1943 (12) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Whether the venture in question was a venture in the nature of trade.
2. Whether the venture was made as a part of the ordinary business of the assessee.

Detailed Analysis:

Issue 1: Whether the venture in question was a venture in the nature of trade.

The primary question addressed was whether the profits from the sale of gold by the assessee constituted receipts arising from business, thus making them taxable under Section 10 of the Indian Income Tax Act, 1922. The definition of "business" under sub-section (4) of Section 2 of the Act includes "any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."

The Income Tax Officer assessed the profit from the sale of gold as business income. The Assistant Commissioner confirmed this assessment, concluding that the assessee's actions-such as withdrawing fixed deposits and borrowing money to purchase gold-indicated an intention to resell the gold for a profit rather than merely holding it as an investment. The Assistant Commissioner found that the profit made was not merely an appreciation of capital but income from business, taxable under Section 10 and not exempt under clause (vii) of sub-section (3) of Section 4 of the Act.

The court analyzed several cases to determine whether an isolated transaction could be considered an adventure in the nature of trade. In Martin v. Lowry, the court found that extensive activities undertaken by the assessee to sell linen constituted carrying on a trade. However, this case was distinguished as it involved extensive trading activities post-purchase, unlike the present case.

In Commissioner of Inland Revenue v. Livingston, the court held that an isolated venture could be taxable if it was in the nature of trade. The court emphasized that if a purchase is made solely for resale at a profit, it constitutes an adventure in the nature of trade, even if no further activities are undertaken to make the commodity marketable.

In Rutledge v. Commissioners of Inland Revenue, the court held that a purchase made solely for resale at a profit was an adventure in the nature of trade. The court clarified that the essential characteristic of such a transaction is the intention to resell at a profit, not the repetition or continuity of similar transactions.

The court concluded that the assessee's purchase of gold was made with the sole intention of reselling it at a profit, making it an adventure in the nature of trade. The transaction was thus taxable under Section 10 of the Act.

Issue 2: Whether the venture was made as a part of the ordinary business of the assessee.

The court found it unnecessary to decide whether the venture was part of the ordinary business of the assessee, given the conclusion that the transaction was an adventure in the nature of trade. The court focused on the intention behind the purchase and the subsequent sale of gold to determine the nature of the transaction.

Conclusion:

The court held that the purchase and sale of gold by the assessee constituted an adventure in the nature of trade. The profits from this transaction were taxable under Section 10 of the Indian Income Tax Act, 1922, and not exempt under clause (vii) of sub-section (3) of Section 4. The reference was answered accordingly, with all judges concurring in the decision.