MANCHANDA, J. - This is a case stated under section 66(2) of the Indian Income-tax Act, 1992, by the Allahabad Bench of the Income-tax Appellate Tribunal. The question referred are :
'1. Whether there was material for the finding that the sale of three patlas of gold amounted to business so that any excess of the sale proceeds over the cost price could represent the assessable profit
2. If the answer to the first question is in the affirmative, then, whether for the purpose of working out the profits, the value of the patlas of gold should not have been made on the basis of the market price on the date of the partial partition ?'
The material facts that emerge from the statement of the case are these. The relevant year of assessment is 1947-48, the previous year being the year ending 22nd October, 1946. The assessee, Babu Lal, who was the karta of the Hindu undivided family of Gangadhar Babulal, was carrying on money-landing business and was also trading in gold, silver and guineas and the profit made on these transactions was being returned and assessed to tax by the department.
In this reference we are only concerned with the transactions in three patlas (gold bars). The Hindu undivided family had purchased two patlas of gold in Samvat year 1997-98. During the Samvat tear 1998-99, it purchased five more patlas on three different dates. There were no transactions in gold bars in 1999-2000. These transactions were entered in the books of the Hindu undivided family in the khata 'gold account'. At the end of the Samvat 2000 the balance to be carried forward in this account was Rs. 84,517-10-9. Meanwhile, on June 7, 1943, there was a partial partition of the business. The family money-landing business, considerable quantity of silver and also the said 7 patlas of gold fell to the share of the assessee. The assessee in his individual books in the khata 'gold account' entered the valuation of the gold bar at the same figure as was the closing entry in the books of the family immediately before the date of partition. As no transactions took place during that year, the same balance was carried forward to Samvat year 2001-2002. In the latter Samvat year, however, in the same gold account there were several 'badla' transactions entered. The ultimate result, taking in to account the balance brought forward in Samvat year 2001, in respect of the gold bars, was a balance of Rs. 84,512-1-6. This balance was brought forward to the relevant Samvat year 2002-2003. During this year the assessee sold two of the patlas of gold in November 10, 1945, for Rs. 40,023 and one patla on November 29, 1945, for Rs. 20,870. After valuing the closing stock of these three bars at Rs. 49,483 at the cost price, a profit of Rs. 25,969 was arrived at.
It was contended before the Income-tax Officer that the gold patlas received by the assessee at the partition were capital assets in his hands. The profit or gain made by the sale thereof was in the nature of a capital receipts and not taxable. The Income-tax Officer rejected this claim and held that the assessee had indulged in a profit-making venture in gold and taxed the said sum of Rs. 25,960 under section 10 of the Act. On appeal to the appellate Assistant Commissioner, it was contended that the gold bars were purchased by the Hindu undivided family out of surplus money and as such the gold patlas were capital assets in its hands and further that on partition they had retained the character of capital assets in the hands of the assessee and the sum of Rs. 25,960 was only a capital appreciation and such was not taxable under section 10 of the Act. The Appellate Assistant Commissioner observed that the erstwhile Hindu undivided family had purchased the patlas with the sole intention of selling them and making a profit when the price went up. He further held that the patlas of gold were not capital assets in the hands of the Hindu undivided family but they formed the stock-in-trade which even after partition did not lose its character as such. The Appellate Assistant Commissioner rejected this contention as also the other contention of the assessee that, even if the aforesaid sum was profit of an adventure in the nature of trade, nevertheless the computation of profit was erroneous as the difference had to be taken between the sale price and the market price as on June 7, 1943, the date of the partition when the asset came into his hands and was treated by him as part of his stock-in-trade and not on the cost price of the gold bars to the family which was the valuation taken by the assessee in his books of account. Before the Tribunal it was contended that the family had not done any business in gold and that the gold never formed part of its stock-in-trade. In any event it was argued that the valuation of the gold bars had to be taken on the basis of the market price as on June 7, 1943, and not at the cost price to the family. On the first contention the finding of the Tribunal was that the erstwhile Hindu undivided family carried on the business in gold and silver and the patlas of gold were stock-in-trade in the accounts mentioned by the Hindu undivided family and that the assessees accounts also showed that they were treated by the assessee as stock-in-trade. The Tribunal further observed that the assessee had valued the gold at Rs. 84,517-10-9 and the balance was carried forward from year to year by the assessee in the account books which we had maintained. The assessee had maintained an account of gold in his books and it appeared from that account that badla transactions in gold were also entered in that account. The amounts received by the assessee in those transactions have been admitted by the assessee as revenue receipts liable to tax. The Tribunal further found from those accounts that the assessees receipts from badla transactions and gold transactions were mixed up in one account in which the sale proceeds of the three patlas of gold have been credited and those facts, according to the Tribunal, necessarily lead to the inference that the assessee had treated his gold bars as his stock-in-trade, and the assessee had traded in gold. The sale of the third patla of gold was 19 days after the sale of the first two. The frequency of those transaction and the proximity of time between the third and the first two transaction clearly showed that it was not the intention of the assessee to effect the sale of capital assets or to effect casual sales but they were really transaction in the nature of trade or business for the purpose of earning profits. The second contention regarding the valuation of the gold was also rejected on the ground that the assessee himself had debited the valuation which was which was taken by the Hindu undivided family, viz., the cost price to it. On a reference being asked, the aforesaid two question have been referred to this court.
