JAGDISH SAHAI J. - This is a reference made by the Income-tax Appellate Tribunal, Allahabad Bench (hereinafter referred to as the Tribunal), under section 66(1) of the Income-tax Act of 1922. The assessment years in respect of which the reference has been made are 1940-41, 1941-42, 1942-43, 1943-44, 1944-45, 1945-46 and 1946-47. The assessees are a firm, Messrs. Juggilal Kamlapat of Kanpur. In the account books of the assessee firm, there is an account styled as Kamlapat Ji Dharam Khata. The following amounts were credited as interest in this account in each of the assessment years noted below :
The assessees claim that the balance in the Kamlapat Ji Dharam Khata account was utilised for the purpose of its business and was treated as a loan and as such the interest paid by the assessee firm to Kamlapat Ji Dharam Khata was business expenditure admissible under section 10(2)(xv) of the Income-tax Act. The facts as given in the statement of case submitted by the Tribunal in short are as follow :
L. Kamlapat died on 31st of May, 1937. On the 29th of May, 1937, at about 5 p.m. he is said to have informed Sri Gopi Krishna, the munim of the assessee firm, which is a banking concern, as admitted by the learned counsel for the parties, that he (Kamlapat Ji) had donated the following amounts for the purpose stated thereunde :
(1) Rs. 5 lakhs to be set apart for the purpose of charity, the object of which was to construct 100 school buildings in the district of Kanpur, a hall and a ghat on the banks of the river Ganga in Kanpur meant for the use of the general public.
(2) To give the amounts to the tune of Rs. 2,46,500 to some of his relations.
(We need not give the details of these amounts because we are not directly concerned with them in the disposal of this reference.)
The same day, the munim of the assessee firm opened an account as Kamlapat Ji Dharam Khata and showed a credit entry of Rs. 5 lakhs. The dispute between the assessees and the department is a very short one, the same bein : whether or not a trust had been created and the amounts held in Kamlapat Ji Dharam Khata can be treated to be the amounts belonging to the trust and not to the assessees? The case of the department was that on date when the alleged trust is said to have been created, L. Kamlapat had sum of Rs. 3,73,550-8-7 only to his credit in the assessee firm and it is contended that it is obvious that it was not possible to create a trust of Rs. 5 lakhs and also pay a sum of Rs. 2,46,500 to some relations when he had only Rs. 3,73,550-8-7 in his hand. The contention of the learned counsel for the assessee on the other hand is that the existence or non-existence of enough cash in the hands of L. Kamlapat on the 29th May, 1937, is quite immaterial, because the material circumstance was that in fact the assessee firm did open an account in the name of Kamlapat Ji Dharam Khata and made an entry of credit of Rs. 5 lakhs in respect thereof. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal rejected the claim made by the assessee but on the request of the assessee, as already mentioned above, the Tribunal made a reference to this court. The following questions of law have been referred to us for our opinio :
'(1) Whether a legal and valid Trust known as L. Kamlapat Ji Dharam Khata setting apart Rs. 5 lakhs for religious and charitable purposes had been created by late L. Kamlapat Singhania?
(2) Whether there was material on which the Tribunal could hold that the deposits made by Ch. Gopal Hari, Ch. Vijaipat and Ch. Hari Shanker out of the share income which they had received from the firm, Messrs. Hari Shanker Gopal Hari, belonged to their respective Hindu undivided families and not to them in their individual capacities and as such the interest on those deposits paid by the firm was not admissible?
(3) Whether there was material on which the Tribunal could hold that the deposits made by Ch. Gaur Hari and Ch. Vijaipat out of the share income which they had received from the firm, Messrs. Juggilal Kamlapat, ex-managing agents to J.K. Cotton Manufacturers, belonged to their respective Hindu undivided families and not to them in their individual capacities and as such interest paid on these deposits by the firm was not admissible?
(4) Whether the surplus realised by the sale of the shares of the Aluminium Corporation of India Ltd., J.K. Investment Trust and Raymond Woollen Mills amounting in aggregate to Rs. 3,99,587 or any part thereof was the revenue income of the assessee liable to tax under the Income-tax Act, 1922?'
