1. The short question that we are called upon to decide in these two references is whether certain transaction in the purchase and sale of gold bars entered into by the assessee, Mrs. Anna Racek, and her late husband, F. Racek, were entered into as business transactions or as adventure in the nature of trade or commerce or whether they represented merely sales of investments. The facts are as follows.
2. F. Racek was an Austrian citizen doing business in India in hurricane lanterns, petromax lanterns, mantles and other sundry articles. He died on March 15, 1943, and it is not in dispute that the assessee, his widow, has succeeded to his estate. During his lifetime F. Racek amassed considerable wealth and on January 1, 1942, he was possed of over Rs. 21 lakhs. It is not in dispute also that this amount was not connected with his business and was merely his own personal wealth outside the business. He had kept this money intact in various Indian and foreign banks in current account and as call money and fixed deposit. The cash on hand alone was over Rs. 6 lakhs.
3. During his lifetime F. Racek parched a large number of gold bars commencing from November 15, 1933, and until a few days before he padded away on March 15, 1943. These bars have been subsequently sold and a composite statement of purchases and sales had been given in the statement of the case which for convenience may be reproduced here.
--------------------------------------------------------------------Date of No. of Cost Date of No. of Sales proceedspurchase bars Rs. Sale bars Rs.----------------------------------------------------------------------1 2 3 4 5 6----------------------------------------------------------------------15-11-33 3 39,415-2-0 11-2-47 2 99,459-10-01934 1 8,534- 6-0(Utilised for making jewellery)12-2-42 5 75,064-5-3 7-2-45 4 71,688-11-012-4-45 2 66,430- 3-618-3-42 7 80,930-11-3 25-5-46 3 69,373- 4-611-9-46 1 38,734- 4-61-10-46 2 52,834- 8-618-3-42 8 1,95,968-10-0 3-10-44 1 62,331-0-07-10-44 3 1,13,002-15-6March '42 3 31,477-13-0 12-10-44 4 84,749-11-6(not known but 14-10-44 3 31,477-13-0estimated at)25-3-43 6 98,440-3-6 9-10-43 6 1,09,037-9-63-5-43 5 98,710-3-3 19-9-44 5 71,545-4-3-----------------6,20,007-0-3-----------------------------------------------------------------------------------------1 2 3 4 5 6------------------------------------------------------------------------Rs. As. Ps Rs. As. Ps.B. O. 6,20,007-0-3 8,79,208-8-9Net profit :Prior to 1-4-4410,597-6-0During 44-4559,265-15-9During 44-461,89,338-2-9---------------2,59,201-8-6------------- ------------------Total 8,79,208-8-9 8,79,208-8-9--------------- ---------------------------------------------------------------------------------------
4. The first five items of purchase between November 15, 1933, and March, 1942, were all purchases made by F. Racek. Thus, during his lifetime, he only purchased gold bars and there is not a single transaction of sale so far as he is concerned. Similarly, excepting two transaction, after his lifetime, there are only sales and these were all made by the wife. Much emphasis was laid by Mr. Joshi for the department on the two transactions of March 25, 1943, and May 3, 1943, as to which we shall presently discuss the position. The funds for every one of these purchases came from the personal amount in the possession of F. Racek during his lifetime. After his death, his business as well as the amounts standing to the credit of F. Racek in the banks and other deposit account as well as the gold bars, it is not in dispute, were inherited by the wife.
5. Now, according to the department, all these purchases and sales were in the way of business or an adventure in the nature of trade or commerce within the meaning of section 2, sub-section (4), of the Act, while on behalf of the assessee it is contended that both the husband and the wife merely made investments and later, when she considered it a propitious or favourable time to sell of those investments, she did so, and at no time was there any profit motive.