The first question posed is merely as to whether there was any material for the finding that the sale of the three patlas amounted to a business The definition of business includes as adventure in the nature of trade. It is well-settled that even a solitary transaction may amount to business provided it has the indicia of trade. It is not necessary that there should be continuous buying and selling. There may be periods of quiescence. It is no doubt true that at the partial partition of the assets of the family, the silver and gold which fell to the share of the assessee was capital in his hands. As pointed out by the Federal Court in A. H. Wadia v. Commissioner of Income-tax, it is open to the petitioner on receipt of a capital asset to retain it as such or to convert it into a stock-in-trade. It will be a question of fact to be decided on the materials in each case as to whether the assessee had continued to treat a capital asset as an investment or had converted it into his stock-in-trade. The Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax reiterated that no general principle could be laid down which would be applicable to all cases and that each case must be decided on its own circumstances according to commonsense principles. In G. Venkataswami Naidu & Co. v. Commissioner of Income-tax, after laying down various tests for resolving such questions, the Supreme Court again observed :
'We thus come back to the same position and that is that a decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon the relevant facts and circumstances.'
The legal position not being in doubt, it is unnecessary to refer to other cases cited by Mr. Gulati which were decision on the particulars facts of those cases. The short question, as already observed, in the present case, is whether there was any material for the finding of the Tribunal that the assessee had treated the gold bars as his stock-in-trade of the gold busines If the account maintained by the assessee had treated those gold bars as the stock-in-trade of his gold business, then it will be difficult, if not impossible, to say that there was no material at all before the Tribunal. The finding of the Tribunal, which is one of fact, is that the assessee was trading in gold and that the gold bars were treated by him as his stock-in-trade of the gold business. It is not permissible for this court in its advisory jurisdiction to sit in appeal on the finding so arrived at by the Tribunal and to see whether the finding was right or wrong. It is true, as pointed out by the Supreme Court in Ramnarain Sons (Pr.) Ltd. v. Commissioner of Income-tax that merely mixing up share dealings and investment in shares for purpose of valuation will not alter the real character of the investment shares. That case was a peculiar one where the assessee had paid, as found by the Supreme court, over a million rupees in the acquisition of shares of Dawn Mills in order to secure its managing agency and yet wanted to take advantage of the excess price so paid over the market value by claiming a loss, as some of these shares were sold subsequently at a market price. The Supreme Court held that the loss was a capital loss and the High Court was right in holding that the acquisition of the managing agency was acquisition of a capital asset and the loss incurred by the sale of 400 shares was of a capital nature. In the present case there is no such question of the mixing up of the gold bars in the gold account in the sense that shares were mixed up in Ram Narains case in order to claim a loss upon the sale of shares for which a large premium had been paid. In the instant case the department has merely taken into account the conduct of the assessee over a period of three years wherein the ready and forward gold account has inextricably been treated as one account. The ready gold account was not kept separate. The closing balance each year in the gold account was worked out at the end of each year by taking all the debit and credit entries in the entire gold account and treating them as one. In these circumstances the finding of the Tribunal cannot be said to have been based on no material and the first question will therefore have to be answered in the affirmative and against the assessee.
