V. Bhargava, J.
1. These two references arise out of proceedings for assessment of income-tax of Pt Shri Ram Jha, who was assessed in the status of a Hindu undivided family. Pt. Shri Ram Jha died during the pendency of these references in this Court and is now represented by Dr. Krishna Ram Jha, who succeeded as Karta of the family. The proceedings relate to the two assessment years 1946-47 and 1947-48. The Hindu undivided family included within it the three brothers Pt. Shri Rani Jha, Dr. Krishna Ram Jha and Mr. Hari Ram Jha. Their father had purchased certain shares out of which 100 shares of the Burakar Goal Company of the face value of Rs. 51 each were inherited by these three brothers in the year 1914, on the death of their father. The Hindu undivided family also purchased 100 further shares of the same Company on the 21st September 1921.
During the previous year corresponding -to the assessment year 1947-48, the 200 shares of Burakar Coal Company were sold at the rate of Rs. 62-12 each. These 200 shares consisted of the 100 shares which had been inherited by the three brothers from their father and the other 100 shares which had been purchased in 1921. It was also admitted that, during the relevant previous year, the Hindu undivided family was carrying on the business of dealing in shares. In the circumstances, it was held by the Tribunal that the profits which accrued to the Hindu undivided family as a result of the sale of the 100 shares, which had been inherited by the three brothers from their father, were revenue income of the family liable to income-tax. This is one of the decisions challenged in these references.
2. The second point that arose was that Dr. Krishna Ram Jha had insured his life for a sum of Rs. 10,000, through his brother Mr. Hari Ram Jha, as an insurance agent. Mr. Hari Ram Jha was not carrying on the profession of an insurance agent, but in view of the suggestion that he would be able to earn the commission on the insurance policy of his brother, he took a licence as an insurance agent. The result was that he received a sum of Rs. 518 from the insurance company during the previous year relating to the assessment year 1947-48. This was, also treated as income of the Hindu undivided family by the Tribunal and included in its assessment. This-is another decision that has been challenged by the assessee in these references.
3. The third point that arose was related to the proceedings for assessment of the Hindu undivided family for the assessment year 1946-47. In the previous year relevant to the assessment year, the family received certain bonus shares from different companies by virtue of shares which were held by the family as stock-in-trade. They were issued free of cost on the capitalisation by the Companies of their reserves and did not involve the release of all or any of the assets of the Companies to the share-holders. These bonus shares were sold for a sum of Rs. 40,226.
The assessee's contention that the bonus shares represented the capital receipt in the hands of the assessee so that the sale, proceeds were not taxable was accepted by the Tribunal. This decision of the Tribunal has been challenged by the Department and is the subject-matter of case No. 18 of 1950, whereas the former two points are the subject-matters of case No. 17 of 1950. The three questions that have been framed by the Tribunal are as follows:--
1. ''Whether in the circumstances of the case there was any material for the Tribunal to draw the inference that the inherited shares were made part of the stock-in-trade by the applicant when the family started share business.'
2. 'Whether in the circumstances of the case, there was any material for the Tribunal to hold that the payment received by Mr. Hari Ram Jha from the insurance company was the income of the Hindu undivided family.'
3. ''Whether in the circumstances of the case, the profits from the sale of bonus shares received by the respondent by virtue of shares which constituted his stock-in-trade were liable to assessment;'
4. When dealing with the dispute which is the subject-matter of the first question, the Tribunal held' that the assessment record of the assessee for the assessment year 1943-44, disclosed that in that year the assessee had contended that he was carrying on the business of dealing in shares and had incurred a loss of Rs. 8,332 in that business on the sale of 600shares of Burma Corporation Ltd. This contention was accepted by the Appellate Assistant Commissioner, so that an inference can be drawn that the assessee was carrying on the business in dealing in shares even in the previous year corresponding to the assessment year 1947-48. The Tribunal also noted down that the assessee was holding 200 shares in Burakar Coal Company, of which 100 shares had been inherited by the three brothers constituting the family from their father whereas 100 shares had been purchased on 21st September 1921, at the rate of Rs. 51 each. After noting this finding the Tribunal went on to say:--
'In the above circumstances, it is perfectly clear that the appellant has been treating all the shares held by him as his stock-in-trade and has never made any distinction between the shares inherited and the shares purchased.'
We have failed to see how, from the facts which had been found by the Tribunal, the inference which the Tribunal sought to draw could at all be drawn. The mere fact that the assessee was carrying on the business of dealing in shares and was holding the shares which had been inherited as well as purchased could not possibly lead to any inference that all the shares held by him were being treated by him as his stock-in-trade, or that the assessee had never made any distinction between the shares inherited and the shares purchased. The inference which was drawn by the Tribunal was, therefore, entirely without any material. Dealing with this matter further the Tribunal proceeded to hold that
''Being a dealer in the share business and having sold the shares in a lot and earned profits on them, it does not now lie in his mouth to say that the profits accruing on the sale of the inherited shares should not be taxed.'
In this part of the decision of the Tribunal there is mention of three facts, firstly, that the assessee was a dealer in shares, secondly, that he had sold all the shares of the Burakar Coal Company in one lot and thirdly, that he had earned profits in that transaction. The question is whether from these three facts an inference could reasonably be drawn that the profit obtained by sale of the inherited shares became revenue income liable to income-tax. It was nowhere contended that the original 100 shares which were inherited by the three members of the Hindu undivided family had been purchased by their father with the intention of earning profits by selling the shares later on.