6. Now the principles on which transactions of this kind fall to be judged are well settled. In Tribhuvandas Vallabhdas v. Commissioner of Income-tax this court had occasion to deal with purchases and sales of a similar nature in silver bars and the division bench, to which my learned brother was a party, referred to the decision of the Supreme Court in G. Venkataswami Naidu and Co. v. Commissioner of Income-tax. It was pointed out that the question whether a transaction was an adventure in the nature of trade will depend upon the facts and circumstances of each case and, in order to determine whether the transaction was an adventure in the nature of trade, there are laid down no general or absolute tests which may apply to all or even a large number of cases. They referred to the decision of the Supreme Court and to a number of circumstances there recounted and followed the principle that 'The presence of all these relevant factors may help the court to draw an inference that a transaction is in the nature of trade; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the character of the transaction.' In Lalit Ram Mangilal v. Commissioner of Income-tax, it was observed at page 296 that an adventure to be of the nature of a trade should have a profit motive behind it. The Division Bench also observed that the burden lay upon the department to prove that the adventure was undertaken with the motive of making profits and not from any other motive. We have already referred to the secession of the and the circumstances while the Supreme court indicated as circumstances which should be considered were, 'Whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resoluble; any act prior to the purchase showing a design or purpose; the incidents associated with the purchase and resale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession'. In A. Grezo v. Commissioner of Income-tax, the Allahabad High Court was considering a case of dealings in gold bars and the important circumstance which that court took into account was that the purchases were by a person engaged in a business other than the business of purchase of gold bars. That was considered one of the important circumstances. In Mrs. Sooniram Poddar v. Commissioner of Income-tax also transactions in isolation from the regular trade of the assessee were involved and the Rangoon High Court observed that, in order to fulfil the requirements of section 2(4), speculations and adventures must be in the nature of trade before the profits and gains resulting from them become taxable. They pointed out that '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 diving line between assessability and exemption depends on the for what is done is done in the nature of trade or not'. The enquiry, therefore, should primarily be directed to determining what was the motive or intention of the assessee in undertaking those transactions; was it the true intention to trade or do business or was it merely to invest money and safeguard investment
7. In the light of these principles, we turn to examine the facts as they confirm in the present case and it should be convenient to consider the application do these principals to the facts in two parts, firstly, as to the conduct of the husband vis-a-vis the gold bars and, secondly, the activities if the wife after the death of F. Racek vis-a-vis the gold bars. Now, it seems to us that, so far as the husband's dealing are concerned, there can be no manner of doubt that he did not undertake the purchase of the gold bars as a business activity. We have already pointed our that all that he did during his lifetime was to purchase gold bars. He did not sell a single one of the fold bars which he had purchased ruing his lifetime. Therefore, one cannot possibly attitude to him the profit motive or the intention to do business or trade in those gold bars. The money for the purchase of the gold bars came from his private wealth and not from business where he made the purchases. It is no in dispute that he had a vast business from which he was making considerable money, but the consideration for these gold bars had no connection whatsoever with the business which he was carrying on. It is not in dispute that a little before he died, he was possessed of ready available money to the tune of Rs. 21 lakhs and his purchase did not exceed more that about Rs. 4 lakhs. There was no disproportionate investment in gold bars which might indicate an intention to trade or speculate by reselling them at short intervals. In fact from November 15, 1933, March 15, 1943, he did not make a single sale and we are somewhat surprised to find attributed to him an intention vis-a-vis gold bars. Another circumstances which also indicates his intention vis-a-vis these gold bars is the fact that, when he first made is purchase, it was on November 15, 1933, of 3 gold bars. He utilised one out of these three gold bars for making jewellery. That indicates that he had bought the gold bars as an investment and not with a view to trade in them. Yet another circumstances which also shows any want of intention to trade in those gold bars is the fact that two our of the three bars purchased on November 15, 1933, remained with him and were only would on February 11, 1947. Thus they remained with him for a period of almost thirteen and a half years. That speaks clearly of an intention to keep the fold bars as a safe investment for himself.
