Appeals Nos 481 and 482 of 1966
Appeals by special leave from the judgment and order dated April 15 1963 of the Patna High Court in Misc
Judicial Cases Nos 342 and 346 of 1954
165 ST Desai and DN Mukherjee for the appellant in both the appeals
Jagadish Swarup Solicitor General SK Aiyar RN Sachthey and BD Sharma for the respondent in both the appeals
The Judgment of the Court was delivered by Shelat J
These two appeals under special leave arise from two References to the High Court of Patna under section 662 of the Income Tax Act 1922 and relate to the assessment years 1945 46 and 1947
In the first appeal the question arising for determination is whether on the facts and circumstances of the case the surplus receipt of Rs 1343469  realised as a result of the side of gold is assessable as income or profits or gains for the assessment year 1945 46 under section 43 vii of the Act
In the 2nd appeal two questions arise for determination one relates to the surplus receipt of Rs 33481 arising out of the sale of some more gold and the second relates to the receipt of Rs 88522 realised by the assessee as a receipt as a result of sale of certain shares
All the three questions raise the common problem whether the said transactions in gold and shares were by way of realisation of investment or were adventures in the nature of trade or business
The assessee was at all material times a landholder deriving large income from agriculture royalties of minerals and income from forests forming part of his estate
Prior to 1937 when he was a minor his estate was under the management of a Court of Wards
On attaining majority the estate which included Government securities of the value of about Rs 40 lacs was handed over to him on August 19 1937
During the account year 1938 39 he sold the whole
lot of these securities and realised Rs 4425088  the sale thus resulting in an excess of Rs 455305 
This excess amount was assessed as profit by the income tax officer for the assessment year 1939 40
But on appeal against the assessment order the Appellate Tribunal set side that order on a finding that the said sale was by way of a change in investment and therefore was not a transaction in the nature of trade or business
On March 23 1939 the assessee opened an account in the Imperial Bank of India initially with Rs 46 lacs which included the said sale proceeds of Rs 44 lacs and odd and to which on March 27 1939 he added Rs 260 lacs
The account was opened in the name of his wife and was called Account of Rs 48 lacs floating in the share market    In September 1939 the assessee purchased shares and debentures of the value of Rs 3414 lacs from out of the funds in the said account
He however sold certain shares for Rs 575723 in October 1939 and then the rest of them in 1940 and 1941 realising Rs 2958677 and 166 Rs 64201 respectively
The first sale fetched a proFit of Rs 117064 the second a profit of Rs 25133 and the third a loss of Rs 1642 
The income tax officer brought to tax the two surpluses in the assessments for the assessment years 1940 41 and 1941 42
But the department was again unsuccessful as the Tribunal once again held on the strength of the correspondence which had passed between the assessee his bankers axed his brokers in Calcutta that the only possible conclusion emerging from that correspondence was that the assessee s intention was not to deal in shares and debentures and that the said transactions were a mere change in investment carried out of a single scheme of earning a better yield from investments
The Tribunal s orders in respect of these assessments for the assessment years 1939 40 to 1941 42 were made part of the Statement of Case filed by the Tribunal before the High Court in the present References
Between June 28 1940 and November 9 1940 the assessee purchased 68109 tolas of gold for Rs 2847380 from out of the sale proceeds of the said shares
The gold so purchased was kept in his family vaults at Padma the seat of his estate for nearly 4 years
Between October 9 1944 and October 20 1944 he disposed of the bulk of the gold ie 55494 tolas for Rs 3680174  the sale resulting in a surplus of Rs 1343469  which is the subject matter of the first appeal
The remaining quantity of gold was sold of October 19 1945 and that sale brought_ him an excess of Rs 33481  which is part of the subject matter of the second appeal
In respect of these two surplus amounts the assessee contended that they were the result of a change in investment and could not be said to be transactions in the nature of trade or business
His case was that neither the Government securities nor the shares and debentures purchased out of their sale proceeds nor the gold were sold and purchased by way of dealing in them that at no time they became his stock in trade for any business or adventures in the nature of trade or business therein that the transactions were mere conversions from one investment to another depending upon the circumstances which prevailed during the respective periods and that the sale of gold in 1944 and 1945 was occasioned partly due to the tide in the second world war turning in favour of the allies and partly due a to his having to pay Rs 7 lacs by way of income tax b expenses for the marriage of his younger brother c for payment of Rs 6 lacs debt to one Gupta and d for purchase of Victory Bonds worth Rs 14 lacs and odd at the instance of the Government authorities as contribution of his estate to the war effort
