1967 (2) TMI 6 - HC - Income Tax

Transactions in the purchase and sale of gold bars entered into by the assessee A and her late husband R - Transaction not constituted a business or an adventure in nature of trade

Issues Involved:
1. Whether the transactions in the purchase and sale of gold bars constituted business or an adventure in the nature of trade.
2. Whether the sum of Rs. 1,20,759 was income taxable under the Income-tax Act.
3. Determination of the cost basis for assessing the profit on the sale of gold bars inherited by the assessee.

Issue-Wise Detailed Analysis:

1. Whether the transactions in the purchase and sale of gold bars constituted business or an adventure in the nature of trade:
The court examined whether the transactions in gold bars by the assessee and her late husband were business activities or merely sales of investments. The principles to determine this were drawn from previous cases like Tribhuvandas Vallabhdas v. Commissioner of Income-tax and G. Venkataswami Naidu and Co. v. Commissioner of Income-tax. The court highlighted that determining whether a transaction is an adventure in the nature of trade depends on the total effect of all relevant facts and circumstances, not merely the number of facts supporting either side.

For the husband, F. Racek, it was found that he only purchased gold bars during his lifetime and did not sell any, indicating no profit motive or business intention. His purchases were funded by his private wealth, not connected to his business. The court noted that he utilized one gold bar for making jewelry, further suggesting an investment motive. The court concluded that his dealings in gold bars were investments, not business activities.

For the wife, the court noted that she was not a businesswoman and inherited the gold bars and wealth from her husband. She sold the gold bars within three years after her husband's death, except for two bars sold much later. The court found no evidence of her engaging in business or trade before or after inheriting the gold bars. The two purchases she made shortly after her husband's death were not seen as business transactions, especially given the rising gold prices at the time, which would not align with a profit-driven business strategy. The court concluded that her transactions were also in the nature of investments.

2. Whether the sum of Rs. 1,20,759 was income taxable under the Income-tax Act:
Given the conclusion that the transactions did not constitute business or an adventure in the nature of trade, the court determined that the sum of Rs. 1,20,759 was not income taxable under the Income-tax Act. The court emphasized that the burden was on the department to prove that the transactions were business activities, which they failed to do.

3. Determination of the cost basis for assessing the profit on the sale of gold bars inherited by the assessee:
Since the court concluded that there was no business activity involved in the transactions, the question of determining the cost basis for assessing the profit on the sale of gold bars did not arise. The court did not need to address whether the cost should be based on the price at which Mr. Racek bought the bars or their market value on the date of the first sale by the assessee.

Conclusion:
The court answered the questions in favor of the assessee, concluding that the transactions in gold bars did not constitute business or an adventure in the nature of trade, and therefore, the sum of Rs. 1,20,759 was not taxable under the Income-tax Act. The question regarding the cost basis for assessing the profit on the sale of gold bars did not arise. The Commissioner was ordered to pay the costs of the assessee.

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