Decided on December 07,1965


Cited Judgements :-



MANCHANDA, J. - (1.)THIS is a case stated under section 66(2) of the Indian Income-tax Act, 1992, by the Allahabad Bench of the Income-tax Appellate Tribunal. The question referred are :
1. Whether there was material for the finding that the sale of three patlas of gold amounted to business so that any excess of the sale proceeds over the cost price could represent the assessable profit ?

2. If the answer to the first question is in the affirmative, then, whether for the purpose of working out the profits, the value of the patlas of gold should not have been made on the basis of the market price on the date of the partial partition ?

(2.)THE material facts that emerge from the statement of the case are these. THE relevant year of assessment is 1947-48, the previous year being the year ending 22nd October, 1946. THE assessee, Babu Lal, who was the karta of the Hindu undivided family of Gangadhar Babulal, was carrying on money-landing business and was also trading in gold, silver and guineas and the profit made on these transactions was being returned and assessed to tax by the department.
In this reference we are only concerned with the transactions in three patlas (gold bars). The Hindu undivided family had purchased two patlas of gold in Samvat year 1997-98. During the Samvat tear 1998-99, it purchased five more patlas on three different dates. There were no transactions in gold bars in 1999-2000. These transactions were entered in the books of the Hindu undivided family in the khata gold account. At the end of the Samvat 2000 the balance to be carried forward in this account was Rs. 84,517-10-9. Meanwhile, on June 7, 1943, there was a partial partition of the business. The family money-landing business, considerable quantity of silver and also the said 7 patlas of gold fell to the share of the assessee. The assessee in his individual books in the khata gold account entered the valuation of the gold bar at the same figure as was the closing entry in the books of the family immediately before the date of partition. As no transactions took place during that year, the same balance was carried forward to Samvat year 2001-2002. In the latter Samvat year, however, in the same gold account there were several badla" transactions entered. The ultimate result, taking in to account the balance brought forward in Samvat year 2001, in respect of the gold bars, was a balance of Rs. 84,512-1-6. This balance was brought forward to the relevant Samvat year 2002-2003. During this year the assessee sold two of the patlas of gold in November 10, 1945, for Rs. 40,023 and one patla on November 29, 1945, for Rs. 20,870. After valuing the closing stock of these three bars at Rs. 49,483 at the cost price, a profit of Rs. 25,969 was arrived at.

It was contended before the Income-tax Officer that the gold patlas received by the assessee at the partition were capital assets in his hands. The profit or gain made by the sale thereof was in the nature of a capital receipts and not taxable. The Income-tax Officer rejected this claim and held that the assessee had indulged in a profit-making venture in gold and taxed the said sum of Rs. 25,960 under section 10 of the Act. On appeal to the appellate Assistant Commissioner, it was contended that the gold bars were purchased by the Hindu undivided family out of surplus money and as such the gold patlas were capital assets in its hands and further that on partition they had retained the character of capital assets in the hands of the assessee and the sum of Rs. 25,960 was only a capital appreciation and such was not taxable under section 10 of the Act. The Appellate Assistant Commissioner observed that the erstwhile Hindu undivided family had purchased the patlas with the sole intention of selling them and making a profit when the price went up. He further held that the patlas of gold were not capital assets in the hands of the Hindu undivided family but they formed the stock-in-trade which even after partition did not lose its character as such. The Appellate Assistant Commissioner rejected this contention as also the other contention of the assessee that, even if the aforesaid sum was profit of an adventure in the nature of trade, nevertheless the computation of profit was erroneous as the difference had to be taken between the sale price and the market price as on June 7, 1943, the date of the partition when the asset came into his hands and was treated by him as part of his stock-in-trade and not on the cost price of the gold bars to the family which was the valuation taken by the assessee in his books of account. Before the Tribunal it was contended that the family had not done any business in gold and that the gold never formed part of its stock-in-trade. In any event it was argued that the valuation of the gold bars had to be taken on the basis of the market price as on June 7, 1943, and not at the cost price to the family. On the first contention the finding of the Tribunal was that the erstwhile Hindu undivided family carried on the business in gold and silver and the patlas of gold were stock-in-trade in the accounts mentioned by the Hindu undivided family and that the assessees accounts also showed that they were treated by the assessee as stock-in-trade. The Tribunal further observed that the assessee had valued the gold at Rs. 84,517-10-9 and the balance was carried forward from year to year by the assessee in the account books which we had maintained. The assessee had maintained an account of gold in his books and it appeared from that account that badla transactions in gold were also entered in that account. The amounts received by the assessee in those transactions have been admitted by the assessee as revenue receipts liable to tax. The Tribunal further found from those accounts that the assessees receipts from badla transactions and gold transactions were mixed up in one account in which the sale proceeds of the three patlas of gold have been credited and those facts, according to the Tribunal, necessarily lead to the inference that the assessee had treated his gold bars as his stock-in-trade, and the assessee had traded in gold. The sale of the third patla of gold was 19 days after the sale of the first two. The frequency of those transaction and the proximity of time between the third and the first two transaction clearly showed that it was not the intention of the assessee to effect the sale of capital assets or to effect casual sales but they were really transaction in the nature of trade or business for the purpose of earning profits. The second contention regarding the valuation of the gold was also rejected on the ground that the assessee himself had debited the valuation which was which was taken by the Hindu undivided family, viz., the cost price to it. On a reference being asked, the aforesaid two question have been referred to this court.