8. Realising this difficulty, Mr. Joshi on behalf of the department sought to separate this item of purchase as an isolated item distinct from the other four items of purchase made in 1942, and he urged that the items our purchase in 1942 must be treated as undertake with a view to do business or trade. Those purchase were made on March 12 and 18, 1942, and one later in March, 1942. He emphasised that the sudden purchase of more that Rs. 3 1/2 lakhs worth of gold in one month could only suggest that the deceased wished to trade in the gold bars. We are unable to see how this solitary circumstances can lead to that inference. Though, no doubt, the amount was large and all of it was invested in a month, considered in the context of the deceased's total wealth, it was not large. A man worth about Rs. 21 lakhs could certainly make an investment of about Rs. 3 1/2 lakhs in gold bars with our his being charged with the intention to do business or trade in them. We can understand transactions where large amounts are invested by an assessee for in excess of his capital, for instance, if a man possessed of one lakhs of rupees wants to buy gold bars worth Rs. 20 lakhs, one can well say that he is trying merely to speculate and, since he could not afford to buy so much gold, it must be with the intention of reselling the whole or part of it at a profit at a later date. But that is not the case here. Having regard to that total wealth of the deceased and all the other circumstances, these purchase were clearly in the nature of an investment. At any rate, even if two conclusions can be drawn from the facts (which is not the case here), we think that the conclusion that is favorable to the assessee must be accepted.
9. We, therefore, think that so far as the dealings of the deceased in respect of the gold bars are concerned, they were clearly in the nature of investment and not with a view to do business or trade in them.
10. Then we turn to the dealings of the wife and the first and the foremost fact that we must emphasise is that the wife was not business woman. She was not a partner with her husband in the business or trade before. The amount of Rs. 21 lakhs which stood to the credit of F. Racek stood in the joint names of both himself and his wife. Therefore, on his death the amount became available to her to be utilized at her discretion. The facts found are that she inherited that amount as well as the gold bars. This was on March 15, 1943, when her husband died. What was the result of her total activity in connection with the gold bars Within the course of about three years after she inherited them, she disposed of the entire lot except two bars which were purchased in 1933 which she sold off in February 11, 1947, 14 years after they were purchased. If she were a trader, we do not think that she should thus dispose of all the asset by which she was doing business and covert all her asset into cash. What is more, excepting to transactions of March 25, 1943, and May 3, 1943, which were purchased, every transaction which the assessee entered into was a transaction of sale and she has sold off within 3 years the entire lot of the gold bars she had inherited, as well as the two lots she had bought between October, 1943, and October, 1946.
11. As to the two purchased of 6 bars on March 25, 1943, for an amount of Rs. 98,440-3-6 and of 5 bars on May 3, 1943, for Rs. 98,710-3-3, much emphasis was laid on these two transactions on behalf of the department by Mr. Joshi. He pointed our that this lady was not merely selling gold bars but also purchasing gold bars. These very gold bars, he urged, were sold by her on October 9, 1943, and September 19, 1944, at a short interval of time after their purchase. That therefore constituted business. We may point out that the first of the two purchase which she made was made ten days after the passing away of F. Racek and we very mush doubt if the assessee should have undertake a completely new business activity of this kind within ten days of her husband's demise. She was not examined nor was any explanation asked from her and, therefore, the circumstances under which these two transaction were made have not been clarified. It may be that the order for the first purchase is within a month and 18 days after the demise of her husband. The circumstances are not decisive enough to suggest a business.
12. On behalf of the department a statement showing the lowest and highest rates which gold touched during each of the months between March, 1942, and March, 1947, has been appended to the statement of the case and if one looks to this list of the prices, one finds that on March 31, 1943, 15 days after F. Racek passed away, the price of gold was 71-10-0, the highest which it had reached from March, 1942. Yet, we are asked to hold that when the lady made this purchase on March 25, 1943, she did it as a business transaction. Few businessmen buy when the prices are high. What is arose is that on May 3, 1943, the price of gold had further sharply risen by about Rs. 26 per tola. The price on that day was Rs. 97 and yet once again we are asked to hold that the lady was making those purchases as a business proposition. We cannot conceive that anyone with any to least as compared to the previous year and a quarter. That is another circumstances which militates against the inference that she made these two purchases with a view to trade in the gold bars.
