LAXMI CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred for our opinion by the Income-tax Appellate Tribunal is :

(2.) THE original statement of the case and the supplementary statement of the case together show that the assessee, which was a partnership firm, was carrying on the business of agency of cloth and was constituted for that purpose. On December 30, 1941, the assessee purchased ten bars of silver and on January 2, 1942, another five bars of silver, having paid a total sum of Rs. 30,716 as the price of those bars of silver. THE transaction was entered in the books of account of the assessee by debiting this amount in an account styled as silver account in the ledger maintained for the selling agency business. Eight of those silver bars were sold on September 16, 1944, and the remaining seven on September 17, 1944, as a result of which a total sum of Rs. 55, 385 was realised and, after setting off and expenditure of Rs. 13 incurred in connection with the purchase and sale of the silver bars, the assessee made a net profit of Rs. 24,656. THE income-tax autorities held that this sum of Rs. 24,656 was income liable to income-tax as having accrued to the assessee because of an adventure in the nature of trade. THE contention of the assessee was that the transaction of purchase and sale of silver, which the assessee had entered into, was an investment and was not an adventure in the nature of trade so that the extra amount realised was capital gain and not taxable income. THE Income-tax Appellate Tribunal upheld the decision of the income-tax authorities and has now referred the case to this court after framing the question mentioned above in pursuance of an order by this court under section 66(2) of the Income-tax Act.

(3.) HAVING summarised the facts and circumstances which are relevant to the determination of the question before us, we have now to take the totality of those circumstances and come to the view whether the transaction was or was not an adventure in the nature of trade. Of the circumstances summarised above, there are three which normally point towards the transaction not being in the nature of trade. One is that the transaction was outside the regular line of business; the second is that it was a solitary transaction and the third is that it was treated as an excluded amount in the computaion of the excess profits tax assessment. These three circumstances are, no doubt, in favour of the assessee, but where other and much stronger circumstances exist, they cannot be decisive of the matter, particularly because these circumstances can co-exist with the transaction being in the nature of trade. Even one solitary transaction outside the line of business can be entered into by a businessman with the sole and exclusive object of earning a profit and not at all with the object of making an investment for keeping his money safe or getting earnings from that investment or using the property in which the money is invested. In such a case, as indicated by the Supreme Court in Venkataswami Naidu and Co v. Commissioner of Income-tax, a very strong presumption arises that the transaction was an adventure in the nature of trade and such a presumption can only be displaced by other cogent circumstances. In the present case, there was the fact that the purchase was made at a time when the market was a rising market and good profit could be expected from the resale of the silver bars which were purchased. This purchase was made of a commodity which, as an investment, could give no return while the money remained invested in it, except as a profit on resale only. There was no suggestion at all that the silver bars were intended to be used as such by any of the partners of the assessee firm. The silver bars were purchased in spite of the fact that they would be a non-productive commodity at a time when the money utilised for making purchases could have been profitably used for reducing the liabilities on account of which the assessee was being made to pay interest in the interest khata or to the partners. There is the further finding that the purchase was not made due to panic or with any other motive, so that the sole and exclusive motive for the purchase was to make a profit. No doubt, the silver bars were kept unsold for about two years and nine months but there is nothing to show that the sale of silver bars at an earlier period would have been more profitable than the sale at the time when they were actually sold. These circumstances thus lead to the conclustion that the transaction of purchases was entered into by the assessee with the sole object of making a profit on resale, that there was no there object of making the purchase and that no other cogent circumstances that the transaction was an adventure in the nature of trade.