee thereupon made an application under Section 66 (1), Income-tax Act, for a statement of the case. The Tribunal granted the application and formulated the question set out above.
(3.) TAKING up the second question first learned counsel for the appellant has relied on a decision of the Bombay High Court In re K.H. Mody, (1940) I. T. R. 179 (Bom.). In that case a plot of land had been purchased by the assesses in a village at a distance of 31/2 miles from Ahmedabad. An area of 266 acres had been ear marked for development and had been divided into one thousand plots. Only some of the plots were sold during the year previous to the year of assessment and the question arose, firstly, whether it was a venture in the nature of trade and, secondly, whether the income derived from the sale of some of the plots could be deemed to be income, profit or gain made during the account year. Answering the second question, Beaumont C. J. observed as follows : "It Is to be noted that the whole transaction is not yet complete, which distinguishes this case from the various other cases which have been cited in which there has been a purchase of property or goods and a subsequent sale and the Courts held that the transaction amounted to carrying on business. But we were not referred to any case in which only a part of the property bad been sold whilst the rest remained in the hands of the assessee and might result in a profit or might result in a loss. Moreover, we have no materials on which we can say that the basis on which the Assistant Commissioner arrived at this figure is a correct basis." Kania J. observed as follows : "The first part of the question is whether there is profit in the business of purchasing and selling this land and if so Rs. 47,533 is the amount as mentioned by the Assistant Commissioner. We are not prepared to answer it. The reason is, that proceeding on the footing that this is an adventure in the nature of trade, the profits can be ascertained normally when the adventure comes to an end." It is on the basis of the observations in this case and in the case of Commissioner of Income-tax, Burma v. A.K.A.R. Chettiar Family, 1941 9 I. T R. 347 : (A. I. R. (28) 1941 Rang. 263 S. B.), that it is argued that as the remaining three bars were not sold till 22nd October 1944, that is, after 30th June 1943, the end of the account year in question, the venture had not been completed as all the gold bars had not been sold and the profits arising from the sale of only three bars on 27th April 1943, could not be deemed to be taxable income. In the Rangoon case the assessee, a Hindu undivided family, took over a piece of land in settlement of a debt due to it. The land was divided into plots and the plots were sold from time to time as buyers were available. The transaction resulted in a loss of Rs. 5,187-8-0. The income-tax authorities claimed that in each year in which a sale of a part of the property took place the assessee ought to have made an estimate of his loss on that particular sale and ought to have claimed the loss estimated to have been incurred in the accounting year in which it took place. It was held by the Bench of the Rangoon High Court that until the transaction bad completed, it could not be known what the loss would be and therefore the assessee was entitled to claim the sum of Rs. 5,137-8-0 as a loss suffered in the accounting year when the last sale took place. The Bench went on to observe that "when only a part of the property has been sold while the rest remains in the hands of the assessee, and might result in a profit or might result in a loss, the whole transaction is not yet complete, no assessment can be made." Relying on these authorities, Mr. Pathak has urged that whenever goods are purchased in bulk, so long as the whole lot has not been sold, profits cannot be ascertained, and the income does not become taxable. I do not consider that this general statement of the law can be correct. All retail dealers purchase stock in large quantities and they continue to sell them over a period of several years and, if the learned counsel's contention is correct, then separate account will have to be kept of each such purchase in bulk and, so long as the entire stock so purchased has not been disposed of, no tax can be imposed. There might be further difficulty that a part of the stock might not be sold for years and in that case the ascertainment of profits and the assessment of the income would have to be postponed for an indefinite period. The two cases cited above were very special cases where plots of land had been purchased as one unit and money had been spent on developing them, organizing their sale and in dividing them into various plots and it was not possible to ascertain whether there had been profit or loss so long as all the plots had not been sold. It was in those special circumstances that it was held that so long as all the plots were not sold the profits could not be ascertained and it could not be said that the assessee had made a profit or had suffered a loss. ;