(3.)THE first question posed is merely as to whether there was any material for the finding that the sale of the three patlas amounted to a business ? THE definition of business includes as adventure in the nature of trade. It is well-settled that even a solitary transaction may amount to business provided it has the indicia of trade. It is not necessary that there should be continuous buying and selling. THEre may be periods of quiescence. It is no doubt true that at the partial partition of the assets of the family, the silver and gold which fell to the share of the assessee was capital in his hands. As pointed out by the Federal Court in A. H. Wadia v. Commissioner of Income-tax, it is open to the petitioner on receipt of a capital asset to retain it as such or to convert it into a stock-in-trade. It will be a question of fact to be decided on the materials in each case as to whether the assessee had continued to treat a capital asset as an investment or had converted it into his stock-in-trade. THE Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax reiterated that no general principle could be laid down which would be applicable to all cases and that each case must be decided on its own circumstances according to commonsense principles. In G. Venkataswami Naidu & Co. v. Commissioner of Income-tax, after laying down various tests for resolving such questions, the Supreme Court again observed :
We thus come back to the same position and that is that a decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon the relevant facts and circumstances.

The legal position not being in doubt, it is unnecessary to refer to other cases cited by Mr. Gulati which were decision on the particulars facts of those cases. The short question, as already observed, in the present case, is whether there was any material for the finding of the Tribunal that the assessee had treated the gold bars as his stock-in-trade of the gold busines ? If the account maintained by the assessee had treated those gold bars as the stock-in-trade of his gold business, then it will be difficult, if not impossible, to say that there was no material at all before the Tribunal. The finding of the Tribunal, which is one of fact, is that the assessee was trading in gold and that the gold bars were treated by him as his stock-in-trade of the gold business. It is not permissible for this court in its advisory jurisdiction to sit in appeal on the finding so arrived at by the Tribunal and to see whether the finding was right or wrong. It is true, as pointed out by the Supreme Court in Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income-tax that merely mixing up share dealings and investment in shares for purpose of valuation will not alter the real character of the investment shares. That case was a peculiar one where the assessee had paid, as found by the Supreme court, over a million rupees in the acquisition of shares of Dawn Mills in order to secure its managing agency and yet wanted to take advantage of the excess price so paid over the market value by claiming a loss, as some of these shares were sold subsequently at a market price. The Supreme Court held that the loss was a capital loss and the High Court was right in holding that the acquisition of the managing agency was acquisition of a capital asset and the loss incurred by the sale of 400 shares was of a capital nature. In the present case there is no such question of the mixing up of the gold bars in the gold account in the sense that shares were mixed up in Ram Narains case in order to claim a loss upon the sale of shares for which a large premium had been paid. In the instant case the department has merely taken into account the conduct of the assessee over a period of three years wherein the ready and forward gold account has inextricably been treated as one account. The ready gold account was not kept separate. The closing balance each year in the gold account was worked out at the end of each year by taking all the debit and credit entries in the entire gold account and treating them as one. In these circumstances the finding of the Tribunal cannot be said to have been based on no material and the first question will therefore have to be answered in the affirmative and against the assessee.


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