At the very outset of the hearing of the case, the learned counsel for the department conceded questions Nos. 2 and 3 in favour of the assessees. Consequently, we answer those question in favour of the assessee and against the department.
Coming to question No. 1, it may be stated that the only ground on which the Tribunal decided against the assessees was that inasmuch as the balance standing to the credit of L. Kamlapat on 29th May, 1937, was only Rs. 3,73,550-8-7, he could not obviously create a trust in respect of a much larger amount, i.e., Rs. 5 lakhs. If the Tribunal had treated this as a pure question of fact, then perhaps the finding of the Tribunal would not have been open to any serious challenge but actually what the Tribunal did was that it held that 'if the settlor himself had not the amount with him, he could not in law create a valid trust of the amount'.
Having heard the learned counsel for the appellant, it appears to us that it cannot be laid down as a general legal proposition that only because a party has not with him ready cash, he cannot create a trust or that he cannot create one in excess of the amount which he has. We are living in a banking age in which actual transactions in cash are not always made and the same object is achieved by making corresponding entries in bank accounts without actual transfer of hard cash. The point of importance is that the assessees on 29th May, 1937, not only opened an account in the name of Kamlapat Ji Dharam Khata but also credited it with a sum of Rs. 5 lakhs. As to how and on what grounds did the assessee firm credit to the account of the trust an amount which was larger than that held by it, is not for us to enquire. It may have been good business; it may have been bad business; but the bald fact remains that in that particular day the trust came to own a sum of Rs. 5,00,000 and in respect of this amount L. Kamlapat lost his ownership. The actual adjustment of accounts did take place in the following manner. L. Kamlapats three sons purchased some shares belonging to him for a sum of Rs. 4 lakhs with the result that even though the opening balance of L. Kamlapat on 29th May, 1937, was Rs. 3,73,550-8-7 at the close of the day, it stood at a sum of Rs. 7,73,550-8-7 by the addition of the sum of Rs. 4 lakhs, the price paid by L. Kamlapats sons in connection with the purchase of 400 shares belonging to J.K. Cotton Spinning & Weaving Mills Ltd. and which stood transferred from the account of the sons to that of the father.
In Chimanbhai Lalbhai v. Commissioner of Income-tax the assessee had made a gift of Rs. 5 lakhs to his son, S, and of Rs. 2 lakhs to his daughter, P, on 17th November, 1952. Necessary entries were made in the account books on that date. On 8th November, 1953, he instructed the joint family firm which acted as his banker and with which he had an account, to debit him with the two sums and interest earned up to that date and credit the accounts of S and P with the corresponding amounts. The firm carried out the instructions and submitted a voucher which the assessee signed. Although it considered the transaction bona fide, the Tribunal held that the gift was not effectuated on the grounds (i) that there was no transfer of possession, (ii) that the assessee did not have sufficient amount in credit with the firm on 8th November, 1953, and (iii) that the firm itself did not have sufficient cash on that date to carry out the directions of the assessee. When the matter came up before the Bombay High Court, Chagla C.J., while disposing of the second objection of the Tribunal, observed as follow :
'The second equally extraordinary reason given by the Tribunal is that the assessee did not have sufficient amount to credit of his account with his bankers on the 8th of November, 1953. Now that is a matter between the assessee and his bankers. If the bankers choose to give overdraft facilities to their constituent and accept his order and give credit to a third party for an amount which exceeds the amount to the credit of their constituent, as far as the third party and the bankers are concerned, the bankers become liable to the third party to pay that amount. Therefore, it is difficult to understand what possible relevance the fact of the assessee not having sufficient funds to his credit with the bank has got to do with the question as to whether the gift was made by the father to his son and daughter; and as the account shows, although the assessee was short by about Rs. 60,000 when he asked the bank to pay Rs. 7 lakhs, within a short time he made good that shortfall. But that is neither here nor there. That again is a matter of accounting between the bank and its constituent.'
We are in respectful agreement with the observation of the Chief Justice in the case mentioned above.
