CHAKRAVARTTI, J. - These are nine references concerning as many assessments of 8 ideas for, in the case of all of them, the assessment year 1945-46, and in the case of one, for the assessment year 1946-47 as well. The point involved in all these case is the same. The question asked is whether a particular sum of money, which was the profit make by the lady concerned from the sale of a block of shares held by her, was a part of her business income, taxable as such or a casual receipt from a source other than business and so exempt from taxation.
The proceeding have had a course which, for income-tax cases, is rather unusual. In the Tribunal there was a difference of opinion between the two members, the Lawyers Members holding that the amounts concerned were not taxable and the Accountant Member holding that they were. Thereupon the cases were referred to a third member who happened to be an accountant and he agreed with the Accountant Member for the reason given by him. The judgment of the Tribunal must therefore be taken to be the judgment of the Accountant Member.
It is impossible not to remark on the form in which the reference have been made. In reality, the Tribunal has submitted only one statement of case which concerns Sm. Radha Debi Jalan. In the remaining cases also, they have purported to submit a statement, but that statement contains no other statement than that the facts are similar, with the only difference that the amount concerned is different. Even the assessment orders have not been included in the paper book. We are told nothing as to whether in the other cases the shares were of the same kind and were purchased on the same date or whether they were sold to the same party or on the same date as the shares belonging to Sm. Radha Debi Jalan. As will, appear later, in certain respect at least, the facts are not the same, although the difference might not be such as would affect the decision in those cases. In any event, this court has a right to expect from the Tribunal that in cases submitted to it for opinion, all the facts bearings upon the case referred should be fully and clearly stated. In the course of the present sittings we have had occasion to come across statements of cases drawn up by this particular Bench of the Tribunal in other cases as well, where we found ourselves greatly embarrassed by the unsatisfactory manner in which the facts were set out and the incorrect or inaccurate form in which the questions referred were framed.
Turning now to the facts of the present references, I shall state them first so far as they concern Sm. Radha Debi Jalan. She is the wife of one Kishori Lal Jalan who is a partner of the firm Surajmull Nagarmull and is a member of an undivided Hindu Family bearing the same name. The lady owns a substantial number of shares in the Howrah Trading Company and the remaining shares of that company, although it is a public limited company, are all held by members of the Jalan family, including the ladies to whom the other references relate. The Howrah Trading Company and the remaining shares of that company, although it is a public limited company, are all held by members of the Jalan family, including the ladies to whom the other references relate. The Howrah Trading Company is the managing agent of the Naskarpara Jute Mills Company Ltd., and among its directors are Messrs. K. D. Jalan and D. N. Jalan both relations of Sm. Radha Debi. It appears that the Howrah Trading Company held 62,000 shares of the Naskarpara Jute Mills Co. Ltd., and on the 27th of May, 1940, it sold out 48,000 of those shares to the eight ladies before us for a total consideration of Rs. 5,28,000. The shares purchased by Sm. Radha Debi were 4,300 in number and the consideration paid by her was Rs. 47,300. The shares were sold at the rate of Rs. 11 per share, although the market price at the time was Rs. 15-10-0. It has now been finally decided that this sale by the Howrah Trading Company of the 48,000 share was not a bona fide transaction, but a device designed to reduce the excess profits tax liability of the company. The sake of the shares to the eight ladies was on blank transfer forms and the transfers were not registered till 1943. Up to 1943, the dividends paid on these shares were taxed in the hands of the Howrah Trading company, because the Income-tax Department declined to recognise the transfers till they were registered. Ultimately, in February and March, 1945, all the 48,000 shares were sold away by the ladies. Radha Debi sold her 4,300 shares for Rs. 1,44,788 thus making a profit of Rs. 97,488.
The question before us is whether this profit of Rs. 97,488 was a casual or non-recurring receipt, not derived from business, or was a receipt from an adventure in the nature of trade.
It is necessary to state a further fact. It is admitted by the Department, and so it has been found, that so far as Radha Debi, or for the matter of that all the ladies, were concerned, the transaction was an isolated transaction. They were not share dealers, had not sold any shares in the past and have not share dealers, had not sold any shares in the past and have not dealt in any other shares.
