TMI Blog1939 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ina. The sales have been made on behalf of Hone Shain Co. on a commission basis. On the 8th of July, 1932, Messrs. H. Soorajmal Sons and Soorajmal Ganshamdas purchased from Hone Shain Co. 360 viss of silver for ₹ 27,000. The receipt for the transaction, which is one the form usually used by the firm, stipulates that the silver was to be delivered to Mrs. Sooniram Poddar. ₹ 25,000 out of the money, with which the purchase of the Silver was completed, was up to the 17th of June in deposit with the National City Bank of New York, bearing interest at 4 per cent per annum. This money was in the name of Mrs. Sooniram Poddar and not in the name of her husband's firm. It was withdrawn on the 17th of June 1932 and the purchase of the silver was made on the 8th of July. From the 17th of June to the 8th of July the money way lying idle in the care of the husband's firm. The silver was actually delivered at the end of July 1932 and held by the applicant in her possession until July 1935, when it was sold on her behalf by her husband's firm for the sum of ₹ 40,519. The accounts of the husband's firm showed the receipt of this amount due by the sale. 3. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and may please be read as part of this statement. I held that the transaction was an adventure in trade and that the applicant had decided to place a portion of her capital in the hands of her husband's firm, using that firm as an agent, in order to take advantage of what appeared likely to become a favourable business transaction in the silver traffic from China, which at that time was an extensive and popular business. The applicant was dissatisfied with my decision and moved Your Lordships for a mandamus under Section 66(3), which your Lordships agreed to grant. I have accordingly been required to state a case on the following question : Whether there were 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? 6. Accordingly I now refer the above question for the decision of Your Lordships. In doing so, I express the following opinion. 7. Opinion of the Commissioner.-I think it will be sufficient, in view of the copies of all the previous orders being on record, if I confine myself to pointing out what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, which would be more secure. On the other hand the facts of the case just as clearly entitle one to believe that the money was taken out of the Bank with the express intention of purchasing silver with it. Only about three weeks lapsed between the removal of the money from the Bank and the purchase of the silver. It is my opinion that the money, which happened to be available in the Bank, was withdrawn for the express purpose of taking advantage of the opportunity for favourable participation in the silver traffic across the Frontier, to which, I have already referred. The reason for the extensive silver traffic at that particular time was the low price of silver, combined with the reasonable, and almost certain, prospects of a substantial increase in its price in the not-very-distant future. 12. The next point is that the applicant did not put the silver to any use, or in any way change its material condition, during the time it was held in her possession. If one wished to lock up capital in a safe manner and, at the same time, obtain a reasonable increment of the capital, one would not purchase silver in bulk and hold it indefinitely in that form. There were many other norma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions, made it a very considerable part of their business to take part in the silver traffic across the Frontier. The applicant is the wife of a person, whose business is, by hereditary caste rules, the transaction of money dealings and dealings in precious metals. Mrs. Sooniram Poddar's transaction was carried out by her husband through his business connections in just such a manner as it would have been, had it been done by the firm on its own behalf, and the transaction would thus answer the test indicated by the Lord President's remarks. 15. The definition of business includes any adventure or concern in the nature of trade, commerce or manufacture and I therefore respectfully submit that there were ample materials for concluding that the receipts sought to be taxed in Mrs. Sooniram Poddar's assessment arose from business within the meaning of that section and that the question formulated by Your Lordships should be answered in the affirmative . Mr. Foucar, for the Applicant. U Thein Maung, Advocate-General, for the Respondent. [*]A critical note on this decision will appear in the next number of the Income Tax Reports. JUDGMENT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it; it does not fall to us to consider whether we should have found as a fact that this was an adventure in the way of trade, or not, provided there is any evidence to support such a finding. But, on the other hand, if there was no evidence to support such a finding the Court will intervene. In Leeming v. Jones the Commissioners found that the property was acquired with the sole object of turning it over again at a profit and without any intention of holding the property. Rowlatt, J., said (and his remarks were in no way criticised in the Court of Appeal or by the House of Lords):- That describes what a man does if he buys a picture that he sees going cheap at Christie's because he knows that in a month he will sell it again at Christie's. That is not carrying on trade. Those words will not do for a finding of carrying on a trade or anything else. Stopping there, this means that if a man, outside his regular business, makes a speculative purchase of an article or commodity with a view to its profitable resale, he is not for that reason alone venturing on a trade. To use the words of our Act, it is not necessarily an adventure or concern in the nature of trade, comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures must be in the nature of trade before the profits and gains resulting form them become taxable. Every speculation has in it the element of adventure, but it must be a speculation in the nature of trade if it is to be considered an adventure in the nature of trade. A mere speculation, not in the nature of trade, cannot by any process of reasoning be regarded as an adventure in the nature of trade. And whether the purchase of silver with a view to reselling it at a profit is called a speculation, or whether it is called an adventure, is of no account; the dividing line between assessability and exemption depends on whether what is done is done in the nature of trade or not. I desire to add that, in my