COMMISSIONER OF INCOME TAX Vs. MOTI CHAND KHAJANCHI

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter to be called "the Act"), made by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, on the request of the Commissioner of Income-tax, Rajasthan, Jaipur, to answer .the following question, namely:

(2.) THE facts of the case giving rise to the reference may be summarised thus. THE assessee, Sri Moti Chand Khajanchi, derived income from interest, dividends and shares from three partnership firms, besides income from property. For the assessment year 1964-65, he filed a return showing an income of Rs. 23,416 from these sources. He gave a note in the return that the receipt of Rs. 3 lakhs from the sale of paintings was not liable to tax as it was neither a business profit nor a capital gain. THE Income-tax Officer called upon him to show cause as to why the profit on the sale of paintings be not added to his income. In reply, he contended that he was not a dealer in old paintings, the collections had been made as a hobby and not for business considerations, the sales were effected not with the motive of making profit but to serve the national interest of the country, the articles were his personal effects and, therefore, they were not a capital asset for the purpose of assessment as capital gains. THE Income-tax Officer rejected his contentions and observed that the magnitude of the purchases, the recurrence of the transactions, the transactions having been made outside the books and the profit motive having been evidenced from these transactions, clearly suggested that the hobby had grown into a trade and accordingly held that the transaction was in the nature of trade and taxed the difference as business profit. Being aggrieved by the order of the Income-tax Officer, the assessee filed an appeal before the Appellate Assistant Commissioner who agreed with the findings of the Income-tax Officer and dismissed the appeal. THEreafter, the assessee filed a second appeal before the Income-tax Appellate Tribunal. It held that the assessee was not carrying on any business in the purchase and sale of paintings, the transactions in question were not adventures in the nature of trade, the collection of paintings and curios was for the satisfaction of his hobby and the receipts from the sales of paintings were of a casual and nonrecurring nature, not arising from business, profession or vocation. Accordingly, the appeal was allowed. THE learned Commissioner moved the Tribunal under Section 256(1) of the Act for making the reference. Hence this reference. During the pendency of the reference, Sri Moti Chand Khajanchi died on March 14, 1979, and his aforesaid legal representatives were brought on record.

(3.) AS such it is not permissible for the court in its reference jurisdiction to reappreciate the evidence and interfere with the Tribunal's findings of facts. Para. No. 27 of the statement of the case starts as under: