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Premji Bhimji Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 76 of 1953
Judge
Reported in75CWN454,[1971]81ITR179(Cal)
ActsIncome Tax Act, 1922 - Sections 2(4), 66(1), 66(2) and 66(4)
AppellantPremji Bhimji
RespondentCommissioner of Income-tax
Appellant AdvocateS. Mitter and ;S.B. Sen, Advs.
Respondent AdvocateB.L. Pal, Adv.
Cases ReferredWisdom v. Chamberlain
Excerpt:
- p.b. mukharji, c.j. 1. adventure in the nature of trade is the central controversy in this income-tax reference. it has truly been an adventure in many ways. the procedural adventure in this reference has lasted for about 17 years. the legal adventures, the procedural adventures and this adventure of trade have produced many misadventures in the process of time. some history, therefore, is inevitably involved in deciding this reference.2. originally, it was an income-tax reference of 1953 under section 66(2) of the indian income-tax act, 1922. the question raised in the statement of the case in this reference was simple enough and was in these terms :' whether, under the facts and circumstances and on the materials available', the appellate tribunal was justified in holding that the gain.....
Judgment:

P.B. Mukharji, C.J.

1. Adventure in the nature of trade is the central controversy in this income-tax reference. It has truly been an adventure in many ways. The procedural adventure in this reference has lasted for about 17 years. The legal adventures, the procedural adventures and this adventure of trade have produced many misadventures in the process of time. Some history, therefore, is inevitably involved in deciding this reference.

2. Originally, it was an income-tax reference of 1953 under Section 66(2) of the Indian Income-tax Act, 1922. The question raised in the statement of the case in this reference was simple enough and was in these terms :

' Whether, under the facts and circumstances and on the materials available', the Appellate Tribunal was justified in holding that the gain of Rs. 49,400 made by the sale of 200 shares of Radha Films Ltd. was a venture in the nature of trade and whether the said amount of gain was of a 'capital nature' or 'an income from business' taxable under the Indian Income-tax Act ?'

3. We shall first deal with the procedural adventure in this case. On December 22, 1953, a rule nisi was granted by this High Court for a reference. The rule was made absolute on April 7, 1955. The statement of the case was made by the Tribunal on the 24th January, 1956. The assessment year was 1946-47. When the reference was heard by this court, a Division Bench of this court on December 15, 1959, remanded the case to the Tribunal for findings on specific points after taking additional evidence. Such additional findings in a supplementary statement of the case were filed by the Tribunal before this court on 25th October, 1960. Thereafter, the Division Bench of this court decided the reference on June 21, 1963, answering the question in the negative and in favour of the assessee. The High Court refused to grant certificate to appeal to the Supreme Court on February 12, 1964. Thereafter, the Commissioner obtained special leave to go to the Supreme Court. The Supreme Court by an order dated 9th March, 1967, l allowed the appeal of the Commissioner and set aside the judgment and answer of this court. The Supreme Court pointed out that the judgment of the High Court was vitiated because the High Court authorised the Tribunal to record additional evidence on the matters set out in their order and followed the previous decision of the Supreme Court in Keshav Mills Co. Ltd. v. Commissioner of Income-tax, : [1965]56ITR365(SC) , where it was said:

' In calling for a supplementary statement of the case under Section 66(4) of the Indian Income-tax Act, 1922, the High Court can require the Tribunal to include in such supplementary statement only such material and evidence as may already be on the record but which has not been included in the statement of the case made initially under Section 66(1) or Section 66(2). It has no jurisdiction to direct the Appellate Tribunal to collect additional material and make it a part of the supplementary statement.'

4. Therefore, the Supreme Court set aside the order and answer of the High Court on the ground that it had directed the Appellate Tribunal in this case to collect additional material and make it a part of the supplementary statement. Finally, in the order of remand the Supreme Court observed as follows :

' It was certainly open to the High Court to call for a supplementary statement of case under Section 66(4) on the matters enumerated in their order dated December 15, 1959. But the supplementary statement of the case must, on the view expressed by this court, be founded only on the evidence already on the record, and the Tribunal cannot be directed to collect any additional evidence. It is impossible on the supplementary statement of the case submitted by the Tribunal to ascertain what part of the supplementary statement was based on additional evidence. Since the High Court has considered the facts disclosed in the supplementary statement of case in recording their opinion on the question referred, we must discharge the answer recorded by the High Court and remand the case to it with the direction that the High Court do refer the case to the Tribunal for recording its supplementary statement on the matters set out in the order of December 15, 1959, on the materials on record uninfluenced by any additional evidence collected since its original order and the High Court do, after the supplementary statement is received, proceed to hear and dispose of the reference.'