The Income-tax Officer included these profits in the assessable income of the ladies on the ground that the amounts concerned constituted income from an adventure in the nature of trade. On appeal, the Appellate Assistant commissioner held that they were capital receipts and so not taxable. The majority of the members of the Tribunal reversed the Appellate Assistant commissioner and agreed with the Income-tax Officer in his finding that the transaction were adventure in the nature of trade and consequently the profits derived from them were taxable as business income.
On the facts already stated, the Tribunal has framed and referred to this court the following question :-
'Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal was justified in holding that the sum of Rs. 97,488 received by the applicant from the sale of 4,300 shares of Nakskarpara Jute Mills Co. Ltd., which is in excess of the purchase price, was income from business as defined in section 2(4) of the Indian Income-tax Act.'
It will be seen that the question is limited to the case of Radha Debt Jalan but it is proposed in the remaining statements of cases that we should take the same question as referred in other cases as well, with the appropriate amounts of profit substituted.
The question whether the profits derived from an isolated transaction do or do not constitute taxable income is, except in the plainest of cases, always attended with difficulty. If falls to be decided under three provisions of the Indian Income-tax Act to which reference may be made first.
The primary section is Section 10 which provides, to quote only the material portion, that the tax shall be payable by an assessee under the head 'profits and gains of business.... in respect of the profits or gains of any business.... carried on by him.' Shortly stated, this section provides for taxation of income derived from business. Section 2(4) of the Act purports to define what business is, but actually does no more than to say that it 'includes any trade, commerce or manufacture of any adventure or concern in the nature of trade, commerce or manufacture.' It will be seen that not only income derived from trade, but income derived from any adventure in the nature of trade is also to be regarded a business income and is therefor taxable under Section 10. The matter is carried a little further by section 4(3) of the Act. Section 4, which deals with the total income of an assessee and enumerates the categories to be included or excluded, provides by sub-section (3) for a number of exceptions, one of which is contained in clause (vii) of the sub-section (3), provides that 'any receipts not being receipts arising from business which are of a causal and non-recurring nature.... shall not be included in the total income of the person receiving them'. This clause provides from the exclusion of recipes of a causal and non-recurring nature, but at the same time provides that is such recipes be receipts from business they will be treated as taxable income. The clause therefore implies that any causal receipts from even an adventure in the nature of trade will be regarded as income and will be assessable to tax. The question before us accordingly is whether the profits made by the ladies from the isolated transaction of sale were, although casual receipts, nevertheless receipts from an adventure in the nature of trade. As already stated, the Tribunal has answered the question in the affirmative.
On behalf of the assessee it was not disputed before us that if we could hold that there was evidence before the Tribunal on which it could properly take the view that the profits had been derived from an adventure in the nature of trade, we would not be entitled to say that the Tribunal was wrong, although there might be other evidence pointing to the opposite conclusion. The evidence, however, in order that it may support the finding, must be evidence covering all the essential points, but if all such points are covered, the quality or sufficiently of such evidence is not a matter for this Court.
The first enquiry must, therefore, be what are the elements which must be sought among the facts in case of this kind in order that the question may be decided in one way or the other An adventure connotes a stray operation; a casual receipt indicates a stray receipt. If then a trade or business must always involve a course of dealing, as has often been insisted, it seems somewhat difficult to imagine how there can be a casual receipt from a stray operation and such a receipt can yet be from some continuous business activity. When that difficulty was put to the learned counsel for the assessed, Mr. Mitter who opened for them referred us to the well-known decision of the Privy council in the case of Commissioner of Income-tax v. Shaw Wallace and Company, and the exposition of the concept of income under the Indian Income-tax Act there given. He reminded us that Sir George Lowndes had dealt with all the words of Section 2(4) and with respect to the undertakings or operations indicated by all of them he had stated that the fundamental idea underlying them was one of a continuous exercise of activity. Whether a particular operation was a trade or merely an adventure in the nature of trade, it was necessary, in order that any profit made should be income, that it should be earned by a process of production. The exposition given by the Judicial Committee must of course be accepted and applied. The difficulty lies in applying it, as I have already indicated, to the case of a casual receipt from a stray operation is by holding that while a transaction may be a single one and in that sense isolated, it must nevertheless have some width of content and must comprise some activity in the nature of operation which are ordinarily followed in respect of trade. Instance of such operations would be, as has been pointed out in different cases, organizing sales of the commodity purchased or subjecting it to certain processes for the purpose of making it marketable.
