1965 (12) TMI 7 - HC - Income Tax

Partition - business assets received - ready gold account was not kept separate. The closing balance each year in the gold account was worked out at the end of each year by taking all the debt and credit entries in the entire gold account and treating them as one - held that the sale of three patlas of gold amounted to business so that any excess of the sale proceeds over the cost price could represent the assessable profit

Issues Involved:
1. Whether there was material for the finding that the sale of three patlas of gold amounted to business so that any excess of the sale proceeds over the cost price could represent the assessable profit.
2. Whether for the purpose of working out the profits, the value of the patlas of gold should not have been made on the basis of the market price on the date of the partial partition.

Issue-wise Detailed Analysis:

Issue 1: Material for Finding that Sale Amounted to Business
The first question posed was whether there was any material for the finding that the sale of the three patlas amounted to a business. The court noted that the definition of "business" includes an adventure in the nature of trade and that even a solitary transaction may amount to business if it has the indicia of trade. It was highlighted that the Hindu undivided family (HUF) had purchased the gold bars with the intention of selling them for profit, which indicated that the gold bars were stock-in-trade and not capital assets. The Tribunal found that the assessee had treated the gold bars as stock-in-trade, as evidenced by the continuous entries in the gold account and the nature of transactions recorded. The court emphasized that the finding of the Tribunal, which is one of fact, is not subject to appeal in its advisory jurisdiction. Therefore, the first question was answered in the affirmative and against the assessee, confirming that there was material for the finding that the sale of the gold bars amounted to business.

Issue 2: Valuation of Patlas of Gold for Profit Calculation
The second issue addressed whether the profits should be calculated based on the market price of the gold bars on the date of the partial partition. The court observed that ordinarily, when a person receives an asset through gift, succession, or inheritance, the asset is considered capital in their hands, and its valuation should be based on the market value at the time of receipt. The court noted that the assessee had not applied his mind to the valuation of the gold bars at the time of the partial partition and had merely carried over the valuation from the HUF's books. The necessity for proper valuation arose only when the gold bars were sold, and the profits needed to be computed. The court concluded that the valuation should be based on the market price at the time of the partial partition, not the original cost to the family. This view was supported by the Supreme Court's decision in Commissioner of Income-tax v. Bai Shirinbai K. Kooka, which held that the assessable profit should be the difference between the sale price and the market price on the date the asset was converted into stock-in-trade. Consequently, the second question was answered by stating that the valuation of the gold bars should have been made on the basis of the market price prevailing on the date of the partial partition.

Conclusion:
The court answered the first question in the affirmative, confirming that there was material for the finding that the sale of the gold bars amounted to business. The second question was answered by stating that the valuation of the gold bars for profit calculation should be based on the market price on the date of the partial partition. Both parties partially succeeded, and there was no order as to costs. Counsel's fee was assessed at Rs. 200.

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