5. We, therefore, have now to proceed to dispose of the reference. But before doing so, we shall set out here the steps taken. The High Court by its order dated the 4th May, 1967, directed the Tribunal to act in terms of the Supreme Court's order of remand. The Tribunal made such supplementary statement on the 16th February, 1968, which was filed in supplementary paper books on the 1st July, 1968.

6. The facts giving rise to the question may now be stated briefly. The assessee is Premji Bhimji with the status of an individual. The assessment year is 1946-47 with the relevant previous year ending on the 4th November, 1945. From the assessment year 1944-45, previous to the instant assessment year, the assessee was being assessed on the income on his share of profit from a registered firm named Jayantilal Dwarkadas which firm carried on business in textiles. In the assessment year 1945-46, he carried on a business of silk piece-goods. During the previous year relevant to the instant assessment year, he carried on a business of his own in printed silk sarees and also business in the film line in the name of Premji Bhimji, He hired several films and exhibited the same in Jyoti Cinema. On the 2nd February, 1945, the assessee entered into an arrangement with the proprietor of Jyoti Picture House and advanced Rs. 1,20,000 against the mortgage of his film exhibition business and got control of the said picture house. He was receiving the collections and incurring expenses for running the picture house on behalf of the proprietor of Jyoti Cinema. He had the right to exhibit his hired pictures in the said cinema house. During the previous year relevant to the assessment, receipts from the cinema amounted to over Rs. 2 lakhs. Rent paid by him for hiring the films was Rs. 1,06,442-13-3 to Mansata Film Distributors and Rs. 5,662-8-6 to Select Pictures Ltd.

7. The next series of facts relevant for the purpose are : The proprietor of Jyoti Cinema was a director of Radha Films Ltd. Negotiations were going on for a change in the management of Radha Films Ltd. On the 17th February, 1945, the assessee purchased 200 shares of Radha Films for Rs. 10,600. The proprietor of Jyoti Cinema also purchased shares of Radha Films Ltd. at the same time. Within six months of the purchase of the shares, they were sold away at a price six times the purchase price. The assessee made a profit of Rs. 49,400. These facts are taken from paragraph 4 of the original statement of the case and there are no disputes about them. It is further stated in paragraph 5 of the original statement of the case that: (1) the Tribunal observed that it was apparent from the record that the applicant had considerable contacts with the cinema world; (2) that the assessee was an exhibitor of some substance and had considerable business collaboration with the proprietor of Jyoti Cinema on whose advice those shares were purchased ; (3) the proprietor of Jyoti Cinema and the assessee purchased shares of Radha Films Ltd. in February, 1945, as negotiations were being carried on at that time for a change in the management of the company, Radha Films Ltd.; (4) the proprietor of the Jyoti Cinema was a director of Radha Films Ltd.; (5) within six months of the purchase these, shares were sold away at a price six times the purchase price. It is then said in paragraph 5 of the original statement of the case that all these facts indicate that this purchase was on the basis of inside information and was with a view to re-sale and there was no element of investment in the purchase as was also borne out by the fact that the sale of the shares came within six months of their purchase. The Appellate Tribunal, therefore, held that the Income-tax Officer was justified in subjecting this income to tax.

8. It may be stated here that the income was also subject to tax in this case not only by the Income-tax Officer but also by the Appellate Assistant Commissioner and the Tribunal. We shall now briefly refer to the facts found by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, specially because the first supplementary statement cannot now be used after the remand order of the Supreme Court and specially because the second supplementary statement oi the facts after the Supreme Court's order is only a qualified statement. It is necessary to bear in mind that our answer should be based on facts already on record and as the Supreme Court has directed no additional evidence can at all be looked into.

