COMMISSIONER OF INCOME TAX Vs. BHANDARI AND CO

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question for the opinion of this court :

(2.) THE assessee is a registered firm having four partners. For the assessment year 1967-68, it declared a loss of Rs. 39,392 on account of loss said to have been incurred by the purchase and sale of National Defence Remittance Certificates (for short "N.D.R. Certificates"). THE ITO, however, took the view that as per s. 2(42A) of the I.T. Act, a certificate issued by an authorised dealer as defined in clause (ai) of s. 2 of the Foreign Exchange Regulation Act as evidence of remittance of foreign currency or other foreign exchange is not to be treated as short-term capital loss, the loss in this case arising out of the sale of N.D.R. Certificates should be treated as having arisen out of the transfer of long-term capital assets. He, therefore, determined the income as under :

(3.) ADMITTEDLY, the assessee is carrying on business as importers and exporters as also money-lending business. The partnership deed under which the firm was constituted provides that the assessee-firm was to carry on business in import and export and any other business as decided by the partners of the firm. According to the assessee, the purchase and sale of N.D.R. Certificates directly arose out of the line of business carried on by the assessee-firm. According to the assessee for the import and export business which was one of the authorised lines of business carried on by the assessee, the assessee was required to carry on the sale and purchase of N.D.R. Certificates and, therefore, the sale and purchase of the said certificates should be taken to be interlinked with the said business of import and export. This contention of the assessee has straightaway been accepted by the Tribunal and on that basis, the Tribunal has taken the view that the purchase and sale of N.D.R. Certificates are connected with the business of import and export. But the Tribunal has not referred to any material from which an inference is possible that the purchase and sale of N.D.R. Certificates is actually interlinked with the business of import and export. It has not been shown by the assessee that the purchase and the holding of N.D.R. Certificates was necessary or essential for carrying on the business of import had export, and that but for the purchase and sale of N.D.R. Certificates, the assessee would not have been able to carry on the business of import had export. Further, it is seen that the certificates had been purchased from six different parties on a particular day and they were sold also to different parties in November, 1966. Though the transactions are not of a casual nature as has been found by the Tribunal, still the question is whether the purchase and sale of the N.D.R. Certificates are in the course of carrying on the assessee's business in import and export. The fact that the assessee has purchased the certificates from different parties and sold them later to other parties cannot establish that it is a line of business that has been carried on by the assessee apart from its usual business sin exports and imports. Even assuming that the partnership deed authorises the partners to carry on any other business as decided by the partners of the partnership, the purchase and sale of N.D.R. Certificates cannot be taken to be a distinct business or part of the business of import and export. We are, therefore, not inclined to agree with the Tribunal that the loss arising out of the purchase and sale of N.D.R. Certificates is a business loss.