1990 (7) TMI 68 - HC - Income Tax

Court rules purchase and sale of National Defence Gold Bonds not an adventure in nature of trade

Ashok Kumar Jalan Versus Commissioner Of Income-Tax

Ashok Kumar Jalan Versus Commissioner Of Income-Tax - [1991] 187 ITR 316 Issues involved: The judgment involves determining whether a transaction of purchase and sale of National Defence Gold Bonds, 1980, amounted to an adventure in the nature of trade and if the resulting profit was taxable as business income in the hands of the assessee.Summary:The High Court of BOMBAY heard a reference u/s 256(1) of the Income-tax Act, 1961, regarding the purchase and sale of National Defence Gold Bonds, 1980. The original question framed was reframed to focus on whether the transaction constituted an adventure in the nature of trade. The assessee bought the bonds on April 3, 1980, and sold them on October 1, 1980, making a profit of Rs. 33,500. The assessee claimed this profit as capital gain exempt from tax, but the Income-tax Officer treated it as income from an adventure in the nature of trade, a decision upheld by the Appellate Assistant Commissioner and the Tribunal.The Court considered whether a single transaction like this could be deemed an adventure in the nature of trade, citing precedents from the Supreme Court. It was noted that even an isolated transaction could meet this description if certain trade features were present. In this case, the Department had to prove that the transaction was indeed an adventure in the nature of trade.The Court analyzed the facts, highlighting that the assessee's income primarily consisted of salary and other sources, with no significant business income apart from the bond transaction. It was emphasized that the Department failed to establish that the sole motive behind the bond purchase was quick profit, as the bonds were held for several months before sale. The absence of key indicators of a business venture led the Court to conclude that the Department had not met the burden of proving an adventure in the nature of trade.Referring to a Supreme Court decision, it was reiterated that certain business-like features must be present for a transaction to be considered an adventure in the nature of trade. Since these features were not evident in this case, the Court ruled in favor of the assessee, holding that the transaction did not amount to an adventure in the nature of trade.In conclusion, the Court answered the reframed question in the negative, ruling in favor of the assessee, and no costs were awarded in this matter.