9. The order of the Income-tax Officer records the following facts. On scrutiny of the ledger account it appears that there is a squared-up account in the name of Kanai Lal Ghosal having cash entries of Rs. 60,000, on both sides. In reply to specific questions put by the Income-tax Officer it was stated that the assessee sold to Ghosal 200 shares of Radha Films Ltd. for Rs. 60,000. As the amount was paid in advance his account was credited for the amount and then at the time of actual transfer of shares his account was debited and the assessee's personal account was credited. In fact it is recorded that a letter from the party was also filed in that connection before the Income-tax Officer. On those facts the Income-tax Officer records :

'It appears on checking that these 200 shares were purchased barely six months ago for the amount of Rs. 10,600 by withdrawing the amount from the assessee's personal account in the books of Premji Bhimji. The assessee was asked to explain and produce evidence regarding the reasons for this abnormal rise in the value of shares. The assessee could not produce any satisfactory evidence except saying that it was the result of negotiations which had been going on for some time between the directors of the company and the said Kanai Lal Ghosal for the sale of the company as a running concern. The assessee could not also give any satisfactory reply to my query regarding the reasons for this sudden purchase of shares by him.

The relevant facts in this connection are stated in the following lines. The assessee was intimately known to some of the directors of the company. He came to know from them that negotiations were going on for a successful bargaining out of the sale of the company to Kanai Lal Ghosal. With a view to making some bargain himself, he approached the company for sale to him of some shares. 200 shares of the company were thus purchased by him on 17th Febnuary, 1945, for Rs. 10,600 oaly to be sold after the lapse of 6 months for Rs. 60,000 when the negotiations as stated above came out successful. This view is also supported by the fact that no share account was actually opened which must otherwise have been opened had the purchase been made with the intention of investment only.

For the reasons stated above, I hold that the purchase was made with the sole object of selling shares at a profit.'

10. It is noticeable that the assessee enclosed an annexure ' A ' to his application requiring the Tribunal to state the question of law to this court under Section 66(1) of the Income-tax Act, 1922. He himself admitted in paragraph 3 thereof as follows:

' One Mr. K. Ghosal with others was acquiring controlling interest in Radha Films Ltd. by purchasing shares from various persons and so he was particularly interested in acquiring further shares of the said company and as higher price was offered, the 200 shares were sold to K, Ghosal for Rs. 60,000 and payment was received on 31st August, 1945, by a cheque on New Standard Bank Ltd.'

11. This was part of the facts which was admitted and/or found by the Tribunal and admitted to be so by the assessee himself and annexed as enclosure A to his application as aforesaid.

12. The Appellate Assistant Commissioner in confirming the order of the Income-tax Officer records his findings as follows :

' It appears, that there was throughout the idea of profit. The character and nature of the shares bought and sold were such that they must need be sold and not owned and held as investments. Normally, investments are made out of surplus funds, through recognised stock brokers and in gilt-edged securities or in shares of public limited and dividend-yielding companies. In this case all these three factors are absent. The manner iu which these were acquired and the funds that provided the purchase money point to the fact that these were not acquired as investment, nor has it been claimed, or shown that the sales or realizations were made under any impulse of financial necessity to find funds for carrying on the assessee's main business. The shares were not purchased from surplus funds but, as the learned counsel contends, by borrowed funds and there was such close proximity of dates of purchases and sales. All these point unerringly to a business character rather than that of investment.'

13. This is the recorded finding on facts of the Appellate Assistant Commissioner in paragraph 6 of his order. Finally, the Appellate Assistant Commissioner in paragraph 8 of his order records the facts in these terms :

' The sudden purchase of these shares by the assessee on the information of prospect of a successful bargaining with the intention to re-sell at a profit--and their sales and within such close proximity of dates of purchase--was undoubtedly motivated by gains or with a view to making some bargaining. It cannot but be held therefore that this is a revenue profit arising from an adventure in the nature of trade.'

14. Finally, the Tribunal by its order dated the 9th June, 1952, found the following facts:

' The appellant is running a business in silk piece goods as well as exhibition of cinema films. In appears that he entered into an arrangement with the proprietor of Jyoti Picture House on 2nd February, 1945, under which he advanced to the proprietor Rs. 1,20,000 and the appellant is in control of the picture house. He takes all the receipts out of which the expenses for running the picture house are met. This running of the cinema house is said to be on behalf of the proprietor of Jyoti Cinema and this arrangement is said to be only to provide security for the advance of Rs. 1,20,000. But the arrangement also provides that the appellant would exhibit his own pictures in this cinema. There is no doubt that the appellant exercised this right extensively during the previous year relevant for this assessment and the appellant's receipts from the cinema amounted to over Rs. 2,00,000.'

