V.S.DAVE, J. - (1.) THIS reference has been made to this Court by the Tribunal, Jaipur Bench, vide its order dated February 6, 1978, under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), after framing the following questions for its opinion : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee did not discontinue the business of jewellery in 1926 and that the said jewellery business continued to be carried on after 1926 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Tal Khard emeralds continued to be the stock -in -trade of the jewellery business of the assessee and was not a capital asset ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the sale of Tal Khard emeralds in 1973 was not the realisation of a capital asset but the sale of stock -in -trade and the profit arising from the sale was assessable as income from business - The Tribunal referred to the aforesaid questions as arising out of its order dated June 24, 1977, in the Revenue's appeal for the asst. year 1974 -75.
(2.) THE assessee, Srichand Golcha, was carrying on the business of sale, purchase and processing of emeralds and other precious stones. This business he continued in his individual capacity up to the year 1926. He thereafter stopped his business as an individual, but carried on similar business as a partner in a partnership firm known as Dhanroopmal Swaroopchand. He ceased to be a partner of this firm also and started similar business as a partner in a firm, Gem Stones, Jaipur, wherein he continued to be a partner till the asst. year 1974 -75 for which period this reference has arisen. The assessee, when he stopped his business as an individual in 1926, had at that time some Tal Khard emeralds. He sold these Tal Khard emeralds in the asst. year 1974 -75 for a sum of Rs, 32,576 and in his returns filed, disclosed it as a sale of capital asset. He appended a note, " The assessee sold old Tal Khard emeralds to the following parties... Some were in the possession of the assessee since long, dealings in which were discontinued. It is a sale of a capital asset and in case of any capital gain/income arising out of the same, it may please be computed and added in the assessment ". The ITO did not accept this stand of the assessee and held that the assessee had realised his stock -in -trade and, therefore, the profit of Rs. 31,576 was his business profit. According to the ITO, these Tal Khard emeralds were the assessee's stock -in -trade and their sales by the assessee had taken place in the ordinary course of business. The assessee preferred an appeal and the AAC accepted his appeal holding that Tal Khard emeralds were a capital asset, the sale of which gave rise to capital gain and profit could be assessed as capital gain. The AAC held that the assessee was a regular dealer in Tal Khard emeralds for 40 years after which he had stopped his business. He retained the stock for all this period during which no activity whatsoever was carried on by him. It was further held that the business carried on by the assessee as a partner of the firm was altogether in a different capacity. Aggrieved by this order of the AAC, the Revenue preferred an appeal before the Tribunal, which was allowed, vide its order dated June 24, 1977. The Tribunal came to the conclusion that the findings of the AAC that the assessee has ceased to do the business of jewellery in 1926 is not correct on facts and in law. It held that he has been doing the jewellery business of his own as an individual proprietor prior to 1926 and since thereafter he has been doing it as a partner of the various firms. It is not, therefore, the capacity in which the assessee was doing business which has changed. It is only the form of business organisation which has changed. Formerly, the assessee had been doing it as a partner of a firm but the capacity in which he was doing the business remains the same, namely, as an individual. It further held that the assessee had been doing the jewellery business and, therefore, reversed the finding of the AAC and restored the order of the ITO. Thereafter, on an application by the assessee, this reference has been made and the questions mentioned above have been referred for our opinion.
(3.) WE have heard Mr. Ranka for the assessee and Mr. Surolia for the Revenue. It is the agreed case between the parties that up to 1926, the assessee was carrying on the business in his individual capacity and that the Tal Khard emeralds which have been sold in 1974 - 75 were in the possession of the assessee. The dispute is whether these Tal Khard emeralds on closure of the business by the assessee in individual capacity formed part of the stock -in -trade of the newly constituted partnership firm or remained the individual property of the assessee. The Tribunal has proceeded to decide the case on the assumption that only the form of business organisation has changed but the capacity in which the assessee was doing the business remains the same, namely, as individual. In our opinion, the Tribunal could not have arrived at this finding unless there was evidence to disclose that the Tal Khard emeralds which were held by the assessee when he closed his business as an individual 40 years ago, were handed over by him to the partnership firm of which he became a partner subsequently. Under the income -tax law, a person can carry on the business both as an individual and also simultaneously as a partner in a partnership firm. In this respect, it is essential to bear in mind the definition of " person " and " person who has substantial interest in the company ", and, therefore, while deciding the point, it was essential for the Tribunal to have looked into the evidence, if there was any, as to whether the Tal Khard emeralds were the stock -in - trade of the firm, Dhanroopmal Swaroopchand, and later on of Gem Stones. In our opinion, the questions referred to us do not arise and cannot, therefore, be answered as the main controversy has not been decided on facts by the Tribunal in true perspective.;