The Tribunal rejected the case that gold had been sold for the reasons given by the assessee or as a change in investment and 167 held that 1  conversion of shares into gold was not due to any panic resulting from the war 2 that there was no pressing necessity for the sale of gold as alleged by him 3 that Victory Bonds were not by way of any war effort since the assessee sold them away within a short time after their purchase and 4 that he sale proceeds of gold were utilised in purchasing shares for which he borrowed an additional amount of Rs 510 lacs in 1945 46 against gold
in this view the Tribunal confirmed the ITO s decision that the two excess amounts were liable to income tax in the two assessment years
The sale proceeds of gold sold as aforesaid were utilised by the assessee in purchasing 7325 shares of Karanpura Development Co Ltd for Rs 237267 during the period from December 8 1944 to April 20 1945 and shares of Bokaro Ramgur Co for Rs 3981663 purchased in 1945 46
Part of the sale proceeds were also
utilised in purchasing the said Victory Bonds
between November 8 1945 and February 21 1946 he sold 6950 of the Karanpura shares realising a net surplus of Rs 88522  which the Income Tax Officer treated as business profit and brought to tax for the assessment year 1946 47
As the Statement of Case by the Tribunal shows the Tribunal examined the assessee s dealings since the time he took over the said estate
The Tribunal noted that the said shares were purchased from the said Rs 48 lacs in the Bank reserved for that purpose and that they were sold and purchased at very short intervals
From these facts it held that he must be considered to have launched a scheme in dealing in shares which conclusion it thought was strengthened by the fact of the assessee having borrowed Rs 510 lacs for the said purpose
The Tribunal further held that the complete picture of the said transactions over a length of time had not been before the preceding Tribunal when it passed the earlier orders for the assessment years 1939 40 to 1941 42 and therefore its conclusions were not applicable to the transactions in question
It consequently held the assessee to be a dealer in shares
As regards the gold also the Tribunal confirmed the orders of the ITO rejecting the assessee s case that the gold was purchased by him owing to the war crisis and sold by him on account of the pressing necessities alleged by him and the change in the war situation then
By an order dated April 2 1959 the High Court referred that statement of Case back to the Tribunal under section 664 directing it to consider further all the materials before it and file a supplementary Statement of Case as the High Court found the Statement factually incorrect in certain respects
The Tribunal accordingly sent a supplementary Statement of Case on April 23 1960
After setting out the assessees transactions of the sale of Government securities in 1938 39 the purchase of shares from 168 their sale proceeds their sale in 1939 40 and 1940 41 the purchase of gold and its sale the Tribunal once again rejected the assessee s claim that those transactions were conversions of one investment to another made for a better return or that the gold was sold in October 1944 for pressing necessities alleged by the assessee
Regarding the purchase and sale of shares the Tribunal stated that the assessee purchased shares of the value of Rs 37 lacs and odd in1945 46 that those were shares of two concerns only Bokaro and Ramgur Co Ltd and Karanpura Development Co Ltd and that as the latter company s shares were of the value of Rs 237267 only the bulk of the amount of Rs 37 lacs and odd went into the purchase of the shares of Bokaro and Ramgur Co Ltd The Tribunal noted that the sale of Karanpura shares resulted in a net profit of Rs 88522  that in respect of the Karanpura shares there was correspondence showing that his brokers had advised him to acquire 51 of the company s share holding as he desired to obtain control over its management that for doing so he wanted to obtain founders  shares each of which shares carried 3 votes per share that a compromise was proposed in a suit he had filed as the lessor of the mines leased out to the company that Ms Bird  Co the managing agents of that company were not willing to
sell him shares representing the unissued capital of the company on terms proposed by the assessee and that ultimately he failed to obtain majority of shares which only could have enabled him to obtain control over the company s management