15. The Tribunal, by its order dated 9th June, 1952, also records these following facts :

' It is apparent from the record that the appellant has considerable contacts with the cinema world. He is an exhibitor of some substance and has considerable business collaboration with the proprietor of Jyoti Cinema on whose advice these shares are said to have been purchased. It appears that the proprietor of the Jyoti Cinema and the assessee purchased the shares of Radha Films in February, 1945, as there were negotiations being carried on at that time for a change in the management. The proprietor of the Jyoti Cinema is a director of Radha Films Ltd. Within six months of the purchase of these shares these were sold away at a price six times the purchase price. All these facts indicate that the purchase was on the basis of inside information and was with a view to re-sell. There is no element of investment in the purchase as is also borne out by the fact that the sale of the shares came within six months of the purchase.'

16. The Tribunal proceeds further to find and observe :

' In the present case, it is clear that the appellant had substantial contacts with the cinema world at the time the shares were purchased. The purchase of the shares of a film company in collaboration with a director of that company about the time when the negotiations were being carried on about the change in the management of that company all indicate that the purchase was a venture in the nature of trade. We must, therefore, hold that the Income-tax Officer was justified in subjecting this income to income-tax.'

17. Confining ourselves to the facts found and already on record, without looking at the first and the second supplementary statements of facts, the following points are clear beyond doubt:

(1) The assessee had considerable contacts with the cinema world.

(2) He was an exhibitor of some substance.

(3) He had considerable business collaboration with the proprietor of Jyoti Cinema on whose advice those shares were purchased.

(4) The proprietor of Jyoti Cinema was also a director of Radha Films Ltd., whose shares were purchased.

(5) The proprietor of Jyoti Cinema purchased shares of Radha Films at the same time that the assessee purchased 200 shares of Radha Films.

(6) The shares of both the proprietor and of the assesse'e were sold within six months of the purchase at a price six times the purchase price (vide para. 5 of the original statement of case).

All this iollows from the fight for controlling interest as admitted by the assessee himself and bis statement quoted above and already on record before even the first reference was made to this court.

(7) The manner of securing these shares.

(8) The funds provided for such purchase (on which point we shall presently make some more reference).

(9) The fact that the sales or realisations were not made under any financial need or necessity.

(10) Purchase was not made from surplus.

(11) Proximity between the date of purchase and the date of resale.

(12) The resale brought a price which was six times higher than thepurchase price.

18. All these facts are taken from paragraphs 4 and 5 of the original statement of case, pages 5 and 7 of the first order of the Tribunal printed in the original paper book, from pages 10 to 12 of the paper book recording the Income-tax Officer's order and reasons and finally from pages 16 to 17 of the first paper book recording the Appellate Assistant Commissioner's order.

19. It will be now appropriate to refer to the second supplementary statement of fact after the remand order of the Supreme Court. In order to appreciate the points of the second supplementary statement of the case dated the 16th February, 1968, the following six points on which the High Court by its order dated the 15th December, 1959, had called for a supplementary statement may be noted:

'(1) Whether the assessee purchased 200 shares of the Radha Films Ltd. with borrowed capital ?

(2) Whether the said shares were yielding dividend either before or at the time of the purchase and if so, in which years and at what rate and what is the face value of each share ?

(3) Whether the said shares were registered in the assessee's name after the purchase; if so, when ?

(4) How many shares of Radha Films Ltd., if any, were sold by the proprietor of Jyoti Cinema between the dates of purchase and sale by the assessee of the 200 shares of the said company When did the assessee sell the said 200 shares ?

(5) When and between whom did the negotiations for a change in the management of the Radha Films Ltd., as referred to in paragraph 4 of the statement of case start, and when were they completed and at what stage were the said negotiations at the time when the 200 shares were purchased by the assessee ?

(6) Are there any other facts besides those, which have been found by the Tribunal and stated in the statements of cases, to justify the conclusion that there is no element of investment in the purchase by the assessee as stated in paragraph 5 of the statement of case '

20. In terms of the remand order of the Supreme Court, the Tribunal answered these questions in the following manner :

Question No. 1:

' The Income-tax Officer observed in the assessment order that the shares had been purchased by withdrawing the amount from the assessee's personal account in his business books. The finding was contested before the Appellate Assistant Commissioner and it was stated that the payment had been made initially by Jyoti Cinema and subsequently adjusted. The Appellate Assistant Commissioner appears to have accepted this contention (vide para. 6 of his appellate order dated 27th July, 1950). This point was not mooted before the Appellate Tribunal at the stage of the original hearing. It is, therefore, on record that the money for the purchase was initially furnished by Jyoti Cinema. But it is not possible to say without taking additional evidence whether the shares can be described as having been purchased out of borrowed funds or whether only a temporary accommodation had been provided by Jyoti Cinema. ' Question No. 2:

