LexRAJA BAHADUR KAMAKHYA NARAIN SINGH versus COMMISSIONER OF INCOME.TAX, BIHAR AND ORISSA
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A RAJA BAHADUR KAMAKHYA NARAIN SINGH B c D E F G H v. COMMISSIONER OF INCOME.TAX, BIHAR AND ORISSA September 1, 1969 (J. NI. SHELAT AND C. A. VAIDJALINGAl>I, JJ.] Capitlil or Jnco1ne-Purchase and sale of gold and shares-Principles far deciding whether profit on transactinns is revenue or capital receipl- Question is of 1nixed fact and law-High Court in reference not bctrred jru1n going into findi11gs of Tribunal 011 such question on the ground th(lt it iJ one of fact and therefore final. The assessec inherited a vast cst:.1te c·on'iisting of ngricl1\tural and othei land as also Government sc:urities worth Rs. 40 Ines. In 1937 he attained majority and control of the estate from the Cvurt of Wurds. In the account· ing year 1938-39 he sold some of those smtritics at a profit. Thereafter he opened on account i11 the Imperial llnnk of India i11 the name of his wile nnd called it "nccornlt of 48 lacs l1011ting in the shat'c market.'' In Sopt,m- ber 1939 he purchmd shares worth Rs. 34.14 Ines out of the said fund but sold them, •A•in at a profit in the venrs 19;9, 1940 ond 1941. The profits on the said snles of share• were •uhjectcd to tax by the I ncomc-i.1x Offie<r in lhc yenrs 1939-40, 1940-41 and 1941-42. The 'frihunal however held that the ""essee was not ·n denier in shares nnd held th•! profits not to be taxable. Dctwccn lune and Novcmb·or 1940 the usscsscc purcham1 gold for Rs. 28,47,380/- from out of the sale prooocds of the aforcs:iid shares. This gold was sold nt n profit in the accounting periodi:i rel,~vnnt to the 1945-46 and 1946-47 r:s'iessment years. \Vith th<.:! sale proceeds certain shares including 7,025 shares of Karanpura Dcvclopn1oent Co. Ltd. were purchased, most of \Vhich were sold at a profit. Certain VichJrv Bonds were purchased ·and resold within two 1nonthi;;, The lncon1c-t:ix Officer subjected the profits from the sales of gold an<l Karanpur shares to tax in the assessment years 1945-46 and 1946-47. The Tribunal on considering the whole pattern of transactions from 1938 onwards came to the 1conclusion that the said profits were rightly taxed. The High Court upheld the view of the Tribunal holding inter alia, that the findings were of fact and not arrived at without evidence so that no interference \Vas warranted in reference proceedings. The. assessee appealed. HELD : ( 1) When' a transaction is not in the ordinary lines 'of an assessee's business the facts must be properly assessed to discover whether it was in the nature of trade. The test often applied is-has the assessee made his shares and securities the stock-in-trade of a business? [171 G; 172 HJ (ii) Since in the present case the Tribunal had the advantage, of examin- ing the assessee's tranr.1.ctions during the whole period i.e. right from 1938-39 to 1944-45 and thus had more comprehensive picture of all the transactions, there would be no bar to its coming to a conclusion different from that arrived at in the ear1ier years, if the acts <1nd conduct of the assessee taken as a whole throughciut the period pointed to a different conclusion. [174 A-BJ (iii) On the facts and circumstances of the case, however the finding of the Tribunal, concurred in by the High Court, that the transactions in question were in the, nature of trading transactions, was not justified. [174 C-D] 164 SUPREME COURT REPORTS (1970] 2 S.C.R. (a) It is a notorious fact that in 1940 the fortunes of the allies were none too bright. The conversion by the assessee of his entire share holdin~ into gold in that year was consistent with his case that he did so because of the nervousness engenCered by ·the breaking out of the war, the initial German victories, and the fall of France. The fact that the assessee did not invest all his cash would not mean, as the Tribunal thought, that his case about the purchases of gold was not correct. [174 D-FJ The Tribunal also failed to give due significanoe to the fact that the assessee who started with the plan of getting at least net 7% yield, put a very large part of his funds into gold, an altogether sterile security, and retained it for 4 year!'l The price of gold' began to ris~ in 1941 and was at its peak in 1943. The fact that the assessee did not sell his gold then but only in October 1944 when the. price had fallen showed that it was only after the fortunes of war had turned in favour of the allies and con- fidence restored that he felt it safe to i
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