In Commissioner of Income-tax v. New Digvijaysinhji Tin Factory an objection similar to the one taken by the department before us was rejected by the Bombay High Court in the following word :
'Before we proceed to consider another argument of Mr. Joshi, we may observe that two elements were stressed by Mr. Joshi. It was said that when the entries were made in the books of account of the assessee firm, there was no sufficient cash in hand and, therefore, there could not, in law, be delivery of the moneys to the donees. The ingredient and question of delivery has its importance in the case of gift but in the context of the transaction before us, actual physical delivery is not the sine qua non of the matter. Delivery can be symbolical. This court had occasion to deal with a similar question in Chimanbhai Lalbhai v. Commissioner of Income-tax, and in view of what this court there decided, it is not necessary to dwell any more on the subject.'
The same view finds expression in K.P. Brothers v. Commissioner of Income-tax where the Rajasthan High Court followed the decision of Chimanbhai Lalbhai v. Commissioner of Income-tax. It is not necessary to multiply authorities because it appears to us that even on first impressions the answer to question No. 1 has got to be made in favour of the assessees.
With regard to question No. 4, in the assessment of the assessees, the Income-tax Officer included in this total income the surplus in the sale of shares as shown belo :
(1) Rs. 60,278 on account of surplus realised from the sale of shares of the Aluminium Corporation of India Ltd.
(2) Rs. 72,364 surplus realised by the assessees through sale of shares of J.K. Investment Trust.
(3) Rs. 2,66,945 on account of surplus realised from the sale of shares of the Raymond Woollen Mills Ltd.
The assessees purchased 50,000 ordinary shares of the Raymond Woollen Mills Ltd. at the rate of Rs. 139-8-0 per share for a sum of Rs. 69,75,255 in the year 1944. A sum of Rs. 7 lakhs was paid as earnest money on November 4, 1944, and the balance up to December 6, 1944. These shares were sold in the open market from time to time. During the period 23rd November, 1944, to 2nd April, 1946, the total sale proceeds of these shares were Rs. 72,42,200 which resulted in a profit of Rs. 2,66,945. The assessees purchased 67 debentures, 5,582 preference shares and 18,576 ordinary shares of the Aluminium Corporation of India Ltd. in the period commencing from 26th January, 1945, and ending with 5th April, 1946, for a sum Rs. 8,57,480. During the period, February 1, 1945, to August 13, 1945, 2, 118 preference shares were sold for Rs. 7,05,957. The cost of these shares left in the stock amounted to Rs. 2,11,800. The assessees received a sum of Rs. 60,278 as profit from the sale of these shares. With regard to the J.K. Investment Trust shares the position is that the assessees purchased 290 shares for a sum of Rs. 1,45,000 and sold them on August 22, 1945, for a sum of Rs. 2,17,264, thus making a profit of Rs. 72,364.
The explanation of the assessees with regard to the purchase of the Raymond Woollen Mills shares was that they wanted to have control over Raymond Woollen Mills and the acquisition of the shares was in the nature of a capital asset with result that the surplus realised out of the sale of such shares was a capital asset and not a revenue income. With regard to the J.K. Investment Trust shares, no specific case was taken by the assessees and no explanation was offered. With regard to the Aluminium Corporation shares, the assessees explanation was that the shares were not subscribed by the public in the market and consequently were purchased by the assessees as they were financiers of J.K. group of industries who had promoted the Aluminium Corporation Ltd. and they later on distributed them amongst the associated concerns. With regard to the shares of the two companies the explanation given by the assessees is that as the purchase of these shares was financially embarrassing to them, the same were sold to relieve the embarrassment and not with a view to realise profits. The Tribunal recorded the following finding :
(1) The purchase of the shares of the Raymond Woollen Mills Ltd. was effected by borrowing monies.
(2) Some of the sales of the shares of the aforesaid concerns, namely, Raymond Woollen Mills, Aluminium Corporation Ltd. and J.K. Investment Trust were effected through brokers.
(3) Some of the shares were sold to strangers and some to the J.K. concerns and the sale of the shares of Aluminium Corporation Ltd. was not necessitated merely by pecuniary embarrassment as alleged.
(4) That the assessee firm used to promote companies and one of its activities was to finance several sister concerns popularly known as J.K. Industries, as could be seen from the assessment order of the year 1941-42, annexure 29.