' The question cannot be answered without taking additional evidence. We are, therefore, unable to submit any facts relevant to this question. ' Question No. 3:

' The date of purchase of the shares was recorded by the Income-tax Officer and the Appellate Tribunal originally as 17th February, 1945. This was the date when the transaction was recorded in the assessee's books. The information whether the shares were registered by the company in the assessee's name and, if so, on what date, was not available in the records as they were before the Tribunal at the time of the hearing. ' Question No. 4 :

' The first part of the question cannot be answered without fresh evidence. As to the second part of the question the exact date was not mentioned at the earlier stages. The Income-tax Officer had merely recorded that the sales were made within six months of the purchase and thus the sales can be placed in the month of August, 1945. The Appellate Assistant Commissioner and the Appellate Tribunal merely referred to the short interval between the purchase and the sale. The Income-tax Officer, however, had scrutinised the ledger account of the purchaser and also a letter from the purchaser. Hence, the date of the sale can be taken as available in the original records. The date was 31st August, 1945. Questions Nos. 5 and 6 : ' These questions cannot be answered on the basis of the material already available on record. '

21. On these answers certain points again are abundantly clear. There is a clear finding, that the shares had been purchased by withdrawing the amount from the assessee's own personal account in his business books, by the Income-tax Officer. Although this finding was contested before the Appellate Alsistant Commissioner and it was contended that the payment had been made initially by Jyoti Cinema and subsequently adjusted, the Appellate Assistant Commissioner accepted that contention of the assessee but the point was not mooted before the Tribunal at the stage of original hearing. Nevertheless, the Tribunal records this fact, which is already appearing on its own record, that the money for the purchase was initially furnished by Jyoti Cinema. All that the Tribunal says is that without additional evidence it cannot determine the further point, whether it was purchased out of borrowed funds or out of funds on temporary accommodation which is immaterial for the present purpose. It shows and proves that the money was furnished by Jyoti Cinema and did not represent the assessee's surplus. That is the crucial finding in the second statement of case.

22. Mr. Mitter, appearing for the assessee, relied on five authorities to explain the meaning of ' adventure in the nature of trade '. That expression appears in Section 2(4) of the Income-tax Act, 1922, which defines ' business ' in these terms:

'Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.'

23. The whole controversy is whether this sale of 200 shares is an adventure in the nature of trade. The main contention on behalf of the assessee is that, (1) the assessee did not deal in shares and it is not in his line of business, (2) that it is an isolated transaction. It raises the proverbial controversies in this branch, how far a single plunge in the waters of trade would make it an adventure in the nature of trade, or, to change the metaphor, how far a single swallow will indicate the summer. Many are the decisions on this point. We do not consider it necessary to examine all these numerous decisions. But, as Mr. Mitter has relied on five specific authorities on the point, we shall make a brief reference to them.

24. The first case to which Mr. Mitter for the assessee draws our attention is the well-known decision of Commissioners of Inland Revenue v. Livingston, [1926] 11 T.C. 538. Lord President Clyde, in giving his opinion in this celebrated case, at page 542 of that report, made the following classical observation:

' If the venture was one consisting simply in an isolated purchase of some article against an expected rise in price and a subsequent sale it might be impossible to say that the venture was ' in the nature of trade' ; because the only trade in the nature of which it could participate would be the trade of a dealer in such articles, and a single transaction falls as far short of constituting a dealer's trade, as the appearance of a single swallow does of making a summer. '

25. But the Lord President Clyde makes it quite clear subsequently that it is not the singleness or the isolation of the transaction which is the real test and he observed :

' I think the test... is whether the operations involved in it are of the same kind, and carried on iu the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made. If they are, I do not see why the venture should not be regarded as ' in the nature of trade', merely because it was a single venture which took only three months to complete. '

26. It is, therefore, wrong in our view to consider the Lord president Clyde's observation of a single swallow not making a summer to mean that a single transaction could never be regarded as an adventure ' in the nature of trade ' provided, of course, the characteristic test is present as indicated by Lord President Clyde.