The case appears to have proceeded on the basis that these shares were purchased as an investment. This fact also appears to be borne out by the circumstance that the shares acquired by the father of the three brothers were not sold in his life time and were continued to be held even by the members of the family for more than thirty years after they had inherited the shares, In the previous year corresponding to the assessment year 1947-48, the assessee considered it to be advantageous to dispose of even the 100 shares which had been inherited. That sale coincided with the sale of the other 100 shares which had been purchased in 1921.
The mere coincidence of the two sales can be no indication that the sale of the inherited 100 shares was being carried out as sale of stock-in-trade and was not conversion into cash of the capital which had been received by the three brothers as inheritance from their father. It may, of course, be that after the cash was realised, that cash was brought into share business subsequently, but for the first time,' it cannot be held to be a transaction carried out as a part of the share business. It was clearly a conversion of their original inherited asset into cash, so that the profits earned could not be treated as revenue income liable to income-tax.
There was no material on the basis of which the Tribunal could draw the inference either that the inherited shares had been included 'in the stock-in-trade by the assessee as part of his share business or that the profits earned by the sale of these shares was revenue income of the assessee. The first question is, therefore, answered in the negative.
5. The Tribunal in answering the second question against the assessee rejected the contention that the sum of Rs. 518/-, received as commission by Mr. Hari Ram Jha, was his individual earning, holding that Mr. Hari Ram Jha did not carry on the profession of an insurance agent and the commission was not earned by him by the exercise of any profession, but it was earned by him as a member of the Hindu undivided family, because he happened to be a member of the family and took a licence as an insurance agent to entitle him to the commission on the insurance proposal by his brother Dr. Krishna Ram Jha.
In giving this decision, the Tribunal mentioned Only one factor which is relevant to the question whether the commission earned by Mr. Hari Ram Jha belonged to the Hindu undivided family or was his personal income? That factor is that Mr. Hari Rani Jha happened to be a member of the family which included within it the insured Dr. Krishna Ram Jha. It does appear that Dr. Krishna Ram Jha chose to have himself insured through the agency of his brother so that the commission on the insurance policy may be earned fay his brother. But this consideration can lead to no inference at all that in earning that commission Mr. Hari Ram Jha was acting in his capacity as a member of the Hindu mi-divided family.
There was an equal possibility that Dr. Krishna Ram Jha might have insured himself through an agent who was an intimate friend of his. Thereby Mr. Hari Ram Jha and other members of the family could clearly not claim any interest in the commission earned by that agent. The mere fact that the agent so chosen was his brother cannot in the circumstances give any interest to the family in the commission earned by him. The commission was clearly earned because Mr. Hari Ram Jha obtained a licence as an insurance agent, which he was able to do because the insurance company considered him fit to be appointed as an agent, May be, he obtained this licence only for this single transaction in order to earn this commission of Rs. 518/- on the insur-ance policy of his brother but whatever he earned was earned by him in his individual capacity because of his capability and because of his succeeding in obtaining the licence as an insurance agent of the company.
The earning of this commission had nothing to do with his capacity as a member of the Hindu undivided family. Even subsequently, the, amount earned by him as commission was not merged with the Hindu undivided family funds but was kept separate in suspense account. There was, therefore, no material on the record to show that the Hindu undivided family had any interest in this earning. Consequently, the second question must also be answered in the negative.
6. So far as the third question is concerned, the Tribunal has noted in its appellate order as well as in the statement of the case that it had been conceded by the Income-tax Officer that the distribution of the accumulated profits in the shape of the bonus shares did not entail the release by the company to its shareholders of all or any part of the assets of the company. The Income-tax Officer had also held that the bonus shares were ordinary capital receipts in the hands of an ordinary share-holder who received them. This view of the Income-tax Officer was affirmed by the Income-tax Appellate Tribunal.
The contention before the Tribunal was that the assessee who had received these bonus shares as capital receipts was dealer in shares and consequently the receipt of these shares by the assessee should be treated as revenue receipt. When this point was argued before us, learned counsel for the Department, sought to urge that in fact the receipt of these bonus shares by the assessee was not capital receipt at all and, even initially when these shares were received by the assessee, they were revenue income accruing to the assessee, liable to income-tax.
That point cannot, however, be allowed to be raised, in view of the fact that the Income-tax Officer at the initial stage, and the Income-tax Appellate Tribunal at the final stage, at all times proceeded on the basis that the bonus shares received by the assessee were capital receipts and not revenue receipts. Before the Tribunal there was no contention that the receipt of the bonus shares amounted to revenue receipts and not the capital receipts. The Tribunal did not, therefore, deal with this point and accepted this point as common to both the assessee and the Department.
The only aspect, which came up for decision before the Tribunal was whether, after the bonus shares had been received by the assessee as capital receipts, they had to be treated as revenue receipts because the assessee was a dealer in shares? If a capital receipt comes into the hands of any individual in kind and not in cash, the conversion of that asset into cash can only be conversion of capital into cash and not a transaction in the course of business for the purpose of earning profit.
The mere coincidence that a particular asset received as capital receipt is of the same nature as the assets forming the stock-in-trade of the business, cannot convert the transaction of receipt and sale of the capital asset into a business transaction for the purpose of earning income. The Tribunal was, therefore, quite right in holding that the income from the sale of bonus shares was not taxable in the hands of the assessee. The third question is also, therefore, answered in the negative.
7. The assessee will be entitled to his costs in both the references, which we fix at Rs. 150/- in each case.