BRIJLAL GUPTA J. - This income-tax reference had came to this court on a requisition on application under section 66(2) of the Act. The questions which have been referred for the opinion of the court are :
'(1) Whether there was any material upon which the Tribunal could find that the assessee was carrying on the business in silver after the partition on the 7th June, 1947 ?
(2) Assuming that the assessee did not carry on the silver business after partition, whether the profits made by him on the sale of the silver was taxable as income in his hands ?
(3) If the answer to question No. 1 or question No. 2 is in the affirmative, then whether the cost price of Rs. 27,710 or the market value of the silver on the date of partition should be taken into account in determining the profit ?'
The material facts are : that the assessee in this case, namely, Messrs. Gangadhar Babulal was assessed to income-tax in the status of an individual for the assessment year 1946-47. The previous year corresponding to this assessment year is October 16, 1944, to November 6, 1945. Prior to the previous year on June 7, 1943, the assessee who had been up to that time the member of a Hindu undivided family became separated upon partial partition of the family. According to the findings in the statement of the case the family was carrying on a money-lending business as well as a business in the purchase and sale of silver. This latter business was carried on since 1936. On partition the assessee in his case got the money-lending business as well as the stock of silver valued at Rs. 27,710. This was the closing stock of the silver in the silver account of the family prior to the date of partition. It is common ground that the stock of silver was valued during all the years since 1936 at cost price and not at market price. In this reference we are not concerned with the money-lending business but only with silver. On receipt of the silver by the assessee he debited it in the silver account in the following manner :
'To balance b/f 27,710'.
It will be seen that to being with the assessee did not value the silver which he received on partition any differently from the manner in which it used to be valued by the Hindu undivided family. Thereafter, on fifteen different dates between March 1, 1945, and April 9, 1945, and not on one single date the assessee sold the entire stock of silver for a total amount of Rs. 60,438-11-6. These sales were made to different purchasers through dalals to whom dalali or commission was paid in respect of each transaction of sale. The income-tax department assessed the assessee in respect of the difference between the sale price of Rs. 60,438-11-6 and the cost price, namely, Rs. 27,710-7-9, that is to say, on the surplus of Rs. 32,728. The department treated this surplus as the profits of the assessee from silver business. The view of the departmental authorities was upheld by the Income-tax Appellate Tribunal. Thereafter, the assessee asked the Tribunal for a statement of the case to this court, which, on having been refused, the assessee made an application to this court and the Tribunal has now referred the case as directed by this court.
So far as the first question is concerned, the material facts are : that the Tribunal, which is the final fact finding authority, found that the Hindu undivided family of which the assessee was a member carried on purchase and sale business in silver and that, therefore, silver was its stock-in-trade. It is true that the transactions of purchase and sale of silver by the Hindu undivided family are not many between 1936 when this business was started by the family and 1943 when on partition the business ceased to belong to the family. But the number of transactions of sale and purchase in a particular commodity is not necessarily determinative of there being or there being not a business in a particular commodity. Further no question has been referred to this court whether the Hindu undivided family had a silver business or not. It is, therefore, clear that it must be assumed for the purpose of this case that the Hindu undivided family did have a silver business. From this assumption it must necessarily follow that the silver in the hands of the family was the stock-in-trade of its silver business.
The question which then arises is whether on partition as a result of which the assessee got the stock of silver, the silver which constituted the became capital in his hands. It has been noticed that so far as the assessee himself is concerned he did not treat the stock of silver which he got in any way differently from the manner in which the stock of silver of silver used to be dealt with by the family. It might have been open to the assessee to have shown the stock of silver received by it as a capital asset by making appropriate entries in respect of the value of the silver received by him.
It might have been open to him to have entered the stock of silver received by him at its market value and not at the value at which it was shown in the books of the Hindu undivided family. Indeed he appears to have treated the silver business as a continuing business in his own hands as the entry which he made and which has already been quoted above could equally appropriately have been made by the Hindu undivided family itself if it had not parted with this business in favour of the assessee on a partial partition in the family. There is the further fact that the assessee was a member of the Hindu undivided family even if it might be treated as an entity for the purpose of assessment under the Income-tax Act is not a juristic entity. It is composed of a number of individuals. As such when one speaks of an asset of the Hindu undivided family what it really amounts to is that all the individuals constituting the Hindu undivided family are the owners of that all the individuals constituting the Hindu undivided family are the owners of that particular asset. In this view even when the business was being carried on by the family itself, in essence it was being carried on by the members constituting the family including the assessee. Thus, when the assessee got this asset it cannot be said that there was a complete break in the ownership of the asset. The only difference was that whereas prior to partition the assessee owned the silver business as well as the stock-in-trade of that business in common with several others, after partition he came to hold it exclusively by himself. The fact, however, remains that there was no break in the continuity of the business.