27. The second case on which Mr. Mitter for the assessee relies is Leeming v. Jones, [1930] 15 T.C. 333 (H.L.). Viscount Dunedin at pages 358-360 of the report in that case explained the theory of isolation and isolated transaction in this branch of the income-tax law. His Lordship approved of Rowlatt J.'s observation in Ryall v. Hoare, [1923] 2 K.B. 447, 454; 8 T.C. 521 (K.B.), that, ' a casual profit made on an isolated purchase and sale, unless merged with similar transactions in the carrying on of a trade or business is not liable to tax '. His Lordship also explained the theory of whether an investor should hold on to his investment or sell it and observed at page 360 of that report as follows:

' The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments but per se it leads to no conclusion whatever. '

28. Mr. Mitter wanted to utilise this doctrine in the instant reference before us by submitting that the fact that these shares were re-sold after six months was not inconsistent with the theory of purchase and sale being investment in the light of this observation by Viscount Dunedin. The crucial point here, however, is that what Viscount Dunedin observed in that statement was that per se the fact that a man does not mean to hold investment leads to no conclusion on the point. But it, in almost every case, is not a fact standing alone or per se and if there are other cogent circumstances or facts, which we shall presently discuss, then it is no longer a case that the particular fact of holding the investment per se is decisive on the point.

29. Mr. Mitter for the assessee also tried to develop another theory from the decision of Leeming v. Jones, by using Lord Buckmaster's observation at page 357, which is as follows :

' I can see no difference between it and what might have happened had the respondent bought shares in two companies which were going to be amalgamated and then sold equivalent shares in the amalgamated company at a profit; an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value ; if it does so rise, its realisation does not make it income.'

30. Mr. Mitter, in our view, misunderstands this theory of amalgamation inthe context of the instant reference before us. What Lord Buckmaster saysthere is that his Lordship saw no difference between the case his Lordshipwas dealing with and what might have happened had the respondent bought shares in two companies which were going to be amalgamated and then sold equivalent shares in the amalgamated company at a profit. There is no amalgamation in that sense in the instant reference before us and what was done was that Ghosals who were trying to get a controlling interest paid this high price to the assessee. It was, therefore, in the nature of a trading transaction or an adventure in the nature of a trade.

31. The next case on which Mr. Mitter for the assessee relies is Commissioners of Inland Revenue v. Reinhold, [1953] 34 T.C. 389. The ratio of that decision appears to be that the fact that the property was purchased with a view to re-sell did not of itself establish that the transaction was an adventure in the nature of trade. We have already discussed this theory that the fact of the sale by itself would not establish an adventure in the nature of trade. But we are of the opinion that it might do so when taken along with other considerations which we have stated above. Lord Carmont, at page 392 of that report, expressed the view :

' A transaction does not require to be unique in the life experience of a businessman to be treated as isolated. In ordinary parlance a thing is isolated when it is placed apart from some other thing.'

32. In developing this theory of isolation, Lord Carmont also introduced the consideration of the quality of the goods when his Lordship observed at the same page 392:

'... in certain cases it is important to know whether a venture is isolated or not, that information is really superfluous in many cases where the commodity itself stamps the transaction as a trading venture, and the profits and gains are plainly income liable to tax. '

33. This was illustrated by Lord Russell at page 395 of that report in the same case by the authority of Commissioners of Inland Revenue v. Fraser, [1942] 24 T.C. 498. 502 ; [1942] S.C. 493, which related to a purchase in three lots of whisky in bond, made by a woodcutter, and sold in three lots after an interval of about two years and where the Lord President observed at page 498 of the report of the Scottish case:

' 'But a purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade.''

34. It was held there that, although the assessee was a woodcutter, stillhis transaction in whisky which was not in his line of business was anadventure in the nature of trade. That meets the argument of the assesseein this case that the assessee here is not a share dealer and buying andselling of shares was not his business. Even then, having regard to the circumstances stated above and the special features attending to this purchase and sale of 200 shares, it is inescapable that this transaction must be treated as an adventure in the nature of trade.

