UPADHYA J. - The questions referred by the Income-tax Appellate Tribunal are :
'(1) Whether on the facts and in the circumstances of this case the amount of Rs. 3,600 gained by the assessee by the sale of silver coins is a casual gain within the meaning of section 4(3)(vii) of the Indian Income-tax Act or is income liable to tax
(2) Whether the Indian Income-tax Ordinance No. 28 of 1950 is ultra vires ?'
Learned counsel for the assessee stated that he did not want that question No. 2 which had been referred at the assessees instance should be answered. We, therefore, do not answer that question.
The reference relates to income-tax assessment for the year 1947-48 and the excess profits tax assessment for the relevant chargeable accounting period from May 18, 1945, to March 31, 1946.
The Income-tax Officer in his income-tax assessment order which is made a part of the statement of the case has stated that the set of accounts in which this transaction was found was kept in the name of Gappumal Kanhaiyalal and was the head office set of the assessee. In this account along with the other assets were entered silver coins and the Income-tax Officer has mentioned that the assessee had old coins of silver out of which coins worth Rs. 27,600 were sold away while coins worth Rs. 4,100 each on the coming into force of the High Denomination Notes Demonetization Ordinance. On enquiry the assessee explained that he had received these notes in the sale price of the silver coins mentioned above. The accounts of the purchaser sarraf were produced and the explanation was accepted. The Income-tax Officer found that the amount received included a sum of Rs. 3,600 in excess of the face value of the silver rupees sold by the assessee. This sum he treated as profits and included it in the total income for the purposes of income-tax as well as the excess profits tax assessment.
On appeal the Appellate Assistant Commissioner took the view that the silver rupees were allowed to remain with a view to make profits on their sale and the sum of Rs. 3,600 in question was nothing but profits from an adventure in the nature of trade and was not casual within the meaning of section 4(3)(vii) of the Act.
On further appeal the Income-tax Appellate Tribunal found that during the accounting year the assessee had in his possession nearly 48,600 silver rupees and it appeared that the silver coins formed part of the cash balance of the assessee. As the assessee did money-lending business the cash balance held by him was a stock-in trade and any appreciation of that cash is an appreciation of that stock-in-trade. The Income-tax Appellate Tribunal therefore held that the profit out of this appreciation is liable to be taxed.
While stating the facts of the case the Income-tax Appellate Tribunal has appended its own appellate order, out of which the question arose, and the orders of the Income-tax Officer and the Appellate Assistant Commissioner, and observed that these orders would form part of learned counsel for the parties.
When the taxability of the sum of Rs. 3,600 was disputed before the Appellate Tribunal it does not appear to have approved of the ground on which the Appellate Assistant Commissioner had upheld the inclusion of that amount in the total income of the assessee. While the Income-tax Officer treated it as profits and the Appellate Assistant Commissioner held that it was gain from an adventure in the nature of trade the Appellate Tribunal found that it was an appreciation of the cash balance of the assessee and as the assessee was a money-lender the cash balance was his stock-in-trade and because the amount was an appreciation of the stock-in-trade it was a gain liable to tax, as gain made in the money-leading business. We have therefore only to examine whether the amount is taxable on the ground stated by the Income-tax Appellate Tribunal or whether it is not liable to tax because of the provisions of section 4(3)(vii) of the Act.
The Income-tax Appellate Tribunal has stated that the assessee had a Ghar Khata or home chest account in which large amount of cash was usually maintained. In the year 1935 the balance in this account amounted to Rs. 91,000. The rupees which were sold and formed part of the cash balance were held by the assessee year after year. When the silver rupees ceased to be legal tender the assessee did not take steps to have them exchanged for current coins and these rupees remained with him, like other assets held by his family. The other asset in the Ghar Khata were shares and securities and house properties etc., held by him. The Appellate Tribunal has also stated that the assessee used to withdraw amounts from the balance held in the Ghar Khata as necessity arose for investment in the money-lending business. From these facts it would appear that the large amount of cash held in the home chest did not form part of the cash balance of the money-lending business and that after the silver coins ceased to be legal tender, they ceased to be part of the cash balance of the assessee and remained with him only like other assets. The statement of the facts does not say as to when these coins ceased to be legal tender. But learned counsel are agreed that they ceased to be legal tender several years prior to the relevant accounting period,
It is evident therefore that these silver coins which were sold by the assessee did not form part of the cash balance of the money-lending business and it could not be said that they formed part of the stock-in-trade of the money lending business. Besides the Tribunal appears to have overlooked the fact that after these coins had ceased to be legal tender they could not possibly form part of the cash balance of an assessee because the cash balance could consist only of money which was legal tender. The view taken by the Tribunal therefore that the sum of Rs. 3,600 was an appreciation of the assessees stock-in-trade is incorrect. The silver coins were held by the assessee like other assets of the family. If the value of the house property held by the assessee appreciated it could not be contended that the increase in value amounted to an appreciation of stock-in-trade. The silver coins were never the subject-matter of any trade at all.
We are therefore of opinion that the sum of Rs. 3,600 is not profit due to appreciation of the assessees stock-in-trade in money-lending business.
Section 4(3)(vii) reads as follows :
'Any receipts not being capital gains chargeable according to the provisions of section 12B and not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee.'
It is contended on behalf of the assessee that this gain was of a casual and non-recurring nature. Silver coins ceased to be legal tender on a particular date. Thereafter the value of the coins depended on their silver content and the price of silver prevailing in the market. If the price of silver had gone down the silver coins would have been worth less than their face value. The fact that they ceased to be legal tender could occur only once and any gain made by the sale of old silver coins could be only non-recurring in character. It is also causal because it could not be expected with any measure of certainty at the time when these coins were replaced by other coins and ceased to be legal tender. The gain therefore was also casual. The Appellate Assistant Commissioner has mentioned in support of his opinion that the gain was from an adventure in the nature of trade, that the assessee had been accumulating silver coins from year to year with the object of profit-making.
Learned counsel for the Department has not been able to point out any material on the record which would warrant such a finding. From the mere fact that the assessee did not get these silver coins exchanged for other coins which were introduced by the Government as legal tender, no inference can be drawn about the object with which he omitted to get these coins changed. Keeping a large amount of cash and other assets was a normal phase of the assessees manner of doing things and in the absence of any evidence and particularly, when the assessee was not called upon to show cause why such an inference may not be drawn against him, it would not be fair or just to infer from the fact that he allowed silver coins to lie in his possession, that he intended to make profits. But the reason given by the Appellate Assistant Commissioner is not strictly relevant, for the Appellate Tribunal has not upheld the taxability of the amount on that ground at all. The Tribunals finding is based on the view that the silver coins formed part of the money-lending business of the assessee, and as such were part of the stock-in-trade whose appreciation was liable to tax.
We have examined the Appellate Assistant Commissioners view only to consider whether the gain may be said to be of a casual nature.
Having regard to the facts and circumstances of the case mentioned above, we are of the view that the gain was of a casual and non-recurring nature and was not income liable to tax. We answer the first question accordingly.
The assessee will have his costs which is assessed at Rs. 200. Feet of learned counsel for the Income-tax Department is fixed at the same amount.
Reference answered accordingly.