Income Tax Appellate Tribunal - Delhi
Pee Raj International (P.) Ltd. vs Income-Tax Officer on 21 May, 1986
Equivalent citations: [1986]18ITD201(DELHI)
ORDER
S.K. Chander, Accountant Member
1. This appeal by the assessee is directed against the order of the Commissioner (Appeals), New Delhi dated 6-9-1984 relating to the assessment year 1981-82.
2. In the appeal, there are as many as eight grounds. The first ground relates to weighted deduction under Section 35B of the Income-tax Act, 1961 ('the Act') but this ground was not pressed for determination on merits at the time of hearing. This, therefore, goes out of our consideration. The remaining grounds deal with only one issue and that can be summed up as under :
Whether, on the facts and in the circumstances of the case, the difference between the purchase consideration and sale price of National Defence Gold Bonds, 1980 amounting to Rs. 31,500 is income accruing and arising from an adventure in the nature of trade and as such, taxable as business income of the assessee for the assessment year 1981-82.
3. The relevant facts, which require consideration, lie in a narrow compass and we bring them into focus first.
4. The assessee is a private limited company having its registered office in the union territory of Delhi. It is incorporated under the name Pee Raj International (P.) Ltd. Its previous year is the calendar year ending on 31-12-1980. During the previous year, the assessee had been dealing in aluminium foil, pan masala, etc. It is common ground that there is no evidence to show that the assessee was a regular dealer in gold bonds or other similar securities. On 16-6-1980, the assessee contracted through Damodar Lal Mor, Stock and Share Brokers and Dealers, Calcutta, to purchase nine National Defence Gold Bonds, 1980 for 100 grams of gold each of 995 fineness at the rate of Rs. 1,125 per 10 grams. The total purchase consideration, thus, came to Rs. 1,01,250. This amount was paid by the assessee on 25-10-1980 on delivery of the bonds to it. These bonds were payable in gold on 27-10-1980. On the date of expiry of the bonds, they were encashed by the assessee by sale through a broker. The sale consideration received was at the rate of Rs. 1,475 per 10 grams of gold. In this process, the assessee received surplus of Rs. 31,500 (Rs. 1,32,750-Rs. 1,01,250).
5. The assessee filed the return declaring loss of Rs. 84,617 inclusive of brought forward loss of Rs. 81,405 on 26-6-1982. In this return, exemption was claimed for Rs. 31,500 on the ground that this amount was in the nature of capital gains arising on sale of National Defence Gold Bonds and as such, exempt from tax under Section 2(14) of the Act. However, the ITO held that the conditions for exemption are not fulfilled because, 'the assessee purchased these bonds with business motive'. This assessment was framed on 25-5-1983. This was challenged in appeal.
6. In appeal, the learned Commissioner (Appeals) held that 'the appellant had purchased the gold bonds with a view to selling them shortly thereafter on their maturity and with an expectation to make a profit thereby. This is surely a transaction of adventure in the nature of trade.' He, therefore, justified the ITO's view and the action taken in bringing this amount of Rs. 31,500 to tax and in refusing to grant exemption to the assessee as claimed. Hence the present appeal.
7. The learned counsel for the assessee submitted that the assessee had surplus funds. Therefore, it purchased the gold bonds as an investment. These were sold on maturity. The resultant profit, as such, was not taxable as capital gains because National Defence Gold Bonds issued by the Central Government did not fall within the definition of 'capital assets' given in Section 2(14). Since, the revenue is making a claim that the amount of Rs. 31,500 is income accruing and arising to the assessee from an adventure in the nature of trade, it is upon the revenue to discharge the burden that the transaction, in fact, was an adventure in the nature of trade. However, it was contended that but for observations made, there is nothing brought on record by the revenue to show that this was an adventure in the nature of trade. On the other hand, it was contended that because of surplus funds, the assessee, who is not a regular dealer in shares, securities or bonds, invested the surplus funds in bonds and on their maturity encashed them. If out of such a transaction or transactions, the assessee had earned profit that could not be termed as income arising out of an adventure in the nature of trade. Reliance for these submissions was placed upon the following authorities :
Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC), CIT v. Rajasthan Mines Ltd. [1970] 78 ITR 45 (SC), Deep Chandra & Co. v. CIT [1977] 107 ITR 716 (All), CIT v. Gordhandas Trikambhai Patel [1979] 118 ITR 81 (Guj.) and Jaipur Traders (P.) Ltd. v. ITO [1985] 13 ITD 534 (Delhi).