35. There are two other cases relied upon by Mr. Mitter for the assessee. One is Saroj Kumar Mazumdar v. Commissioner of Income-tax, : [1959]37ITR242(SC) , a decision of the Supreme Court, where the question was whether a solitary transaction in respect of about three-quarters of an acre of land in the suburbs of Calcutta was an adventure in the nature of trade and, therefore, liable to income-tax. The wholesome principle laid down there at page 248 is in these terms:

' The recent decision of this court has examined almost all the relevant cases decided in Indian as also English and Scottish courts, and thus, our task in the present case has been very much simplified. It has further been observed in that case, more than once, that judicial opinion was unanimous that no general principles or universal tests could be laid down, which could govern the decision of all cases in which the question for determination is similar to the one now before us. Each case must be determined on the total impression created on the mind of the court by all the facts and circumstances disclosed in that particular case.'

36. This observation represents the essence of the principles and ratios discussed in all relevant cases on the subject that no rigid formula can be applied. The 'total impression' must be gathered from all relevant facts and circumstances. Such facts and circumstances which we have stated above leave no hesitation in our minds to hold that this transaction in 200 shares in the instant reference before us is indelibly stamped with all the characteristics of an adventure in the nature of trade, even though it was a single transaction on the part of the assessee and even though share dealing was not directly in his line of business.

37. The other case to which Mr. Mitter made a reference is Janki Ram Bahadur Ram v. Commissioner of Income-tax, : [1965]57ITR21(SC) , another decision of the Supreme Court. There, on the particular facts and circumstances of the case, the Supreme Court held that the sale of property was not an adventure in the nature of trade. It lays down the principle that if a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may rightly be inferred. Equally, a similar inference would arise where a commodity is purchased and subdivided, altered, treated, or repaired and sold, or is converted into a different commodity and sold. It was emphasised there that the magpitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture. The Supreme Court in that case decided that a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade (see the observations of the Supreme Court at page 25 of that report).

38. As we read these last two decisions of the Supreme Court, we are of the opinion that the real ratio of these cases is against the contention of Mr. Mitter for the asscssee when applied to the facts and circumstances of the instant reference before us, although in the facts of those two Supreme Court cases the decision was that the single transaction there in such cases did not amount to a venture in the nature of trade.

39. It will be proper at this stage to notice some of the authorities on which Mr. Pal for the Commissioner of Income-tax drew our attention. He laid great emphasis on the decision of the Supreme Court in G. Venkataswanti Naidu & Co. v. Commissioner of Income-tax, 0065/1958 : [1959]35ITR594(SC) . The Supreme Court there lays down some of the propositions which are relevant for the purpose of determining this reference before us. This decision lays down that in cases where the purchase has been made solely and exclusively with the intention to re-sell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other facts it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances of the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. These observations will be found at page 610 of the report of that case. Here again the Supreme Court at pages 609 and 610 of that report emphasises the principles already discussed by us and which will be apparent from the following observations:

' In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction ; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us.'

40. Now, this decision in Naidu's case is important because it lays down the proposition relating to presumption. It emphasises the principle that where the purchase is solely and exclusively with the intention to re-sell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it, the presence of such an intention is a relevant factor and unless offset it raises a strong presumption that the transaction is an adventure in the nature of trade.

41. The theory propounded in Reinhold's case, quoted above, therefore, has now to be studied in the light of the decision of the Supreme Court in Naidu's case 2. Applying the principle of Naidu's case to the facts of the instant reference, we have no hesitation in holding that the intention to re-sell at a profit is present here and that the assessee had no intention of holding the shares for himself or otherwise enjoying or using them and having regard to the manner and method of acquiring and disposing of these shares within the short period, the presumption is not only there against the assessee but it has not been rebutted by the assessee by any other facts or circumstances.

42. It is necessary here at this stage to emphasize what is plain from the order of the Income-tax Officer where he gave opportunities to the assessee to explain and produce evidence regarding reasons for the abnormal rise in the value of the shares and to explain the circumstances attending that situation, but the assessee could not either explain or produce any satisfactory evidence. The reason for mentioning this fact is that at one stage, as is usual in these cases, the question of onus was alluded to in the argument of Mr. Mitter for the assessee. But then Mr, Pal for the revenue referred to the principle laid down in Commissioner of Income-tax v. Best Co. Ltd., : [1966]60ITR11(SC) , where the Supreme Court at page 18 discussed this principle of onus and observed that the Supreme Court did not lay down in Commissioner of Income-tax v. Chart & Chari Ltd., : [1965]57ITR400(SC) , that the burden on the revenue to establish that an income was taxable was immutable in the sense that it never shifted to the assessee but when sufficient evidence, either direct or circumstantial, in respect of its contention was disclosed by the revenue, an adverse inference could be drawn against the assessee if he failed to put before the department material which was in his exclusive possession. Here, there is evidence, direct and circumstantial, in favour of the revenue to show the nexus and the connection and to show the circumstances and the manner in which the assessee acquired and relieved himself of these shares by earning the profit.

