1962 (9) TMI 79 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the Trust known as L. Kamlapat Ji Dharam Khata.
2. Ownership of deposits made by Ch. Gopal Hari, Ch. Vijaipat, and Ch. Hari Shanker.
3. Ownership of deposits made by Ch. Gaur Hari and Ch. Vijaipat.
4. Taxability of surplus realized from the sale of shares of the Aluminium Corporation of India Ltd., J.K. Investment Trust, and Raymond Woollen Mills.

Issue-wise Detailed Analysis:

1. Validity of the Trust known as L. Kamlapat Ji Dharam Khata:
The Tribunal decided against the assessees on the ground that L. Kamlapat had only Rs. 3,73,550-8-7 to his credit and could not create a trust of Rs. 5 lakhs. The court disagreed with this proposition, stating that the existence of ready cash is not a prerequisite for creating a valid trust. The court emphasized that in a banking age, transactions are often conducted via account entries rather than physical cash transfers. The court cited precedents such as *Chimanbhai Lalbhai v. Commissioner of Income-tax* and *Commissioner of Income-tax v. New Digvijaysinhji Tin Factory*, which support the notion that actual possession of cash is not necessary for creating a trust. The court concluded that a valid trust was created, and the sum of Rs. 5 lakhs was owned by the trust, not by L. Kamlapat.

2. Ownership of deposits made by Ch. Gopal Hari, Ch. Vijaipat, and Ch. Hari Shanker:
The department conceded this issue in favor of the assessees. Consequently, the court answered this question in favor of the assessees, acknowledging that the deposits made belonged to their respective Hindu undivided families and not to them in their individual capacities.

3. Ownership of deposits made by Ch. Gaur Hari and Ch. Vijaipat:
Similar to the second issue, the department conceded this issue in favor of the assessees. The court answered this question in favor of the assessees, confirming that the deposits belonged to their respective Hindu undivided families and not to them in their individual capacities.

4. Taxability of surplus realized from the sale of shares:
The assessees argued that the surplus from the sale of shares was a capital asset and not revenue income. The Tribunal found that the assessees were bankers and financiers, and the shares were purchased with borrowed money, sold piecemeal, and some sales were made through brokers. The court noted that the assessees claimed interest payments as revenue expenditure, which indicated that the shares were part of their stock-in-trade. The court cited *Raja Bahadur Visheshwara Singh v. Commissioner of Income-tax*, which held that profits from business transactions are assessable as revenue income. The court concluded that the surplus amounts were revenue receipts and liable to tax. The court rejected the assessees' explanation of financial embarrassment and held that the intention to sell the shares for profit was evident from their actions.

Conclusion:
- Question No. 1: Answered in favor of the assessees, confirming the creation of a valid trust.
- Question No. 2: Answered in favor of the assessees, acknowledging the ownership of deposits by their respective Hindu undivided families.
- Question No. 3: Answered in favor of the assessees, confirming the ownership of deposits by their respective Hindu undivided families.
- Question No. 4: Answered against the assessees, holding that the surplus realized from the sale of shares was revenue income and liable to tax.

The court decided not to award costs and assessed the fee for the learned counsel for the department at Rs. 500.