On the other hand, the revenue fully supported the order of the learned Commissioner (Appeals) and emphasised that the assessee has not made out a case for an interference in the impugned order because apparently, for the reasons given in the orders of the authorities below, the transaction was an adventure in the nature of trade, which resulted in a profit of Rs. 31,500 to the assessee and as such, it was taxable as business income for the year under appeal. The appeal of the assessee may, therefore, be dismissed.
8. We have given careful consideration to the rival submissions and have also considered the relevant judicial pronouncements on the subject. Before we proceed to decide the issue, we would like to record the settled position of law, as emerging from the judicial decisions, noted below, considered by us. In deciding the character of a transaction several factors are relevant, such as, whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and the quality of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable; any act prior to the purchase showing a design or purpose, the incidence associated with the purchase and resale, the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession, etc. The burden in such a case lies on the revenue to establish that the profit earned in a transaction was revenue realisation and not capital gains - G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC), Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC) and Deep Chandra & Co.'s case (supra).
9. It is equally well settled that it is not possible to lay down any single legal test or formula, which may be applied in determining whether a transaction is an adventure in the nature of trade or not. The determination of the character of the transaction depends in each case on the totality of circumstances and an overall impression and effect of all the relevant factors and circumstances proved therein. One may, with benefit, have reference for enlightenment on this aspect of the issue to the judgment of the Supreme Court in the case of P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735. It is equally well settled that profit motive in entering into a transaction is not decisive in determining the character of a transaction because an accretion to capital does not become taxable income merely because an asset was acquired in the expectation that it may be sold at a profit as held by the Supreme Court in the case of Janki Ram Bahadur Ram (supra).
10. Now, when we apply the above law to the facts of this case, we find that the appreciation of facts by the authorities below was lopsided. The impugned order of the ITO shows that he, without bringing on record any evidence, worked on the presumption that the bonds were purchased by the assessee, 'with business motive' and the difference between the total purchase consideration and the sale amounted to profit from an adventure in the nature of trade. He was also guided by the proximity of the dates of purchase and sale. However, in the light of the law brought into focus in the above paragraphs, it is clear that these two factors in isolation could not make the impugned transaction as an adventure in the nature of trade. When the matter came up in appeal before the learned Commissioner (Appeals), he has gone on the premises that the assessee had purchased gold bonds with a view to selling them shortly thereafter on their maturity and with an expectation to make a profit. We have seen supra that an investment made with a motive to make profit does not per se make it an adventure in the nature of trade. The inference drawn by the learned Commissioner (Appeals) that the assessee purchased the bonds with the intention to resell is a contradiction in terms because, he himself stated that the bonds were maturing on 27-10-1980 and the assessee encashed them on that date.
11. We also find as a finding of fact that the assessee in his usual business or trade was not dealing in gold bonds. The purchase of gold bonds was an isolated transaction. The bonds were contracted to be purchased in June 1980. The factum of their delivery and sale within a short time would not detract, therefore, from the fact that the purchase was by way of investment. The contention of the learned counsel for the assessee that the assessee had surplus funds and utilised the same for investment in gold bonds has not been controverted. We also find that the genuineness of the transaction has not been doubted by any of the authorities below.
12. It is clear from the above that the investment made by the assessee in gold bonds was on the totality of the facts and circumstances of the case and the overall impression gained therefrom, was an investment. This investment was to purchase an asset. Section 2(14) provides legal authority for its chargeability on the transfer of a capital asset. Now National Defence Gold Bonds are excluded from the definition of capital asset by Sub-clause (iv) of Clause (14) of Section 2. This Sub-clause (iv) was inserted by the Taxation Laws (Amendment) Act, 1962 with effect from 13-12-1962. This was in operation during the assessment year under appeal. Therefore, capital gains arising from the sale of gold bonds on the facts of the case stated supra were exempt from tax. They could not be included into the total income of the assessee. The authorities below erred in bringing them to tax. We, therefore, direct that the amount of Rs. 31,500 be deleted from the total income of the assessee.
13. Appeal allowed.