Commissioner of Income Tax vs Bipin Kumar Worah

Nagendra Prasad Singh, J.—This is a reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), made by the Income Tax Appellate Tribunal, Patna Bench (hereinafter referred to as "the Tribunal"), at the instance of the Commissioner of Income Tax, Bihar and Orissa, and relates to an assessment proceeding against B. K. Worah of Dhanbad (hereinafter referred to as "the assessee"), relating to the assessment year 1962-63.

The facts leading to the reference, stated briefly, are as follows : The assessee is an individual. He has income from house property, dividends and interest. On the 4th August, 1961, the assessee entered into a forward contract for sale of 3,000 shares of Indian Iron & Steel Co. at the rate of Rs. 26.55 per share. He entered into another contract for sale of 12,000 shares of the said company on the 9th August, 1961, at the rate of Rs. 26.22 per share. On the 30th August, 1961, the contracts were settled by payment of the difference. The ruling price on that day was Rs. 25.50 per share. This resulted in receipt of a sum of Rs. 19,485 by the assessee. The Income Tax Officer treated the aforesaid sum as speculation profit and included it in the assessment of the assessee. The assessee challenged the inclusion of the said amount in appeal before the Appellate Assistant Commissioner on the ground that the said profit was not as a result of an adventure in the nature of trade so as to bring it Within the definition of "business" u/s 2(13) of the Act and liable to be taxed. The Appellate Assistant Commissioner, however, held that, on the facts and in the circumstances of the case, the amount in question represented speculation profit and rejected the contention of the assessee that the amount should not have been the subject-matter of assessment. He, accordingly, dismissed the appeal on the 5th August, 1965. Against the said order of the Appellate Assistant Commissioner, the assessee filed an application before the Appellate Tribunal. The Tribunal, by its order, dated the 25th July, 1967, held that the amount in question was not a receipt from any regular source of commercial nature and it would not be covered within the definition of "business" as given in the Act, being nonrecurring and casual in nature, and, as such, it was not liable to assessment in the hands of the assessee. An application for reference u/s 256(1) of the Act on behalf of the Commissioner of Income Tax having been filed, the Income Tax Appellate Tribunal has referred the following question of law for decision by this court:

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 19,485 is legally taxable ?"

The moot question for decision in this case is as to whether the aforesaid amount was a receipt of a non-recurring and casual nature which was exempt from tax, or was profit from an adventure in the nature of trade and liable to be taxed under the head "business" for the relevant assessment year.

It is well-settled that no general principle or universal test can be laid down which could govern the decision of all cases in which the question for determination is as to whether a particular transaction is non-recurring or casual in nature, or is an adventure in the nature of a trade. Each case has to be determined on the total impression created in the mind of the court by all the facts and the circumstances established in that particular case. See Saroj Kumar Mazumdar Vs. The Commissioner of Income Tax, West Bengal, Calcutta, , G. Venkataswami Naidu and Co. Vs. The Commissioner of Income Tax, and Khan Bahadur Ahmed Alladin and Sons Vs. Commissioner of Income Tax, Andhra Pradesh, . The question whether a particular transaction is an adventure in the nature of trade is a question of law or a mixed question of fact and law, and, as such, open to examination by the High Court or the Supreme Court, was discussed by B. P. Sinha J. (as he then was), in the aforesaid case of Saroj Kumar Mazumdar, who observed as follows :

"It is not disputed on behalf of the respondent that the question now before us is a question of law, or a mixed question of fact and law, as has been recently laid down by this court in the case of G. Venkataswami Naidu & Co. v. Commissioner of Income Tax. Speaking for the court, Gajendragadkar J., after a detailed discussion of the decisions of this court in SREE MEENAKSHI MILLS LIMITED Vs. COMMISSIONER OF Income Tax, MADRAS., and Oriental Investment Co. Ltd. Vs. Commissioner of Income Tax, Bombay, and of the House of Lords in Edwards v. Bairstow [1955] 36 T.C. 207 : [1955] 28 ITR 579 (H.L.) came to the conclusion that the question arising in the case is a mixed question of law and fact, and, therefore, open to examination by this court."

The same view was reiterated in the case of Khan Bahadur Ahmed Alladin and Sons and their Lordships observed that the decision of the Appellate Tribunal on this issue was open to challenge.

