SRICHAND GOLCHA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference has been made to this Court by the Tribunal, Jaipur Bench, vide its order dated February 6, 1978, under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), after framing the following questions for its opinion :

(2.) THE assessee, Srichand Golcha, was carrying on the business of sale, purchase and processing of emeralds and other precious stones. This business he continued in his individual capacity up to the year 1926. He thereafter stopped his business as an individual, but carried on similar business as a partner in a partnership firm known as Dhanroopmal Swaroopchand. He ceased to be a partner of this firm also and started similar business as a partner in a firm, Gem Stones, Jaipur, wherein he continued to be a partner till the asst. year 1974 -75 for which period this reference has arisen. The assessee, when he stopped his business as an individual in 1926, had at that time some Tal Khard emeralds. He sold these Tal Khard emeralds in the asst. year 1974 -75 for a sum of Rs, 32,576 and in his returns filed, disclosed it as a sale of capital asset. He appended a note, " The assessee sold old Tal Khard emeralds to the following parties... Some were in the possession of the assessee since long, dealings in which were discontinued. It is a sale of a capital asset and in case of any capital gain/income arising out of the same, it may please be computed and added in the assessment ". The ITO did not accept this stand of the assessee and held that the assessee had realised his stock -in -trade and, therefore, the profit of Rs. 31,576 was his business profit. According to the ITO, these Tal Khard emeralds were the assessee's stock -in -trade and their sales by the assessee had taken place in the ordinary course of business. The assessee preferred an appeal and the AAC accepted his appeal holding that Tal Khard emeralds were a capital asset, the sale of which gave rise to capital gain and profit could be assessed as capital gain. The AAC held that the assessee was a regular dealer in Tal Khard emeralds for 40 years after which he had stopped his business. He retained the stock for all this period during which no activity whatsoever was carried on by him. It was further held that the business carried on by the assessee as a partner of the firm was altogether in a different capacity. Aggrieved by this order of the AAC, the Revenue preferred an appeal before the Tribunal, which was allowed, vide its order dated June 24, 1977. The Tribunal came to the conclusion that the findings of the AAC that the assessee has ceased to do the business of jewellery in 1926 is not correct on facts and in law. It held that he has been doing the jewellery business of his own as an individual proprietor prior to 1926 and since thereafter he has been doing it as a partner of the various firms. It is not, therefore, the capacity in which the assessee was doing business which has changed. It is only the form of business organisation which has changed. Formerly, the assessee had been doing it as a partner of a firm but the capacity in which he was doing the business remains the same, namely, as an individual. It further held that the assessee had been doing the jewellery business and, therefore, reversed the finding of the AAC and restored the order of the ITO. Thereafter, on an application by the assessee, this reference has been made and the questions mentioned above have been referred for our opinion.

(3.) WE have heard Mr. Ranka for the assessee and Mr. Surolia for the Revenue.