TMI Blog2005 (10) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Appellate Tribunal, Mumbai, ("the Tribunal" for short) for the assessment year 1980-81, in relation to the assessees, who happened to be members of the same family. The question referred by the Tribunal for our opinion reads as under: "Whether, on the facts and in the circumstances of the case, the appellate authority was justified in holding that the profit earned on sale of gold bonds arose from an adventure in the nature of trade and was, therefore, liable to tax as business income? The facts: The facts in these references revolve around a transaction which is practically identical in the case of each assessee. The factual matrix of which is not in dispute. The consolidated facts narrated hereafter, taken from the statement of facts forwarded by the Tribunal, are as under: Shri Tushar N. Tanna, Hindu undivided family on November 30, 1978, entered into a contract for the purchase of 2 per cent. National Defence Gold Bonds, 1980 ("NDG Bond" for short) worth 1300 gms. of gold at the rate of Rs. 640 per 10 gms. The delivery of NDG Bonds was, however, not taken for quite some time. In the meantime, the price of NDG Bonds had shown an upward trend in the market. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four assessees. That the aforesaid NDGB were due for maturity on October 27, 1980. That considering a short life of the bond at the time of purchase they could not have purchased with a view to make investment. The NDGB according to the Scheme itself provided for a return of only Rs. 2 per annum per 10 gm. which was a ridiculously low return on investment and is even lower than the return on savings bank account interest from where the money is said to have been diverted for the purposes of making the purchases. Considering all this and looking to the totality of the facts and circumstances purchase and sale of NDGB under consideration in the case of each of the five assessees was an adventure in the nature of trade. The profit arising from this adventure was, therefore profit from business within the meaning of business as laid down under section 2(13) of the Income-tax Act." The aforesaid findings are the subject-matter of debate whether purchase and sale of NDGB were purchased as a capital investment or adventure in the nature of trade. Submissions: Shri P.J. Pardiwalla, learned counsel appearing for all the assessees urged that in deciding the character of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transaction can satisfy the description of an adventure in the nature of trade provided at least some of the essential features of trade are present in the isolated or single transaction. The next judgment of the Supreme Court in line is the decision in the case of Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242, wherein the majority judgment held that where a transaction was an isolated or single transaction bereft of the line of business of the assessee, the onus lies on the Department to prove that transaction was an adventure in the nature of trade with the sole intention of selling it later at a profit. Applying this test, the apex court held that at the time he entered into the agreement with the society the appellant was doing good business, as was shown by the large amounts on which he was assessed to tax, it was not unnatural for him to look forward to continue his business in as prosperous a way as he had been doing in the recent past, and to raise sufficient funds to build his own residential house or to construct a workshop for his own engineering business; and therefore, the probability that the site might appreciate in value did not necessarily lend itself to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the trading character of the transaction." In Khan Bahadur Ahmed Alladin and Sons v. CIT [1968] 68 ITR 573 the Supreme Court reiterated: "It is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of transaction." Shri Pardiwala also referred to the judgments of various other High Courts including those of the Madras and Kerala High Courts. In the case of CIT v. Bhandari and Co. [1985] 152 ITR 687 the Madras High Court was dealing with a case where the assessee had declared loss in purchase and sale of National Defence Remittance Certificates. The Income-tax Officer had held that the loss in that case arising out of sale of the certificates could only be treated as having arisen out of the transfer of a long-term capital asset. The Commissioner of Income-tax (Appeals) agreed with the view of the Income-tax Officer. The Tribunal, however, held that purchase and sale of the certificates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok Kumar Jalan v. CIT [1991] 187 ITR 316; CIT v. Dhable, Bobde Parose, Kale, Lute and Choudhari [1993] 202 ITR 98; CIT v. Mahavirprasad R. Morarka [1992] 193 ITR 530, to support his contentions. In CIT v. Asian Dry Dock Co. [1977] 108 ITR 822 (Bom), this court had also observed that in determining whether a transaction is an adventure in the nature of trade it is the total effect of all the facts and circumstances that have to be considered. The same principles have been reiterated by this court in the cases of CIT v. Radheshyam R. Morarka [1981] 127 ITR 111 and in CIT v. V.A. Trivedi [1988] 172 ITR 95. Shri Pardiwalla, as already stated hereinabove, brought to our notice one more judgment of this court in the case of Tribhuvandas Vallabhdas v. CIT [1966] 61 ITR 518, wherein the assessee-Hindu undivided family had carried on the business of commission agency and money-lending but did not carry on business in silver on its own account. It purchased 111 silver bars out of which five were used for making utensils and after 7/8 years, remaining were sold on profits. Dealing with this transaction, the Division Bench of this court held that the purchase of silver bars was not with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed very large quantities. The assessee had the means to pay for the bonds and in fact he paid for them. It was, therefore, held that the transaction of purchase and sale of NDGB did not amount to an adventure in the nature of trade and, therefore, the amount of Rs. 33,500 was not taxable as income from business. Having noticed various cases and having taken a survey of the divergent views, it is not in dispute that the NDG Bonds which were purchased were sold by the assessees in a very short span of time. The transaction in question involved in each case is an isolated one and did not form part of a series of transaction. None of the transactions are from the line of business pursued by each assessee. Tulsidas Tanna entered into a contract dated May 15,1979, took delivery of the bonds on January 4,1980 and sold them on January 8,1980, making a profit of Rs. 36,000 on the sale of gold bonds. The transaction in question reveals that the payment was made and delivery of bonds was taken after six months though they were sold within four days from the date of delivery but that itself cannot be a ground to hold that the assessee has indulged in the transaction in the nature of adventur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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