As regards the second question, ordinary speaking, when a person receives anything as a result of gift, succession, will inheritance or as a windfall, the receipt is capital in his hands. If such asset is a capital asset, then the valuation thereof necessarily on the day when he receives it will have to be put at the market value. Of course, it is open to the assessee to make the valuation on the basis of cost to his donor, predecessor, etc., or at the market value but that option must be deliberately exercised in order to hold him bound by it. In the present case it is quite obvious that the assessee never applied his mind to the valuation of the gold bars received by him as his share in the partial partition of the business assets of the family. He appears to have automatically carried over the valuation as appearing in the books of his Hindu undivided family firm and entered it in his gold account. In the Samvat year 2000-2001, which was the first year after the partial partition, no thought appears to have been given to this aspect and it was only when three of the patlas came to be sold and the department wanted to assess the profit arising therefrom that the question of valuation assumed any real importance. It was then, at the earliest moment, claimed that the real profits and gains could only be worked out by determining the marker value of the gold bars on the date when he received it from the family, i.e., on the 7th June, 1943, and the profit could not have been worked out on the basis of the cost price to the family, purchase whereof was made several years earlier. This contention was rejected by the income-tax authorities as well we the Tribunal on the sole ground that the assessee himself had entered the valuation of the bars in his own books of account in Samvat year 2000-2001, at the same figure of cost price which the family had entered and was carrying forward year to year in its books of account. The Tribunal, in our judgment, fell into an error in holding that the assessee was bound by such entry which was never made as a result of any thought or deliberation given to it at the time when the entry was made. The question of valuation at that time had no importance and it is thereof not surprising that the assessee merely adopted the same valuation for the gold bars as represented the closing stock in the books of the family. It was only when the capital asset was converted into stock-in-trade of the gold account and a part thereof was sold that the necessity for a proper valuation of the opening stock had to be determined in order to arrive at the real and true profits. In the case such as the present, the capital asset became the stock-in-trade of the assessee at the earliest on the 7th June, 1963, and any inadvertent mistake in entering the valuation of the opening stock will not irrevocably bind the assessee to such valuation. The valuation to be put upon it in order to determine the true profits must ordinarily be the market value. We are supported in the view that we are taking by a decision of the Supreme Court in Commissioner of Income-tax v. Bai Shirinbai K. Kooka, where in slightly different circumstances where an assessee, who held several shares by way of investment in companies, commenced the business in shares converting some of them into stock-in-trade of the business and subsequently sold some of such shares at a profit, the assessable profit on the sale of the shares was held to be the difference between the sale price and the market price on the day when the investment in shares was converted into a business in shares and not the price at which they were originally purchased by the assessee.
Shri Das, learned counsel for the department, however, contended that a Bench of this court in the case of this very assessee in Gangadhar Babulal v. Commissioner of Income-tax, to which one of us was a party, had already taken the view that it was not open to the assessee who had received the silver business from the family on the partial partition to claim the valuation of the stock at its market price in computing the profits and as such the answer to the second question must be in favour of the department. There is no force in this contention. That was a case no doubt of the same assessee for the earlier year in respect of the silver business which had fallen to his share upon partial partition of the family. The facts of that case, however, are distinguishable from the present inasmuch as the finding of the Tribunal there was that the assessee 'had succeeded to the business of the purchase and sale of silver on partition' and the stock of silver allotted to the assessee was his stock-in-trade. In the instant case, there is no such finding of any succession and as such there would be no justification in departing from the ordinary rule which obtain in computing profits in the case of assets received by way of gift or succession or inheritance and subsequently converted into stock-in-trade of a business or of an adventure in the nature of trade. In Kalooram Govindram v. Commissioner of Income-tax, the Supreme Court, approving a line of cases and disapproving the view taken by the Nagpur High Court, held that in the case of an assessee acquiring a property to the purchase, gift, bequest or succession, the cost of the property to the assessee was not the original cost of it to his predecessor but its actual cost to him at the time of the purchase, gift, bequest or succession, as the case may be (see Commissioner of Income-tax v. Buckingham and Carnatic Co. Ltd. and Jogta Coal Co. Ltd. v. Commissioner of Income-tax - purchase; Indian Iron and Steel Co. Ltd. v. Commissioner of Income-tax. and Francis Vallabarayar v. Commissioner of Income-tax 426. -succession; and Commissioner of Income-tax v. Solomon and Sons - bequest).
For the reason given above, we would answer question No. 1. in the affirmative and against the assessee and question No. 2 by saying that the valuation of the patlas of gold, in computing the profits on the sale thereof, should have been made on the basis of the market price prevailing on the date of the partial partition, i.e. June 7, 1943, and on which date the assessee had bought them into his books of account in the gold account.
The reference is answered accordingly. As both the parties have partially succeeded, there will be no order as to costs. Counsels fee is assessed at Rs. 200.
Reference answered accordingly.