1965 (2) TMI 115 - HC - Income Tax

Silver bars sales deemed taxable as trade profits due to wartime purchases, profit motive, rising prices. Assessee's explanations rejected.

The High Court affirmed that the profits from the sale of silver bars in two separate transactions were liable to income-tax as they constituted ... - Issues Involved:1. Whether the profit realized from the sale of 45 silver bars arose from an adventure in the nature of trade within the meaning of section 2(4) of the Income-tax Act and was liable to income-tax.2. Whether the profit realized from the sale of 29 silver bars arose from an adventure in the nature of trade within the meaning of section 2(4) of the Income-tax Act and was liable to income-tax.Issue-wise Detailed Analysis:1. Whether the profit realized from the sale of 45 silver bars arose from an adventure in the nature of trade within the meaning of section 2(4) of the Income-tax Act and was liable to income-tax:The assessee, a Hindu undivided family engaged in commission agency and money-lending, purchased 111 silver bars between August 1940 and January 1941. These purchases were made from the 'Tijori account' and not from business funds. The silver bars were not sold during the lifetime of Vallabhdas, the then karta of the family. After his death in 1944, his son Tribhuvandas sold the silver bars gradually from 1946 onwards. The Income-tax Officer concluded that the transaction was an adventure in the nature of trade, noting the timing of the purchase at the beginning of World War II, the shrewd business acumen of Vallabhdas, and the lack of use for the silver bars other than for profit. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this view, emphasizing the profit motive behind the purchase and sale of the silver bars.The High Court considered the nature of the transaction, the intention behind the purchase, and the subsequent sale. The court noted that the purchase and sale of silver were not in the ordinary line of the assessee's business. However, the court found that the purchase was made with the intention to sell at a profit, considering the circumstances of the purchase during the war, the quantity of silver purchased, and the manner of sale. The court concluded that the transaction was an adventure in the nature of trade and the profits were taxable.2. Whether the profit realized from the sale of 29 silver bars arose from an adventure in the nature of trade within the meaning of section 2(4) of the Income-tax Act and was liable to income-tax:Similar to the first issue, the sale of the remaining 29 silver bars was also scrutinized. The assessee argued that the silver bars were purchased as an investment and sold to meet income-tax dues and household expenses. However, the Income-tax Officer, Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal rejected this claim, stating that the purchase was made with a profit motive and the sale was not necessitated by any urgent need.The High Court examined the circumstances surrounding the purchase and sale of the 29 silver bars. The court found that the purchase was made with the intention to sell at a profit, given the timing of the purchase during the war and the subsequent sale at rising prices. The court noted that the explanation provided by the assessee for the sale was inconsistent and not supported by the evidence. The court concluded that the transaction was an adventure in the nature of trade and the profits were taxable.Conclusion:The High Court affirmed the decisions of the Income-tax authorities and the Appellate Tribunal, holding that the transactions involving the purchase and sale of silver bars were adventures in the nature of trade. The court answered both questions in the affirmative, stating that the profits realized from the sale of the silver bars were liable to income-tax. The assessee was ordered to pay the costs of the department for the reference. The notice of motion taken out by the assessee for additional documents and material was not allowed.