TMI Blog1943 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 15,500 before maturity and to pay the second instalment the assessee withdrew another fixed deposit of ₹ 10,000 before maturity and a sum of ₹ 1,400 from another firm in which the assessee was a partner. A sum of ₹ 900 was also borrowed for the second installment. One-fourth of the gold was sold by the assessee in August, 1936, for ₹ 13,800 and in this way he made a profit of ₹ 5,037 by this sale. In the assessment for the year 1937-38 the Income Tax Officer assessed this profit as profits from business under Section 10 of the Indian Income Tax Act, 1922. The assessee appealed to the Assistant Commissioner but that officer agreed with the Income Tax Officer and confirmed the assessment. The assessee applied to the Commissioner under Section 66(2) of the Act to state a case to the High Court, but the Commissioner refused to do so on the ground that the question was one of fact. The assessee then applied to the High Court under Section 66(3) and it was on this application that a Division Bench of the Court required the Commissioner to state the question of law set out in the opening part of this order. The Assistant Commissioner found that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale agricultural machinery merchant and who had never had any connection with the linen trade purchased from the Government the whole of its surplus stock of aeroplane linen at a flat rate per yard. The contract provided that the assessee should take delivery of the whole stock at the depots within six months and pay cash with each order for delivery and on a date fixed should pay for any balance of goods still undelivered. The assessee found from his own resources a deposit of Pounds 50,000 required by the contract and the balance of the purchase money was provided out of cash received by him with orders. Failing in his original endeavour to sell the whole of the linen to Belfast linen manufacturers outright, the assessee sought to bring pressure on them by placing the linen on sale to the public. In pursuance of this policy he embarked on an extensive advertising campaign, rented offices and engaged an advertising manager, a linen expert as adviser and staff of clerks. The assessees bill of wages totaled Pounds 7,000 and the commission paid on the sales exceeded Pounds 20,000 while the cost of packing the parcels amounted to Pounds 17,248. The assessee kept account books normally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apacity and at the ordinary trade rates. After the repairs the vessel was sold at profit. The case came before the First Division of the Court of Session the members of which came of the unanimous finding that on the facts stated the assessees and though in that case there was evidence that the assessee reconditioned the vessel and converted it from the cargo vessel into a steam-drifter, the case is not an authority for the proposition that where the assessee purchases a commodity outside his usual line of business with the intention to sell it at a profit and does nothing to that commodity before he sells it he cannot be said to have engaged in a venture in the nature of trade. It is true that Lord President Cloud made certain observations in that case which might at first sight appear to support Mr. Kirpa Ram Bajajs contention. At page 542 the Lord President expressed himself as follows :- I think the profits of an isolated venture, such as that in which the respondents engaged, may be taxable under Schedule unproved the venture is in the nature of trade . I say may be , because in my view regard must be had to the character and circumstances of the particular venture. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s offered an opportunity of purchasing very cheaply a large quantity of paper. He effected the purchase and within a short time after his return so Scotland he sold the whole consignment to one person at a considerable profit. The case came before the First Division Bench of the Court of Session and the members of the Court held that the profits in question were liable to assessment as being profits of an adventure in the nature of trade. Lord President Clyde referring to his own observations in Livingstons case on which Mr. Kirpa Ram Bajaj relies said :- The question remains whether the adventure was one in the nature of trade. The appellants contention is that it could not be such because it is essential to the idea of trade that there should be a continuous series of trading operations; and an observation made in the course of my opinion in Inland Revenue v. Livingston, was founded on according to which a single transaction falls as far short of constituting a dealers trade, as the appearance of a single swallow does of making a summer. The trade of a dealer necessarily consists of a course of dealing, either actually engaged in or at any rate contemplated and intended to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried through in exactly the same way as any regular trader or dealer would carry through any of the adventures or speculations in which it is his regular business to engage; and therefore (3) that the purchase and re-sale of the toilet paper was an adventure.... in the nature of trade within in the making of the Income Tax Act, 1918. In the present case, as has already been pointed out, the assessee who invests his money in the business of money-lending and derives income in the form of interest not only withdrew from the bank an interest yielding investment but also withdrew some money from a business in which he was a partner and borrowed some money, presumably on interest, from some one else in order to purchase a large quantity of gold. It is not suggested that this large quantity of gold was needed by the assessee for his use or that when 1/4th of the gold was sold the proceeds were needed for an applied to satisfy some other pressing necessity. The Assistant Commissioner has found as fact that when the assessee for his use or that when 1/4th of the gold was sold the proceeds were need for an applied to satisfy some other pressing necessity. The Assistant Commissioner ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and no sales for several years due to the special circumstances of the assessee and the market conditions. Does it, therefore, really make any difference that having purchased the gold with no other object than to sell it at a profit, the assessee did not sell the gold for several years because of adverse market conditions and did not prepare a trading account ? I have not the slightest doubt that the transaction in question was from its very inception a speculation in good and not a mere investment of an required capital. It is true that every speculation using the word speculation in the sense of purchasing a commodity at a time when prices are low irrespective of the intention to sell it at a profit, is not an adventure in the nature of trade. If works of art being my hobby I purchase a rare work of art not with the object of selling it at a profit but to carry on my own hobby and subsequently for one reason or another I decide to sell it and thus make a profit, my original purchase and subsequent sale would not be an adventure in the nature of trade. Similarly, if I invest my capital in the purchase of stocks and shares because I expect a fair return on them and subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the article at a profit. It appears to have been assumed in that case that an adventure is in the nature of trade only if (1) it is part of a business of the assessee, (2) the operations involved in it are of the same kind and carried on in the same way as in the line of business in which the adventure was made and (3) the assessee has engaged in some activity of a trading nature between the purchase and the sale in order to make the property marketable, i.e., to put it into a salable state or to attract purchases. The decision is based principally on Lord Clydes observations in Commissioners of Inland Revenue v. Livingston and others and though the attention of the learned Judge was drawn to that noble Lords own observation in the subsequent case of Rutledge v. Commissioners of Inland Revenue about what he had said in Livingstons case the learned Judges preferred to follow the earlier case. It is not suggested - and could not be suggested - that the present case is distinguishable from this Rangoon Full Bench case. With the greatest respect to the learned Judges, who decided that case I must say that that case does not appear to me to have been rightly decided. The three indices w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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