(5) That the shares were sold piecemeal and the transactions of sale extended over a period of sixteen months in the case of Raymond Woollen Mills, eight in that of Aluminium Corporation Ltd. and six in that of J.K. Investment Trust.
It also appears from the finding of the Tribunal that the interest payments of Rs. 44,215 in S. 2001 and Rs. 1,25,383 in S. 2002 were claimed as revenue expenditure by the assessees.
Mr. Pathak has strenuously contended that on these findings the department was not justified in treating the surplus amount received by sale of these shares as revenue receipt and that those amounts were in the nature of capital asset. A large number of cases have been cited before us. It may be stated that the assessee firm is a banking concern and used to act as a financier of the various companies. Normally, the banking business consists of receiving deposits from depositors and paying them when demanded, but since it is not possible for any banking concern to keep its money idle, the same is invested so that the bank concerned may be able to pay interest to the depositors from the profits made from those investments. The amount which is kept by the bank as circulating capital or stock-in-trade includes not only the amount which it keeps readily available, in order to pay the depositors but also such amounts which, though invested, are easily convertible into cash in order to meet an emergent demand from the depositors. Even the latter amounts would be included within the expression 'circulating capital' or 'stock-in-trade' of the banking concern. Mr. Pathak has laid great emphasis on the decision of the Federal Court in A.H. Wadia v. Commissioner of Income-tax and has brought to our notice the following passage from the judgment of the learned judges who decided the cas :
'During the course of Durbars money-lending transactions in Bombay and elsewhere some of the mortgagors made default in payment of the principal and interest and the Durbar filed suits to enforce the mortgages and obtained decrees for the sale of the properties. The mortgaged properties which are all in British India were put up for sale in execution of these decrees and were purchased in court auctions by the Durbar and the Durbar still continues to own these properties. Item C represents income from these properties. From this rectital it only appears that the original money-lending transactions consisted of advancing loans on mortgages. They had come to an end with the sale of the properties under the directions of the court. The purchase by the Durbar of these properties can be either a continuation of the money-lending transactions, coupled with a desire at a proper time to sell the properties and realise the amounts lent, or retaining the properties as investment, like other properties purchased by the Durbar in British India. The fact that the properties are left in the hands of the Durbar, in my opinion, leads to no conclusion one way or the other .......The recital of facts by the Commissioner, quoted above, overlooks his duty to determine whether these properties retain the character of assets in the money-lending business. If that is not done, the income of these properties does not come under the Government Trading Taxation Act and the Durbar is not liable. Under the circumstances of this case, I am unable to accept the view of the High Court that the burden of proof is on the Durbar to establish that the properties had been taken out of money-lending business. In the absence of finding by the Commissioner that these properties form part of the trading assets of the Durbar the assessment cannot be upheld, and the answer of the court should be that the Durbar is not liable in respect of the income of these properties for the year of assessment......... Mere ownership of properties, even if purchased from a source which originally was employed in the money-lending business, does not automatically make such properties part of such business, in the absence of any finding that the income of these properties was being used in that business or that those properties were subsequently treated as stock-in-trade of that business except perhaps in the case of banking institutions.'
It is contended that the departmental authorities should have investigated the question as to whether or not at the time when the purchases were made, the idea to sell them again. The submission of the learned counsel is that in a case like this the burden is not on the assessees but on the department to prove the fact that the idea was to make an investment. The question of burden of proof does not arise in this case because what we have to consider is as to whether on the facts found by the Tribunal it is possible to accept that the surplus amounts received by way of sale of shares were in the nature of capital asset or were profits which were liable to be taxed. On behalf of the department Mr. Gulati has strenuously contended that so long as there is some material on the basis of which, without being perverse, the Tribunal could hold that the surplus amounts were in the nature of revenue receipts, the findings and the conclusions of the Tribunal cannot be disturbed. Mr. Pathaks contention is that the circumstances that the money which was invested was borrowed, that the shares were sold within a year after they were purchased and that the assessee firm is a business concern are not relevant and in so far as the Tribunal has relied upon them, it has acted perversely. Reliance is placed upon A.H. Wadia v. Commissioner of Income-tax which appears to us to be distinguishable. The argument does not appeal to us. In Raja Bahadur Visheshwara Singh v. Commissioner of Income-tax the Supreme Court, after noticing certain cases, observed as follow :
'It is not necessary to discuss these cases because the principle applicable to such transactions is that when an owner of an ordinary investment chooses to realise it and obtains a higher price for it than he originally acquired it at, the enhanced price is not a profit assessable to income-tax but where, as in the present case, what is done is not merely a realisation or a change of investment but an act done in what is truly the carrying on of a business, the amount recovered as appreciation will be assessable.'
