RAJA DHANRAJ GIRJI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is Raja Dhanraj Girji and in this reference we are concerned with the assessment for the assessment year 1957-58, in respect of the period of account year ending on November 2, 1956. On May 9, 1955, the assessee pledged certain jewels with Messrs. Guzdar Ltd., Bombay, and obtained a loan of Rs. 3,20,000. He also sold some jewels for a sum of Rs. 68,000. With this amount of Rs. 3,88,000 the assessee purchased 4,087 tolas of gold from Messrs. Choksi Manilal Chimanlal and Co., Bombay, between September 23, 1955, and October 11, 1955, for a sum of Rs. 3,87,954. THE loan due to Messrs. Guzdar Ltd. was discharged by selling the jewels pledged with them. THE 4,087 tolas of gold purchased by the assessee was again sold by the assessee to Messrs. Jhaveri Brothers of Hyderabad, through a broker, Kapurchand Shrimal, between November 20, 1955, and November 27, 1955, for a sum of Rs. 3,87,111. In the transaction of purchase and sale of gold the assessee thus sustained a loss of Rs. 843. With the sale proceeds of the gold the assessee purchased on December 1, 1955, 4,000 shares of Sirpur Paper Mills Ltd. for a sum of Rs. 3,77,142-13-9. THEse shares were again sold by the assessee through the broker, Kapurchand Shrimal, on January 31, 1956, and March 27, 1956, for a total sum of Rs. 4,79,829. This resulted in a net profit of Rs. 1,02,686 to the assessee. With the sale proceeds the assessee proceeded to purchase shares of M. S. K. Mills, Hyderabad Construction Company, Praga Tools Ltd., Sir Silk Ltd. and Azam Jahi Mills Ltd. on November 22, 1956, for a sum of Rs. 1,79,689. THEse shares were again sold in the subsequent year. On these facts the Income-tax Officer held that the purchase and sale of these shares of Sirpur Paper Mills Ltd. was an adventure in the nature of trade and, therefore, the profit of Rs. 1,01,842 was assessable to income-tax. THE Income-tax Officer held that the intention of the assessee was to take advantage of the rising market in Sirpur shares and make a profit. THE Appellate Assistant Commissioner confirmed the order of the Income-tax Officer holding that the circumstances showed that there was an organised venture in the nature of trade. On further appeal, the Income-tax Appellate Tribunal confirmed the order of assessment. THE Tribunal held that the chain of transactions, the pledging of jewellery, the borrowing of money, the purchase of gold with the borrowed money, the sale of gold, the purchase of shares with the sale proceeds of gold and the sale of shares after a short interval indicated that the assessee was impelled by a profit motive and that it was not a case of mere change of investment. THE Tribunal also referred to the circumstance which was brought to its notice by the departmental representative that, during the assessment year 1954-55, the assessee himself had returned a small net profit in "speculative business in shares, cotton and castor seeds". THE Tribunal had no hesitation in concluding that the purchase and sale of shares in the accounting year was a venture in the nature of trade. At the instance of the assessee the Tribunal has referred for our decision the following question:

(2.) SRI P. Rama Rao, learned counsel for the assessee contended that the purchase and sale of shares of Sirpur Paper Mills Ltd. was an isolated transaction during the accounting year and that the mere fact that the transaction was impelled by a profit motive would not make it an adventure in the nature of trade. He submitted that shares were investment, a potential source of revenue to the purchaser as long as he held the shares, unlike commercial commodities which could not be turned to account except by a process of realisation. He invited our attention to the observations of the House of Lords in Jones v. Leeming, 1930 A.C. 415; 15 T.C. 333, 354, 357 (H.L.). In that case certain persons joined together to purchase a rubber estate in the Malay Peninsula with the sole intention of reselling it to a company for public floatation. The question arose whether the profit made by the resale of the estate was assessable to income-tax. The Commissioners found that the transaction "was not a concern in the nature of trade" and the House of Lords proceeded to consider the case on that finding. Lord Buckmaster observed:

(3.) SRI T. Anantha Babu, learned counsel for the department, referred us to the following observations of Lord Justice Clerk in Californian Copper Syndicate v. Harris, 1904 5 TC 159, 165, 166 (Sc. Exchq.):