Applying the aforesaid principles, I will now examine as to whether, on the facts and in the circumstances of this case, the inference drawn by the Appellate Tribunal that the transaction was casual in nature is valid and justified. A bare reference to the assessment order will show that the assessee had shown an income of Rs. 925 from house property, Rs. 19,485 the amount in question, as business speculation profit, and Rs. 46,980 as dividend. The Income Tax Officer, in the assessment order, has mentioned that the assessee had shown the amount in question as business speculation profit which had been checked and found to be in order. In appeal before the Appellate Assistant Commissioner, the only challenge was in respect of the aforesaid amount of Rs. 19,485 and exemption was being claimed on the ground that it was an isolated transaction casual in nature. Learned counsel for the assessee has challenged before this court the statement made in the assessment order that the assessee had shown the said amount of Rs. 19,485 as business speculation profit. Unfortunately, the return submitted by the assessee is not on the records of the case. Learned counsel for the assessee could not point out from any document that the assessee had taken pointed exception before the appellate authorities regarding the aforesaid allegedly wrong statement made in the assessment order. Learned counsel, however, drew our attention to paragraph 2 of a petition, dated the 13th May, 1968, filed before the Income Tax Appellate Tribunal, where it has been mentioned that the assessee was claiming exemption of the amount in question in Form F of the return as a receipt of a casual nature, not arising from any business or profession or occupation. This petition appears to have been filed by way of objection to the petition filed by the department for making a reference to this court. In the reference order, the Tribunal does not seem to have accepted the stand of the assessee that the amount was shown in Form F. Had it been so, the Income Tax Officer would not have included this amount in assessee''s income by merely checking the figures. The fact of importance is that the assessee was admittedly a holder of shares as he had shown Rs. 46,980 as dividend during the assessment year in question and then on the 4th August, 1961, and the 9th August, 1961, he entered into contracts for forward sale of 15,000 shares. The contracts for forward sale could not be for the purpose of investment. A contract for forward purchase could be so. The assessee was a big holder of shares. But he could not place any materials to show, nor he appears to have made out such a case, that at the time of forward sale he was holding 15,000 or more shares of Indian Iron and that he had entered into the transactions of forward sales with the intention of disposing of those shares, but, later on, when he found that the market had gone down, he squared up the transactions by earning a profit. Although the onus to prove that the sum in question was chargeable to Income Tax was on the department, facts within the special knowledge of the assessee had to be placed and proved by him. If such facts could have been shown or proved, one could say that the profit derived from the transaction was an accidental one and not a profit from an adventure in the nature of trade. In most of the decided cases, the initial transaction is one of purchase of properties, shares or other commodities which may prima facie be with the object or intention of investment of money. But, in the instant case, the transactions of forward sales by the assessee, who was a big investor in shares, could not be for the purpose of further investment. Surely, they could be for the purpose of release of a portion of the invested money. Nothing was shown by the assessee in that regard. The transactions of forward sales of shares were not quite foreign to or distinct from the assessee''s line of business. On the facts found, therefore, the conclusion was irresistible in law that the assessee entered into an adventure in the nature of trade and gained profit therefrom. Hence, it was rightly included in his income assessable to Income Tax by the departmental authorities.

In the case of G. Venkataswami Naidu & Co., Gajendragadkar J, (as he then was), observed as follows:

" . . . . cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the properly. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade."

In the instant case, an inference can be legitimately drawn that the assessee entered into contracts for forward sale of 15,000 shares and derived the profit due to the difference between the ruling price of the day and the price which was fixed in the contracts in question. This could obviously be with the motive for profit and it could not be treated as being for the purpose of disposing of the shares in the usual course.

The Tribunal, while holding that the transaction was not an adventure in the nature of trade, in paragraph 13 of its order, has observed as follows:

"13. One of the significant factors which is in favour of the assessee is that there was a speculative, transaction which was not made in the ordinary course of the assessee''s business. In addition, it was not an adventure in the nature of trade. It was only a single isolated transaction and thus it can be said that the excess received by the assessee over the purchase price was a receipt of non-recurring and casual nature."

In my opinion, the rinding of the Tribunal is based on conjecture. It is well-settled that even an isolated transaction can be an adventure in the nature of trade, if the necessary ingredients are there. The expression "adventure in nature of trade" presupposes some isolated transactions speculative in nature.

