TMI Blog1965 (2) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... es were made in six instalments between the dates 12th August, 1940, and 23rd January, 1941. Although the assesseefamily was doing commission agency business in all kinds of goods, including bullion and also money-lending business, it never did any business in bullion on its own account. The assessee had a Tijori account at Yeola known as Vallabhdas Gangaram Tijori Vahi . The amount for the purchase of 111 silver bars was taken out from this Tijori account and not from the funds of the assessee's regular business. Vallabhdas, who had purchased these 111 bars, did not sell any of them during his lifetime. After his death in 1944, when his son, the present karta of the Hindu undivided family, came into possession and management of the family affairs, he utilised five out of the 111 bars of silver for preparing utensils some time in 1945 or 1946 and thereafter from 2nd of December, 1946, onwards he gradually sold all the silver bars during a period of more than two years. In the Samvat year 2003 he sold 45 bars and in the next Samvat year he sold 29 bars. The sale of 45 bars in the Samvat year 2003 was for a total amount of ₹ 1,97,263 and realised a surplus of ₹ 1,15, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sils and 45 bars were sold in the Samvat year 2003 for making provision for income-tax and super-tax payments and for the advance payment of taxes under section 18. Similarly, in the next Samvat year 2004, 29 bars were sold for paying income-tax and for meeting household and other expenses. The Appellate Assistant Commissioner, before whom these appeals came for the first time, took the view, relying on the case of Lalit Ram Mangilal of Cawnpore v. Commissioner of Income-tax [1950] 18 I.T.R. 286 that the transaction in question not having been in the regular line of the assessee's business, the burden was on the department to prove that the adventure was undertaken from a motive of making profit and not from any other motive. According to him, this approach to the question under consideration had not been properly adhered to by the Income-tax Officer and it was, therefore, necessary to remand the case and call for a report from the Income-tax Officer after a proper examination of the assessee's books of account and the other material on record in the light of the contentions, which the assessee had raised. In order to guide the Income-tax Officer for the further enquiry, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llabhdas Murlidhar had purchased 111 bars of silver as an investment from home-savings and they were not purchased from business cash balance; that they had been purchased with a view to make utensils for household use and Vallabhdas had no intention of purchasing or selling them for profit. They had been held in stock after their purchase for a long period and although they had ample other cash in the home-safe and also in the Bombay office to pay large amount of income-tax, they thought of selling the bars for replenishing the balance of cash in the home-safe. The Appellate Assistant Commissioner after receipt of the remand report from the Income-tax Officer heard the appeals before him and came to the conclusion that there was clear and unmistakable profit motive behind the purchase of the bars and the Income-tax Officer's action in bringing within charge the profit arising from the sale thereof was in order. He accordingly dismissed the appeals of the assessee. The assessee thereafter appealed to the Income- tax Appellate Tribunal. The Tribunal held that the assessee's case that the purchase was by way of investment or for the purpose of making utensils could not be bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to us. The Appellate Tribunal has annexed certain documents to the statement of the case and made them part of it. The assessee has taken out a notice of motion by which it wants certain other documents and material to be made part of the statement of the case, which is submitted by the Income- tax Appellate Tribunal. The main grievance of Mr. Palkhivala, learned counsel who appears for the assessee, is that the Appellate Tribunal has not taken into consideration several important and material circumstances on record which are in favour of the assessee and which go a long way to show that the transaction of the purchase of silver bars was by way of an investment as alleged by the assessee and not an adventure in the nature of trade as held by the departmental authorities and the Income-tax Appellate Tribunal. The Tribunal further has not given proper consideration to the case urged by the assessee and has not cared to understand it properly. It has also not given good and sound reasons for the conclusions to which it has arrived. According to Mr. Palkhivala, therefore, the decision of the Tribunal is not capable of being sustained and on a proper consideration of the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the department to prove that that transaction was an adventure in the nature of trade. In the present case, the purchase and sale of silver was not in the ordinary course or line of business of the assessee, which was commission agency and money-lending. The onus to prove that the present transaction was an adventure in the nature of trade would, therefore, be on the department and that onus will have to be discharged by the department by pointing out to relevant factors, which would indicate with reasonable certainty that the transaction was an adventure in the nature of trade. The mere circumstance, therefore, that the assessee's explanation that the purchase was by way of an investment and the subsequent sale was for the purpose of payment of income-tax or for household or other expenses, was not acceptable, would not be sufficient to discharge the burden which lay on the department to show that the transaction was an adventure in the nature of trade. The department, in order to succeed, will have to point out circumstances, which would indicate that the transaction was in the nature of trade and if it succeeds in pointing out such circumstances, the further circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding the Samvat years 1996 and 1997, during which period the purchase of silver was made, has not been supplied with the statement of the case. In the notice of motion taken out by Mr. Palkhivala, he has asked for the said extracts to be made a part of the case. The extract for the years 2001 to 2004, which is annexed to the statement of the case, does show that even in the years 2001 and 2002, the Tijori account possessed a large number of coins. In the year 2001 there were ₹ 2,35,000 worth of coins and in the subsequent year there were coins worth ₹ 50,000. We have looked into the extracts of the Tijori account for the earlier years in the compilation accompanying the notice of motion and have found that the opening balance in the Samvat year 1996 consisted of ₹ 4,10,000 coins and ₹ 1,50,000 in notes and the closing balance contained ₹ 4,20,000 coins and ₹ 1,15,000 notes. In the next Samvat year 1997, the closing balance in coins was ₹ 2,20,000. Mr. Palkhivala's contention is that the possession of a large number of silver coins of high silver content in the Tijori would show that the assessee was hoarding them for conserving cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the circumstances