13. After she realised large amounts of money as a result of the sake of the fold bars which she had inherited, it is not shown that that amount was utilised by her in business or trade or that it was put into any existing business or trade. In fact, it was alleged on her behalf by Mr. Kolah that the moneys are intact and deposited in bank accounts. He did make a grievance of the fact that the department did not call upon the assessee to given any explanation. On the other hand, they accepted the statements in her turn. Without giving her any opportunity to give an explanation (and he urged that she could have given the amplest explanation) they could not upon mere surmise and guesswork say that she was doing business in the gold bars. The assessee was not engaged in any business or trade or business after her husband's lifetime, or at any rate continued her husband's business, the burden should clearly be upon the department to establish that she had undertake the dealings in the gold bars as a business. So far as we can see, there is absolutely no evidence to connect these dealings of hers with anything in the nature large wealth. She had considerable sums of money lying at her disposal. She may have desired only to invest them. The nature of the transactions which she entered into does not disclose any motive of profit or intention to do business.
14. The view which the Tribunal took is somewhat curious. So far as the husband is concerned, they have treated his purchases as a business by observing 'A portion, about 4 lakhs, of these funds was withdrawn for the purpose of making purchases of 23 bars on four different occasions in the course of three weeks in March, 1942. Mr. Racek died on March 15, 1943, before he disposed of any'. In making the remark in the last sentence its is clear that the Tribunal assumed the very fact which had to be established, namely, that is was the intention of F. Racek to do business or trade and that his motive in buying the gold bars was a profit motive. To say that he died before 'he could dispose of any' is to assume that he intended to do so. In our opinion, therefore, it was upon this fallacious reasoning that the Tribunal came to the conclusion that the deceased was trading in gold bars. As to the assessee the Tribunal observed : 'The nature and quantity of the subject-matter of these transactions, the frequency with which they were repeated from time to time, depending on the market conditions, even selling at a loss occasionally when funds were not otherwise could be otherwise required should certainly exclude any suggestion that the transactions could be otherwise required should certainly at a loss occasionally when funds were not otherwise required should certainly exclude any suggestion that the transactions could be otherwise than as business'. The last words 'exclude any suggestion that the transactions could be otherwise than as business' show that the Tribunal placed a wrong burden on the assessee to establish that she was not doing business. We have shown upon the authorities that, since the assessee was not engaged in any business previously, it was for the department to show that her transactions were in the nature of a business. Apart from that we have shown that neither the nature nor the quantity of the subject-matter of these transaction suggest 'business' or trade. The nature of the transactions was uniformly of sale except two transactions for which there is an adequate explanation. As to the quantity, we have shown that she was an extraordinary wealthy woman and the purchase of about 4 lakhs of Rupees worth of gold was well her means and as an investment appears reasonable. The reference to market conditions in the passage we have quoted we have not been able to understand. In fact we have shown that the market conditions were such that no person intent upon doing business should have made the two purchases which Mrs. Racek made in March and May, 1943. We are quite unable, therefore, to sustain the conclusion which the Tribunal reached upon the materials before it. In our opinion, the entire purchases and sales of the gold bars of the late F. Racek and of the assessee after his death were purely in the nature of investment and did not partake of the nature of business or trade.
15. In the view which we have taken on this question, it is unnecessary to go into the further point argued by Mr. Kolah as to what should be the proper valuation of the cost of these gold bars to the business, since we have held that there was no business at all to begin with. On that point Mr. Kolah had urged that the proper principle of valuation should be what was the price of the bars, when it was alleged she commenced business, which according to the allegations of the department should be some time between May 3, 1943, and October 9, 1943. In the view which we take it is not necessary to go into this question at all. We answer the questions referred as follows :
Q. No. 1. - Whether, on the facts and in the circumstances of the case, the transactions of purchase and sale of gold bars constituted business or an adventure in the nature of trade
Answer : The transactions of purchase and sale of gold bars did not constitute a business or an adventure in the nature of trade.
Q. No. 2 : Whether the sum of Rs. 1,20,759 was income taxable under the Income-tax Ac
Answer : No.
Q. No. 3 : Whether for the purpose of assessing the profit on sale, cost of 23 fold bars inherited by the assessee from Mr. Racek should be the cost at which Mr. Racek bought the said gold bars or the market value thereof on 9th October, 1943, being the date of the first sale by the assesse
Answer : Does not raise.
16. The Commissioner will pay the costs of the assessee.
17. Questions answered in favour of the assessee.