1939 (6) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the transaction of purchasing and selling silver by Mrs. Sooniram Poddar constituted an adventure in the nature of trade.
2. Whether the profits from the transaction were assessable as income under Section 2(4) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Nature of the Transaction:
The primary issue was whether the transaction of purchasing and selling silver by Mrs. Sooniram Poddar was an adventure in the nature of trade. The Commissioner argued that the transaction was speculative and intended for resale at a profit, thus fitting the definition of "business" under Section 2(4) of the Income-tax Act. The Commissioner pointed out that the husband's firm had previously dealt in precious metals and that the applicant's name implied a business connection with such transactions.

However, the High Court found that the transaction was an isolated purchase and sale, with no evidence of trading activities between the purchase and sale. The Court emphasized that speculation alone does not constitute an adventure in the nature of trade. The judgment referenced several cases, including Leeming v. Jones and Rutledge v. Commissioners of Inland Revenue, to support the principle that an isolated transaction without trading activities does not amount to a trade.

2. Assessability of Profits:
The second issue was whether the profits from the transaction were assessable as income. The Income-tax authorities had assessed the profits as income, arguing that the purchase was made with the intention of resale at a profit. The Commissioner noted that the silver was not put to any use or altered in any way during the time it was held, indicating a business venture.

The High Court, however, held that the mere intention to resell at a profit does not automatically make the transaction taxable. The Court highlighted that there must be evidence of trading activities or operations characteristic of ordinary trading. The Court concluded that there was no evidence to support the finding that the transaction was an adventure in the nature of trade. The Court also criticized the Commissioner's approach of considering the safety of the investment as a criterion for assessability, stating that it was not the correct test.

Conclusion:
The High Court answered the referred question in the negative, stating that there were no materials from which the Income-tax Officer and the Assistant Commissioner of Income-tax could conclude that the receipts sought to be taxed arose from business within the meaning of Section 2(4) of the Income-tax Act. The Court ordered the Commissioner to pay the costs to the assessee and return the deposit of Rs. 100 to Mrs. Sooniram Poddar.