Whether after the partition the business was carried on or the business was given up would necessarily depend upon the facts and circumstances of the case. It may, however, be pointed out that it having been found that the Hindu undivided family was carrying on the business there was a presumption of the discontinuity of that business. Merely because there was a partition in the family, it could not be said that the presumption of continuity was rebutted.
There is then the manner in which the silver received by the assessee on partition was dealt with and disposed of by him. If the assessee received it is as a capital asset, then it has already been pointed out that the manner in which he entered it if he treated it as a capital receipt. The manner in which he dealt with it and disposal of it is more eloquent still of his intention. If he was merely converting a certain quantity of silver into cash in a market like Kanpur where he dealt with it, he could have disposed it of in a single transaction and not necessarily by employing dalals for its disposal. He actually disposed it of in small quantities in 15 transactions and each time through dalals and to different purchasers. From the manner of his dealing with silver it was not unreasonable to infer that the assessee was treating the silver received by him on partition not as a capital asset but as his stock-in-trade.
It is not possible to say that having regard to all the circumstances pointed out above, the finding recorded by the Tribunal that the assessee continued to carry on the business of silver after the partition up to June 7, 1943, was without any material. It follows that the first question referred to this court must be answered in the affirmative and against the assessee.
In view of our answer to the first question the second question does not arise and it is, therefore, not necessary for this court to give an answer to that question.
The third question concerns itself with the manner of valuation of the stock of silver received by the assessee on partition, viz., whether it should have been valued at cost price as it used to be valued by the Hindu undivided family or at market price prevailing on the date of the partition.
On the finding recorded by the Tribunal that the assessee continued to carry on the silver business which had hitherto been carried on by the Hindu undivided family it seems to be difficult to escape the conclusion that the stock of silver received by the assessee on partition was liable to be valued at cost price and not at market price. Indeed, as shown above, the assessee himself valued it in the entry which he made subsequently to the partition at its cost price, namely, at Rs. 27,710-7-9. There may be the class of cases where even though a particular asset is received or acquired as an asset of a particular kind later on at a subsequent date it is converted into an asset of a different class. There it may be possible to value the asset either on the date of the receipt or on the conversion in a manner different from that at which it was valued by the giver or by the person from whom it is acquired. It, however, appears that the position is materially receiver of the asset two continues to treat that asset as of the same nature or class as it was by the giver.
Sri R. L. Gulati has relied upon two cases in support of his submission that in any view of the matter the stock of silver received by the assessee on partition should have been valued not at cost price but at market price when it was sought to determine the profit made by the assessee on the sale of the stock of silver. The first of these cases is a decision of the Supreme Court reported as Commissioner of Income-tax v. Bai Shirinbhai K. Kooka. In that case originally the assessee acquired a bunch of shares in numerous companies by way of investment. At a later date she commenced a business in shares converting some of the shares which originally constituted her investment into the stock-in-trade of her profit. After so converting them she sold those shares at a profit. A question arose as to how the profit on the sale of the shares was to be determined and it was answered by the Supreme Court that in that situation the shares should be valued at the market price with reference to the date on which they were converted from an investment into a stock-in-trade and profit should be determined as the difference between the sale price and the market price.
The other case relied on by Sri Gulati was a case of the Madras High Court in Commissioner of Income-tax v. Appu Chettiar. In this case two daughters of a person who was carrying on a business in silk goods inherited the stock-in-trade of the business on the death of their father. Subsequently, the daughters constituted themselves into a firm for carrying on a similar business in silk. The finding was that there had been a temporary cessation of the business carried on by the firm. The value of the opening stock in the books of the firm was not the value as put by the father on the closing stock. The value was as determined by the daughters by reference to the market value. In those circumstances it was held that in determining the profit by sale of the goods the value to be taken into consideration was the market value as put by the daughters on the stock inherited by the father and not the value put by the father on the closing stock of the goods.
It will at once be seen that both the cases referred to above are causes of conversion of one kind of stock into another and involve a discontinuance of business or a break between the date of the receipt and the date of conversion. They are not cases of continuity of business and similarity of treatment accorded to a particular asset by the person in whose hands it originally was and the person in whose hands it subsequently came to be. It is, therefore, clear that these cases cannot help the assessee. The answer to the third question must, therefore, be that the cost price of Rs. 27,710 should be taken into consideration in determining the profit.
The reference shall be returned to the Income-tax Appellate Tribunal, Allahabad, with these answers under the seal of the court and the signature of the Registrar. The department shall be entitled to its costs which we assess at Rs. 200.