Trading treatment of partitioned gold and market-value opening stock determine assessable business profit and computation basis.

A capital asset received on partial partition may later be treated as stock-in-trade if the assessee's own conduct and accounts show trading treatment, including mixed gold dealings and related account entries; on that basis, the profit on sale is assessable as business income. For computation, however, the opening value for the converted asset is ordinarily its market value on the date of receipt or conversion, unless the assessee consciously adopted a different binding valuation. An inadvertent or automatic carry-forward of family valuation does not prevent use of the correct market-value basis.

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Issues: (i) Whether the sale of three patlas of gold amounted to business so that the excess over cost price was assessable profit. (ii) Whether the profits from sale of the patlas had to be computed on the basis of market value on the date of partial partition.

Issue (i): Whether the sale of three patlas of gold amounted to business so that the excess over cost price was assessable profit.

Analysis: The definition of business includes an adventure in the nature of trade, and even a solitary transaction may be business if it bears trade indicia. The gold received on partial partition was initially capital in the assessee's hands, but the character in which it was thereafter held had to be determined from the assessee's own conduct and accounts. The books showed continuous treatment of the gold as part of a gold account, inclusion of badla transactions, and mixing of receipts from gold dealings, from which the Tribunal inferred that the gold bars were treated as stock-in-trade and that the assessee had carried on gold business. That finding was supported by material and could not be disturbed in advisory jurisdiction.

Conclusion: The sale of the three patlas amounted to business and the resulting profit was assessable, against the assessee.

Issue (ii): Whether the profits from sale of the patlas had to be computed on the basis of market value on the date of partial partition.

Analysis: Where a capital asset received on partition is subsequently converted into stock-in-trade, the opening valuation for computing true profits is ordinarily the market value on the date of conversion or receipt, unless the assessee deliberately adopted another binding valuation. The assessee had merely carried forward the family valuation automatically, without conscious choice or deliberation. That inadvertent entry did not bind him when the asset was later treated as stock-in-trade and sold. The proper basis for computing profit was therefore the market value on the date on which the assessee received the asset on partial partition.

Conclusion: The profits had to be computed on the basis of market value on the date of partial partition, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the sale was a business transaction, but the opening valuation for profit computation had to be the market value on the date of partial partition, so the assessee succeeded on the computation issue only.

Ratio Decidendi: A capital asset received on partition may later be treated as stock-in-trade, and where that conversion is established by the assessee's own conduct and accounts, profits are assessable; but for computing such profits the opening stock should ordinarily be taken at market value on the date of conversion or receipt, unless a deliberate and binding valuation was consciously adopted.

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