From what has been stated above, it will be clear that having regard to the words used in the three section of the Indian Income-tax Act which I have quoted, the element of trade or trading cannot be excluded from the source of a receipt, if it is to be income even if it be casual receipt from an isolated transaction. It is true that the source need not be trade, but it must nevertheless be an adventure in the nature of a trade and, if trade connotes or implies some continuous activity aimed at producing the profits, such activity must be found even in a case of adventure if the resultant profit is to be treated as taxable business income.
It is well settled now that the mere fact that a person purchases a commodity with the intention of reselling it at a profit does not by itself make the transaction of purchase and sale a trade. Such intention, however, is certainly an element to be borne in mind, but is not by itself decisive. As it has been pointed out in certain cases, a man might find some commodity going cheap and might decide to purchase it with no intention of holding it for ever but with the expectation of being able to sell it off at a profit when the commodity appreciates in value, as he expects it will. In such a case were there will be no intention to trade. But it someone purchase a commodity with the sole object, of turning it over and selling it at a profit, such intention or object, I conceive, will be an indication that the person is trading. Perhaps it will not be incorrect to say that if a person purchase by an isolated transaction some particular commodity merely in the hope and expectation that he may some day be able to sell it at a profit, he cannot be said to be trading; but if, as Lord President Cycle observed in the case of Rutledge v. Commissioner of Inland Revenue, he makes the purchase 'for no purpose except that of resale at a profit', an intention to trade can properly be inferred.
I have said so much simply in order to make it clear that to may mind it is not correct to state broadly that a purchase, not for the purpose of holding the commodity purchased permanently but with its disposal at a profit in contemplation, can, in every case, be regarded as an indication or as evidence of an intention to trade.
When the person concerned in an isolated transaction from which he makes a profit is a man carrying on business in certain other lines, the task of deciding whether the transaction is or is not a trade is comparatively easy. It is not so easy in the case of a person in the position of any of the ladies in the present case who is not a businessman at all. What will be the test in the case of an isolated transaction by such a person Unfortunately, of the several tests applied in the different cases to be found in the books, none will be applicable here. One test is to see whether the thing purchased is such as is likely to give the purchaser a pride of possession so that he might like to hold and cherish it as a thing which is worth possessing for its own sake for whether the thing purchased is such as must be necessarily be sold off. The subject-matter in the present case is a block of shares and with respect to shares it cannot be said that they confer a pride of possession, nor can it be said that they must necessarily be sold off. A second test is whether the bulk of the commodity purchased is so large that in order to sell it the must necessarily have resource to some organisation and activity of the kind that it required in trade. The shares in the present case are only 4,000 to ten or fifteen thousand in number and it can by no means be said that in order to sell off such blocks of shares any organisation is necessary. Nor has any organisation been found. A third test is whether the thing purchased is such as must be subjected to some processing for the purpose of making it marketable, and that test again will not apply. shares do not require to be converted and cannot be converted into any other form for the purposes of sale. We must therefore fall back upon the only one test which remains, viz., was there any intention to turn the commodity over, as it were, for the purpose of making profit and was there any activity applied to it which was of the nature of trade ?
