1969 (9) TMI 2 - SC - Income Tax

An assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade - Assessee s appeal allowed

Issues Involved:
1. Assessability of surplus receipt from the sale of gold under section 4(3)(vii) of the Income-tax Act, 1922.
2. Nature of transactions in gold and shares: whether they were realizations of investment or adventures in the nature of trade or business.
3. Validity of the Tribunal's findings and the High Court's jurisdiction to interfere with those findings.

Detailed Analysis:

1. Assessability of Surplus Receipt from the Sale of Gold:
The primary issue in the first appeal was whether the surplus receipt of Rs. 13,43,469 from the sale of gold in the assessment year 1945-46 was assessable as income, profits, or gains under section 4(3)(vii) of the Income-tax Act, 1922. The Tribunal had rejected the assessee's claim that the sale of gold was a change in investment and held that the surplus was liable to income tax. The High Court upheld this view, noting that the transactions were not merely conversions of investments but had characteristics of trading activities.

2. Nature of Transactions in Gold and Shares:
The second appeal involved two questions: the surplus receipt of Rs. 33,481 from the sale of gold and Rs. 88,522 from the sale of shares. The common problem was whether these transactions were realizations of investment or adventures in the nature of trade or business. The Tribunal and the High Court both concluded that the transactions were in the nature of trade, citing factors such as the frequency and short intervals of transactions, the earmarking of funds, and the borrowing against gold for share purchases. The High Court found fresh material to support a different conclusion from earlier assessments, rejecting the assessee's claim that these were mere investment conversions.

3. Validity of the Tribunal's Findings and High Court's Jurisdiction:
The High Court held that the Tribunal's findings were findings of fact and could not be interfered with under section 66(2). However, the Supreme Court noted that the question of whether transactions were in the nature of trade or business is a mixed question of fact and law. The Supreme Court found that the Tribunal had misdirected itself in applying the law to the facts, particularly regarding the purchase and sale of gold and shares. The Court pointed out that the assessee's transactions, such as the bulk purchase and sale of gold and shares, were consistent with investment activities rather than trading activities.

Comprehensive Analysis:

Background and Transactions:
The assessee, a land-holder, had a history of transactions involving the sale of Government securities, purchase and sale of shares, and later, the purchase and sale of gold. The Tribunal initially found these transactions to be changes in investment rather than trading activities. However, in the current assessment years, the Tribunal concluded otherwise, leading to the appeals.

Tribunal's Findings:
The Tribunal found that the assessee's transactions in gold and shares were in the nature of trade, citing reasons such as the lack of pressing necessity for the sale of gold, the short intervals between transactions, and the borrowing against gold for share purchases. The Tribunal's conclusion was based on a more comprehensive picture of the assessee's transactions over a period.

High Court's Decision:
The High Court upheld the Tribunal's findings, stating that there was fresh material to support a different conclusion from earlier assessments. It held that the findings were findings of fact and could not be interfered with under section 66(2).

Supreme Court's Analysis:
The Supreme Court disagreed with the High Court's view that the findings were purely factual. It held that the question of whether transactions were in the nature of trade or business is a mixed question of fact and law. The Court found that the Tribunal had misdirected itself in applying the law, particularly regarding the purchase and sale of gold and shares. The Court pointed out that the assessee's transactions were consistent with investment activities, such as the bulk purchase and sale of gold and the retention of gold for nearly four years without any sale, which contradicted the hypothesis of trading activities.

Conclusion:
The Supreme Court allowed the appeals, setting aside the High Court's answers. It held that the two questions referred to the High Court should have been answered in the assessee's favor, concluding that the transactions were realizations of investment rather than adventures in the nature of trade or business. The respondent was ordered to pay the appellant's costs for the appeals.

Appeals Allowed.

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