The question, therefore, that we have to see is whether it can be said as to whether the amounts invested in the purchase of shares where invested in a business which the assessees were carrying on. We have already said above that the assessees are bankers and financiers and in connection with their business as such, they cannot keep their money idle. On the basis of findings recorded by the Tribunal and the circumstance that the assessees themselves treated the payment of interest as revenue expenditure, the Tribunal could legitimately hold that the surplus amount received by the sale of shares were not in the nature of capital asset and it is not possible for us to hold that there was no material at all before the Tribunal on which it could conclude as it did. It has been contended by Mr. Pathak that it is not known as to whether in fact the shares of the three companies, which the assessee purchased and sold, were easily convertible and it was the duty of the department to have made the material available to show that in fact they were in the nature of security which could be easily converted. It cannot be submitted with any amount of reasonableness that the shares of the Raymond Woollen Mills or that of the Aluminium Corporation were not very good shares. Both the companies have great reputation and it was open to the Tribunal to take judicial notice of that fact. Good shares are as easily convertible into cash as any Government security. The main point in the case is whether on the date when the shares were acquired, there was an intention to sell them for profit. It is well established that intention can only be gathered from the overt acts committed by the parties. In the present case, the assessee did sell them for profit. It is conceded that if the assessees had the sole intention at the time of purchasing the shares to sell them at profit, the surplus would be a revenue receipt liable to be taxed. Mr. Pathaks grievance, however, is that the Tribunal has not categorically found that that was the sole consideration with which the shares were acquired. As we have said above the intention of a party can only be gathered by the overt acts that it commits. In the present case, there is a clear finding that the assessee, within a few days of the purchase of the shares, started unloading them. There is also a finding that at no time were the shares sold below the par. There is again a finding that most of the shares were sold at a rate above the par and that the assessees themselves treated the interest payment as revenue expenditure and claimed it as such. It cannot, therefore, be said that the findings of the Tribunal that on the dates when the shares were purchased the assessees had the intention of selling them is either perverse or one which has no foundation in evidence. It is true that in so many words the Tribunal has not said that the sole purpose of the purchase to sell but that is the effect of the finding. The case of the assessees set up before the departmental authorities and again before the Tribunal was that they were in a serious financial embarrassment. That explanation has been rejected by the Tribunal, and we cannot say wrongly. After all the assessees are prudent businessmen. The assessees knew the amount that they were investing in the purchase of the shares. Nothing fresh developed subsequent to the purchase which the assessees did not know before it. They also knew what funds they had. They must also have been alive to their other commitments and consequently, their explanation that only after the money had been invested in the shares, they realised their final embarrassment, in our opinion, was rightly rejected both by the departmental authorities as also by the Tribunal. We have already said above that in the present case the question of burden of proof loses all its importance. Once the assessees gave an explanation which in the opinion of the departmental authorities was not true and which could not reasonably be true, the burden was on them to prove that what they stated was true and whatever burden was on the department stood shifted thereafter. There is nothing like absolute burden of proof in a case like this. Certainly, the initial burden is on the department to prove each item which is liable to be taxed as revenue receipt but the extent of the burden always depends upon the nature of the income and the circumstances in which it was made. The matter was in the special knowledge of the assessees and they alone could have thrown light as to under what circumstances and with what object the shares were purchased. The department could not prove the negative and it was for the assessees to have proved the positive case which they took before the departmental authorities and the Tribunal. Under these circumstances, we do not see how the case cited by Mr. Pathak can be of any real help to him and having carefully considered them, we find them clearly distinguishable. We are not impressed by the submission that the absence of a clear and categorical finding by the Tribunal that the sole purpose for which the shares were purchased was to sell them at profit would adversely affect the case. The findings of the Tribunal, if not in express words, at least by implication, are clear, the same being that the sole purpose for which the shares were purchased was to sell them later on at profit.