43. There are two other cases on which Mr. Pal for the revenue relied. One is Khan Bahadur Ahmed Alladin & Sons v. Commissioner of Income-tax, : [1968]68ITR573(SC) , where again the principle is emphasized that the answer to the question whether a transaction is an ' adventure in the nature of trade ' does not depend upon the application of any abstract rule, principle or formula but must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determines the character of the transaction. There, on the facts, it was held that the purchase of the site and the buildings of the factory was an adventure in the nature of trade and was in the course of a profit making scheme.

44. The other case on which Mr. Pal for the revenue relied is P.M. Mohammed Meerakhan v. Commissioner of Income-tax, : [1969]73ITR735(SC) , a decision of the Supreme Court emphasizing the same principle that it is not possible to evolve any single legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not and the answer must depend on the total impression and effect of all relevant factors and circumstances. It will be unnecessary to discuss that case in further detail.

45. In the light of the above discussion and the case law cited above, we gather and draw the total impression and the effect from the following facts and circumstances in the instant reference before us. We have already set them out above but we summarise them here. The assessee had considerable contacts with the cinema world. He was an exhibitor of some substance. He had considerable business collaboration with the proprietor of the Jyoti Cinema on whose advice these shares were purchased. The proprietor of Jyoti Cinema was also the director of Radha Films whose shares were purchased and sold. The shares were sold within six months at a price six times the value of the shares at which they were purchased. The assessee and the proprietor of Jyoti Cinema purchased the shares of the Radha Films at the same time. Ghosals were acquiring controlling interest in Radha Films Ltd. by purchasing shares from various persons and so the assessee was particularly interested in acquiring further shares of the said company and, as higher price was offered, these 200 shares were sold to K. Ghosal for Rs. 60,000, and the payment was received on August 30, 1945, by a cheque on New Standard Bank Ltd. These, therefore, would indicate a part of a scheme and a plan to make a profit. It shows the calculated and motivated manner of acquiring these shares. The sale was not under any financial necessity. The funds for the purchase, as will appear from the second supplementary statement of fact after the Supreme Court remand, were initially furnished by Jyoti Cinema. No share account was actually opened which should otherwise have been opened if the purchases were made with the intention of investment only.

46. Mr. Pal has also drawn our attention to the recent decision in Wisdom v. Chamberlain, [1968] 1 All E.R. 332 ; [1969] 1 W.L.R. 275 ; 74 I.T.R. 306, 317 (C.A.), where Harman L.J., at page 336, observed as follows :

' In the first place it seems to me that, supposing it was a hedge against devaluation, it was nevertheless a transaction entered into on a short-term basis for the purpose of making a profit out of the purchase and sale of a commodity, and if that is not an adventure in the nature of trade I do not really know what is. The whole object of the transaction was to make a profit. It was expected that there would be devaluation, and the reason for wanting to make a profit was that there would be a loss on devaluation, but that does not make any difference, it seems to me, to the fact that the motive and object of the whole transaction was to buy on a short-term basis a commodity with a view to its resale at a profit. That, as it seems to me, is an adventure in the nature of trade. ...'

47. Here also it is plain that the whole motive and adventure were calculated to make a profit out of the purchase and sale of these shares in the circumstances mentioned above. The matters already on record and found in the orders of the Income-tax Officer or the Appellate Assistant Commissioner can always be looked into in these proceedings if the Tribunal has not upset them as the last fact-finding court. It will be unnecessary to discuss this point in detail, for the point is well established by such decisions as in Commissioner of Income-tax v. Jadavji Narsidas & Co., : [1963]48ITR41(SC) , and the observations made therein at pages 44-45 may be referred to in this connection.

48. For the reasons and on the authorities stated above, we answer the question in the affirmative and in favour of the revenue. We hold that the Tribunal was justified in holding that the gain of Rs. 49,400 by sale of 200 shares of Radha Films Ltd. was an adventure in the nature of trade. We further hold that this gain was not of a capital nature but was an income from business taxable under the Income-tax Act.

49. Each party will bear his own costs.

T.K. Basu, J.

50. I agree.


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