opinion, if the assessee had resold the silver at a profit in a week I do not think the principle involved would be any different. The Commissioner says, in paragraph 12 of his statement of the case, Had the price gone up almost immediately, I have no doubt she would have sold out promptly. Had she done so there could have been no question that the transaction was any other than a business venture. I cannot accede to this view: the transaction would then have been shown mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trade of a dealer in such articles and a single transaction falls as far short of constituting a dealer's trade, as the appearance of a single swallow does of making a summer. In the case cited, the respondents, a ship repairer, a blacksmith and a fish salesman's employee, bought a cargo vessel and turned it into a drifter. In the course of doing so they engaged in trading activities. Lord Clyde said these operations seem to me to be the same as characterize the trade of converting and refitting second hand articles for sale . Lord Sands observed, the subject of purchase and sale may be so treated in the interval as to bring the transaction within the category of carrying on a trade . Accordingly, the respondents were held to be assessable; but in the present case, as I have had occasion to remark, nothing was done to the silver purchased by Mr. Poddar. It was resold, just as it was. No trading activity took place. But it is contended that Lord Clyde explained what he had said here in the later case of Rutledge v. Commissioner of Inland Revenue. Mr. Rutledge was a money-lender and also a film director, and he went to Berlin on business connected with the film f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artist were in demand, sell that picture and realise a profit. No income-tax would be payable on this profit. If a picture-dealer bought a picture and on the same events happening sold it at a profit, that profit would be a profit earned in his business and would be liable to income-tax. So, too, profits made on isolated speculations are not liable to income-tax, but those made in speculation of a similar kind as part of a business would be liable. This last sentence points out very clearly what is the distinguishing line. The question is not whether it is a speculation with a view to profit, but rather whether it is a speculation as a part of a business, or as the Act says, in the nature of trade . Lord Clyde was careful in dealing with the construction to be placed on by the hypothetical purchase of a picture by Mr. Rutledge; because if a business-man who lends money indulges in film business, and buys toilet paper as a business transaction, were also to buy a picture, it might be held that he was what Shakespeare call a snapper-up of unconsidered trifles all in the way of his business activities. As Lord Clyde said, must would depend on the circumstances of such a purchase be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made in the operation of their business. It was held that they entered upon the ancillary business of wagon dealers for the purpose of this transaction. Each case of course must depend upon the facts for its decision. There was evidence there to show that the coal merchants had extended the share of their trading operations. Martin v. Lowry is another case to which similar principles apply. Mr. Martin bought aircraft linen from the British Government and the purchase price was roughly three and a quarter million sterling. Rowlatt J., said: If a person buys a thing, an object, a stock, a piece of land or anything, he says, 'It is going cheap'; he says, 'This is worth a great deal more than people are going to let it go for now; I will buy it, because some day or other I shall be able to sell it again', and he buys it because he intends to sell it again, and one fine day in the view of the public, if it is a picture, or in the view of the neighbours, if it is land or what not, its value changes; he finds it of greater value, and he sells it. Now if he is always doing it, of course, he is a dealer, but if he only does it once it is an isolated transaction ; but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t normally used for the purpose of earning income but lying on deposit at the Bank. It is said that she was not the only non-trading person who invested in silver with a view to a speedy resale at profit, I do not think this argument assists the Commissioner. Several private persons with expert knowledge of works of art might purchase the works of the same artist, with a view to profitable resale and within a few weeks of each other. None of their ventures could be said to be, in the nature of trade , merely because it could be shown that others seized upon a similar opportunity. Each one of them would only render himself liable to assessment if it could be shown that he did something which brought him into line with the picture dealers: and an isolated investment of capital, by itself, does not show a trading activity. We are much obliged to the Advocate-General for drawing our attention to some observations in the Seventh Edition of the Income-Tax Manual issued by the authority of the Government of India. They occur at page 188. It is said: (1) A purchases a house with a view to reselling it at a profit. His profits from the transaction are liable to income-tax (even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in my opinion, be answered in the negative and the Commissioner must pay the costs of the reference. No advocate's fee having been allowed on the mandamus proceedings we fix the advocate's fee now at thirty gold mohurs. The deposit of ₹ 100 must be returned to Mrs. Poddar. DUNKLEY, J.--The facts found by the Income-tax authorities are that the assessee purchased a quantity of silver and retained it, in the state in which it was purchased, for three years and then sold it to a single purchaser. It was an isolated transaction. It is said that the purchase and sale of such a large quantity of silver must be a trading transaction, but how the value or quantity of the article purchased can have any relevancy to the matter before us I am at a loss to understand. The fallacy of the argument advanced on behalf of the Commissioner of Income-tax lies in the assumption that even speculation is an adventure in the nature of trade. Every speculation is an adventure, but not necessarily an adventure in the nature of trade. An isolated purchase and sale is obviously not a trade, and the cases of The Commissioners of Inland Revenue v. Livingston and others and Leeming v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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