The cases on which Mr. Pathak relied ar :
Vellayappa Chettiar v. Commissioner of Income-tax, Saroj Kumar Mazumdar v. Commissioner of Income-tax, Ram Narain Sons (Pr.) Ltd. v. Commissioner of Income-tax and Sardar Indra Sing & Sons Ltd. v. Commissioner of Income-tax.
It is not necessary to mention the facts of these cases and the decisions arrived at in them because as we have already said above they are clearly distinguishable on facts.
On behalf of the department, Mr. Gulati has relied upon Bihar State Co-operative Bank Ltd. v. Commissioner of Income-tax, Rajputana Textile (Agencies) Ltd. v. Commissioner of Income-tax, in which Saroj Kumar Mazumdar v. Commissioner of Income-tax was discussed and distinguished, Bhikamchand Bagri v. Commissioner of Income-tax and Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax. These cases also do not provide a direct precedent to the facts of the case before us and consequently need not detain us with their discussion.
The case nearest to ours is the unreported decision of Desai C.J. and Brijlal Gupta J. in I.T.R. No. 123 of 1957 decided on 30th September, 1962. Some of the circumstances are common to both the cases but not all. We cannot, therefore, treat even that case as a direct precedent to govern the case before us.
At this stage, we would also consider the submission made by Mr. Pathak that, firstly, the money-lending is not the sole activity of the assessees and, secondly, that in any case the Appellate Assistant Commissioner having recorded a clear finding that the shares of the Raymond Woollen Mills were purchased in order to have a control over that company and the Tribunal not having dissented from that finding, the assessees are entitled to have the surplus amount from the sale of shares treated as capital asset. So far as the first submission of Mr. Pathak is concerned, it is clear that the bulk of the income of the assessees is from interest, i.e., money-lending, and income from other items is not extremely disproportionate but almost negligible. It is, therefore, not possible to say that the sole activity of the assessees is not money-lending. Even a person carrying on money-lending can have subsidiary income from other business properties, securities, dividend and other sources but in order to decide as to what is its main business or the chief business, one has to look to the income derived from the business source as compared to other sources. In the present case, as we have mentioned above, the income from interest, i.e., money-lending, was so large and from other sources so meagre that it cannot be said that the essential business of the assessees was not money-lending and financing. So far as the second submission is concerned, it may be stated that even though the Appellate Assistant Commissioner found that the assessees had acquired the Raymond Woollen Mills shares in order to have a control over the mills, that finding was not binding upon the Tribunal and even though the Tribunal has not, in so many words, said so, it has by implication done so. The findings of the Appellate Assistant Commissioner were before the Tribunal and would also have been placed before it at the time of the hearing of the appeals. The mere fact that the Tribunal has not agreed with those findings and has recorded findings completely different from those recorded by the Appellate Assistant Commissioner clearly shows that the Tribunal was not prepared to accept those findings as correct and inasmuch as it was free to record its own findings, it was justified in disregarding the findings recorded by the Appellate Assistant Commissioner. The law does not require the Tribunal to meet each and every argument and to controvert each and every finding recorded by the Appellate Assistant Commissioner. The Tribunal, while functioning under the provisions of section 33 of the Income-tax Act, 1922, has jurisdiction not only with regard to questions of law but also in respect of questions of fact. Consequently, it could come to its own conclusions even in respect of matters of fact and it had no obligations whatsoever to come to those conclusions only after first criticising or accepting the findings of the Tribunal. Under the circumstances, we are not impressed with the second submission of Mr. Pathak also. We have come to the conclusions that the Tribunal was right in holding against the assessees.
We, therefore, answer question No. 4 in the affirmative and against the assessees.
In the result, questions Nos. 1, 2 and 3 are answered in favour of the assessees and question No. 4 against them. Inasmuch as some of the questions have been decided in favour of the assessees and the others against them, we think it proper not to award costs in this case. We, however, assess the fee of the learned counsel for the department at a figure of Rs. 500.