Learned counsel for the assessee has drawn our attention to a decision of the Delhi High Court in Commissioner of Income Tax Vs. Raunaq Singh Swaran Singh, in support of his contention that the finding arrived at by the Tribunal regarding the nature of the transaction is binding on the High Court. As I have already pointed out, the question regarding the nature of a transaction is a mixed question of law and fact. In that view of the matter, it is open to this court to arrive at its own conclusion drawn from the facts of the case; of course, the primary facts need not be questioned before the High Court. Learned counsel has also referred in this connection to the case of Mrs. Sooniram Poddar v. Commissioner of Income Tax [1939] 7 ITR 470 in support of his contention that every speculation is an adventure, but not necessarily an adventure in the nature of trade. This proposition cannot be disputed and every adventure made by an assessee has to be judged on the facts and the circumstances of the particular case for arriving at a finding as to whether it is an adventure in the nature of trade. For the purpose of showing that in the instant case the receipt of the aforesaid amount was not an adventure in the nature of trade, learned counsel referred to the facts of MOTHAY GANGARAJU Vs. COMMISSIONER OF INCOME TAX, MADRAS., and Janab A. Syed Jalal Sahib (deceased) by legal representative Syed Usman Sahib Vs. Commissioner of Income Tax, Madras, . The facts of Mothay Gangaraju were that the assessee was a landowner and a money-lender. At a court auction, he purchased for a sum of Rs. 39,800 the right, title and interest of one Parthasarathi Apparao in certain legacies left by one Vankayamma, Thereafter, there was a protracted litigation over the legacies and ultimately the assessee recovered in the year of account Rs. 1,97,025. The assessee had spent Rs. 46,626 as cost and purchase money and the Income Tax authorities purported to tax the balance of Rs. 1,50,399 on the ground that it was an income from an adventure in the nature of trade. Beasley C.J. of the Madras High Court, speaking for the court, while answering the reference, observed that there was no connection by the aforesaid purchase at the auction sale with any of the trade or business carried on by the assessee and by itself the purchase of an interest in the legacies, specially by litigation, cannot certainly be described as trade or business. This case is, therefore, of no assistance to the assessee. I have already pointed out the difference between the profit derived from the property purchased with the intention of making investment and the profit derived from sale of shares with the sole object of deriving profit.

So far as the case of Janab A. Syed Jalal Sahib is concerned, the facts were that the assessee, who carried on the business of manufacturing and selling bidis, used to attend horse races regularly and used to indulge in betting. Some of those horses he held himself and some in partnership with others. He maintained separate sets of accounts for those racing activities. The excess of receipt over the expenditure in such activities was the subject-matter of controversy--whether it was casual and non-recurring in nature, or it was in the nature of an adventure in trade and their Lordships held that the said receipt was non-recurring in nature. In my opinion, this case is of little assistance to the assessee. The profit derived from the horse race cannot be held to be at par with the profit derived by sale of shares after having entered into forward contract for sale.

Learned counsel has also relied on a decision of the Rangoon High Court in Commissioner of Income Tax v. J.I. Milne, [1934] 2 ITR 25 (Rang.) [F.B.] where in consideration of a sum of Rs. 10,000 having been advanced by the assessee to a mining engineer for working certain mines the latter promised to the assessee, in the event of the mines, being sold, a sum equal to one-third of the total consideration which might be received by the sale of the mining areas held by him. The mines were sold, and, under a forward agreement, the assessee received � 6,000 in cash. The Income Tax department claimed from the assessee tax on the aforesaid amount of � 6,000. A Full Bench of the Rangoon High Court, on a consideration of the facts and the circumstances of that case, held that it was not a profit or gain derived from other sources with in the meaning of Section 12 of the 1922 Act, and it was a receipt of a casual and non-recurring nature which had been exempted u/s 4 of the Act. In my opinion, the facts of that case and the instant case are entirely different. In this connection it will suffice to say that for the purposes of holding as to whether a particular transaction is taxable or not, the facts of other cases, where one or the other view had been taken, are not very relevant, because hardly one comes across cases the facts of which are identical. While dealing with the question as to whether a particular transaction was in the nature of an adventure in trade, B. P. Sinha J. (as he then was), in paragraph 7 of the judgment in the case of Saroj Kumar Mazumdar, observed as follows:

"Hence, no decided case can, strictly speaking, be a precedent which could govern the decisions of a later case, involving a similar question. Those decisions can be used only by way of illustrations of the different view-points which have a bearing on the decision of the case in hand."

Judging the case from the facts found and the circumstances mentioned I am of the opinion that the assessee in the instant case held a number of shares as he had shown Rs. 46,980 as income from dividend in the assessment year in question. A legitimate inference can be drawn from the facts that the assessee entered into contracts for forward sale in respect of 15,000 shares with the sole motive of profit and derived profit therefrom, He also showed the amount in question as business speculation profit in his return. It has, therefore, to he held that the assessee derived the said amount as adventure in the nature of trade, and, as such, it was an income from business, within the meaning of Section 2(13) of the Act, liable to be taxed.

In view of the aforesaid discussions, my answer to the question referred is that, on the facts and in the circumstances of this case, the sum of Rs.19,485 was legally taxable. The parties are left to bear their own costs.

N.l. Untwalia, C.J.

I agree.