The facts on which the Tribunal has relied are few. It has been stated that the ladies purchased the shares on blank transfer forms and did not get their names registered till three years later, which indicated that the application of the consideration was not a normal investment. But the question is not whether the investment was normal, but whether there was any investment at all or whether the purchases were the first step in a process of trade. The fact that the shares were held on for five years does not, to say the least, point to trading. It is then said that the whole transaction was a part of a scheme by which the excess profits tax liability of the Howrah Trading Co. Ltd. was reduced and the ladies got the shares at the price substantially lower than the market price and the result achieved was that the ladies benefited themselves doubly, first by reducing the tax liability of the Howrah Trading Company and increasing its distributable profits which would come to themselves and secondly by acquiring a chance of making a bigger profit from a subsequent sale of the shares. The ladies were mere shareholders of the company and whatever the design of the directors might be, it cannot be readily presumed that the ladies also must have been parties to it. But even assuming that the ladies can be held to have been parties to the scheme which the Howrah Trading Company Ltd., devised to reduce it success profits tax liability, it can hardly be said that because the shares were acquired by ladies in furtherance of that design of the Howrah Trading Company Ltd., they were acquired for the purposes of trade. What we have to consider is the intention which the ladies had with regard to the shares themselves and the use to which they put or intended to put them. The relevant enquiry is whether in acquiring and dealing with the shares as they did, they were carrying on any trading activity. It may be that they acquired the shares in order to help the Howrah Trading Company and therefore to help themselves indirectly, but if the only facts are that the shares found their way into their hands in the course of the prosecution of that design, and were disposed of subsequently at a profit all that can be said is that the profit is a by-product of the assistance which they rendered to the Howrah Trading Company Ltd., but it cannot also be said that what was done for the Howrah Trading Company was a step in aid of the execution of a trading scheme in respect of the shares. In may opinion, the facts relied upon by the Tribunal, individually or taken together, do not furnish any evidence on which it can properly be held that the transaction of purchase and sale of shares was itself an adventures in the nature of a trade. As I have already stated, the ladies are not share dealers. They have not dealt in shares on any other occasion. That they bought and sold some shares on this occasion and did so together is not of any particular significance, for several ladies of the same family, if they come to know of a profitable method of investment, may all decide to invest some money and may again, when they find that the investments have appreciated in value all decide to realise them. The interval between the purchaser and the sales was five years. If the fact had simply been that these ladies who, it appears, are habituated to investing their moneys in shares from time to time acquired some shares in the course of their investments and then on a single occasion sold them off, it could by no means be contended they had embarked upon trade and made a trading profit. The only additional fact present in the case on which the Tribunal has relied is the occasion for the purchases and to a certain extent the fact that for some considerable time the transfers were not registered and that all the ladies acted in the same way. In my opinion, these additional facts are insufficient to ground an inference that there was trading. If, what the ladies did in respect of these shares, do not amount to trade or an adventure in the nature of trade, the profits made by them must be taken to be casual receipts derived from some source other than business and do not therefore constitute taxable income. As has often been held, in such cases there is no half way house. I am not insensible that in order to establish an adventure in the nature of trade, one has to prove less than one is required to do in establishing trade, but I cannot see anything in the facts of the case which would justify a conclusion that there was even an adventure in the nature of trade. The facts strongly suggest another line of approach by which the Department could perhaps have landed on solid ground and successfully brought the profit under assessment, but since they did not choose to adopt that line, but sought to found their claim on trading by the ladies, they must, on the facts as they are, be held to have failed.
In the case of some of the ladies it was found, by reference to the assessment orders, that they had disposed of their shares not in one lot and on the same day, but on different dates and in several lots. The Tribunal, however, even if it was aware that the sales had taken that form, does not appear to have attached any importance to the circumstances, and has not even mentioned the matter either in the statement of case or in the appellate order. It is quite clear that in the case of these ladies the Tribunal has not found or proceeded on the basis that there was a series of sub-sales and that such sales in separate lots on different occasions constituted or indicated trade. It is, therefore, unnecessary for me to refer to this feature present in the case of some of the ladies for the Tribunal has taken the sales as sales in single lots.
Citations at the Bar were fairly copious and our attention was drawn to relevant decisions of English, Scottish and Indian Courts. In my opinion, it is not necessary to refer to them in detail because, since the decision of the House of Lords in Leeming v. Jones the principles are no longer in doubt. I might however refer to the case of Williams v. Davies which comes rather near this case on the facts and on which both dies, and Mr. Meyer particularly, relied. In that case there were two individuals who had been long concerned in land speculation and each purchased some land and made a gift of it to his wife who, in her turn sold the land to a company of which the said two individuals were the only directors and shareholders. Two years later, there was an exactly similar set of transactions with regard to another piece of land. The Special Commissioners held that in selling the lands the wives had not traded and Wrottesley, J., held that since there was evidence both ways, he could not disturb the finding of the Commissioners, though he himself might have taken a different view. Mr. Meyer, because the learned Judge that there was evidence of trading. That, however, could be no assistance to Mr. Meyer, because the learned Judge proceeded to point out what the evidence of trading was. There is no evidence of a similar kind in the present case.
In the result, in my opinion, the question referred to this court must in all the nine cases be answered in the negative.
The assessee will have the costs of the Reference, but there will be only one set of costs to be shared equally by the 8 assessees.
DAS GUPTA, J. - I agree.
Reference answered accordingly.