and facts on record. That, however, will not mean that the conclusion to which it has come is not the correct conclusion. What will have to be seen is whether, on a consideration of all the relevant circumstances, which are on record, including those that the Tribunal and the departmental authorities have considered and those which, according to Mr. Palkhivala, they have failed to consider, the ultimate conclusion as is arrived at by the Tribunal is correct. Now, in considering the circumstances, which have been pointed out by Mr. Palkhivala, we do not think that those circumstances taken individually or cumulatively would be sufficient to come to a necessary conclusion that the purchase was by way of an investment. It is true that the purchase and sale of silver was not in the ordinary line of business of the assessee, but it was not a business, which was altogether different from the assessee's line of business or unfamiliar to the assessee. Moreover, as pointed out by the departmental authorities, the munim of the assessee, who was the adviser both of Vallabhdas and Tribhuvandas in the affairs of their business, was carrying on business on his own acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the sale had started, the market rates will show that the price of silver had, after reaching a certain height, fallen down and was again rising. It may be that the assessee on his own calculations or on the advice received by him, might have thought that he had sufficiently waited and it was advisable then to sell away the stock of silver and make such profit as he could. The circumstance that the assessee did not supply the silver, which was purchased by him, to his constituents but sold it independently in the open market, in our opinion, has no particular significance. The next circumstance pointed out by Mr. Palkhivala that there was a large hoarding of silver coins of high silver content and the purchase of the silver bars was merely for converting that holding from silver coins to silver in view of the demonetisation notification issued by the Government, is not, in our opinion, sufficiently clearly made out on the record. In the first place, in the Samvat year 1996, 25 bars were purchased for a total price of something like ₹ 46,388. No silver coins from the home-safe appear to have been utilised, because the opening balance of that year in silver coins was S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a part of the surplus cash in the Tijori, which appears to have been converted into silver by the assessee. This circumstance, again, therefore, in our opinion, is not of such nature or tendency as to point out unmistakably that the nature of the transaction, which was being entered into by the assessee, was an investment and not trade. In our opinion, therefore, none of the circumstances, which have been pointed out by Mr. Palkhivala, are sufficiently strong to establish the assessee's case that the purchase of silver bars was by way of investment. We do not also find that the sale of the bars, which was effected by the assessee in the years 1946-47, was out of any need or pressure. It was urged before the departmental authorities that the sales were made for the payment of income-tax, for replenishing the cash shortage caused by payment of income-tax and household and other expenses. The income-tax authorities have pointed out that the sales could not have been for the purpose of payment of income-tax dues because the dates on which income- tax dues are paid and the dates on which the sales are effected are not so correlated as would indicate that the money for the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not give particulars of any transactions to meet which the assessee had to sell the silver bars. It would thus appear that the sale of the silver bars was not necessitated for purposes of need or under pressure. If the purchase of the bars was not with the intention of making investment and if the sale of the bars also was not for the purposes of any need or under pressure then the transaction of the purchase and the subsequent sale at profit would show that the purchase had been made solely and exclusively with the intention to resell the same at a profit and would, therefore, raise a very strong presumption that it was an adventure in the nature of trade. In our opinion there were also other circumstances on record, which would support the conclusion that the transaction of purchase of the silver bars was with the sole intention of subsequently selling the same at a profit. The purchases were made by a man, who was engaged in business, and whose business, though not in the same line, was not altogether different and unconnected with the transaction entered into by him. The considerable quantity of 111 bars of silver, the manner of making those purchases in six instalments spread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Commissioners of Inland Revenue v. Reinhold [1953] 34 Tax Cas. 389, which was referred to in the Supreme Court decision in Saroj Kumar Mazumdar v. Commissioner of Income-tax [1959] 37 I.T.R. 242; [1959] Supp. 2 S.C.R. 846, that the mere fact that the property was purchased with a view to resell it did not by itself establish that the transaction was an adventure in the nature of trade. It is true that even if the idea is entertained at the time of the purchase that the property may be resold at some future date, would not be sufficient to make it a transaction in the nature of trade. But where there is no other intention whatsoever in the purchase of the property except the intention to sell it at a profit and when the adventure is entered into with that object and no other, the position is different. In the present case, on an appreciation of the entire facts and circumstances of the case, we think that the departmental authorities and the Tribunal were right in coming to the conclusion that the sole object of Vallabhdas at the time when he entered into the purchase of 111 bars was to take advantage of the suitable opportunity that had occurred to enter into the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by two different persons, that the business affairs and other activities of the family have been carried on in a different manner in the subsequent years involving a difference in the liquid cash position, etc., in the later years. These circumstances, however, in our opinion, would have no substantial effect on the determination of the questions with which we are concerned. The intention with which the purchase was made has to be gathered with regard to the circumstances which prevailed at the time of the purchase. In the present case we find that at the time when the purchase was made the intention could have been no other excepting to make profits. The sale, which was subsequently made, may have been at the most appropriate time or may even have been not at such time by reason of certain circumstances which would have necessitated the sale to take place at a different time. That, however, will not make the transaction any the less a transaction which was entered into as an adventure in the nature of trade and carried out as such. We have, therefore, not found it necessary to allow the notice of motion taken out by Mr. Palkhivala and take on record all the material which he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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