But the Tribunal found that the assessee was attempting to obtain control of the company not by purchasing of shares in the market but by issue of shares by the company in order to settle the dispute between the company and the assesses These negotiations finally failed
 It finally held that having perused the correspondence and having regard to the circumstances the purchase of Karanpura shares was not in pursuance of a scheme to obtain control over the company by acquiring 51 of the votes therein
The High Court after hearing the References held that though the Tribunal had in the earlier assessments held that the assessee s transactions in shares securities and gold did not amount to transactions in the nature of trade or business and therefore the assessee could not be treated as a dealer in those articles
There was no bar to the revenue coming to a different conclusion though to do so it must have some new materials and facts before it
It further held that the present Tribunal could aso arrive at such a conclusion having regard to a the frequency of transactions of purchase and sale of shares b the short interval between purchase and sale of shares c the fact of Rs 48 lacs in the assessee s wife s account having been ear marked for shares transactions d his borrowing Rs 510 lacs against gold for purchase 169 of shares and lastly the fact that the Tribunal this time had before it a more complete picture of the assessee s transactions over a length of period which its predecessor had not when it dealt with the assessments for the assessment years 1939 40 to 1941 42
The High Court further held that there was fresh material namely that when the gold was sold its sale proceeds were again invested in shares and the fact that though Victory Bonds were purchased in January 1945 they were sold after an interval of two months only
The High Court in this view concluded that the Appellate
Tribunal therefore had before it fresh materials for coming to a conclusion contrary to the one come by its predecessors in the previous orders
 It rejected the assessee s case a that he had converted one investment into another ie from shares and securities to gold because of the worsening of the war situation after the fall of France in 1940 b that when the war situation improved in 1944 and with that the price of gold began to fail he once again converted his investment from gold to shares ie from an unproductive investment into one which could give him an adequate yield and c that he had sold gold because of pressing necessities
The first contention was held unsustainable because even after purchasing gold the assessee had retained considerable cash the second was rejected on the ground that the assessee had sold gold not because of the allied victory in sight but because he found the gold unprofitabIe by reason of the fall in its price and the third was rejected as the assessee had failed to make_good the pressing necessities alleged  by him
The High Court further held that the findings given by the Appellate Tribunal were all findings of fact and as they could not be said to have been arrived at without any evidence they could not be interfered with in a Reference under section 662 and answered the questions as to the two surplus amounts of Rs 13 lacs and odd and Rs 33 thousand and odd as liable to assessment
In regard to the excess of Rs 88522_ resulting from the sale of  Karanpura shares the High Court agreed with the Tribunal that that amount also was rightly brought to tax
It held that the finding of the Tribunal that the purchase of these shares was not in pursuance of a scheme to obtain control in the company and that the assessee s scheme for that purpose was to acquire shares representing the unissued capital of the company was one of fact with which also it had no jurisdiction to interfere
Counsel for the appellant disputed the correctness of the High Court s judgment and contended 1  that it was in error in declining to go into the correctness of the findings of the Tribunal by merely stating that they were findings of fact 2 that the question whether a particular item was a trading profit or capital accretion depended on the intention on the part of the assessee at the time of the transaction in question and which had Sup CI70 12 170 to be arrived at by an inference from established facts and was therefore a mixed question of fact and law 3 that on the facts and circumstances the Tribunal and following it the High Court was in error in treating the gold and the Karanpura shares as the stock in trade of the assessee for his alleged trading activities 4 that the onus of proving that the activities of the assessee amounted to activities in the nature of trade or business was on the department and particularly so as the Tribunal in the earlier assessments had come to a contrary conclusion and 5 that the facts and circumstances as accepted by the Tribunal in its Statement of Case showed that the purchases of gold and share were made without any intention at that time to resell them at profit and that therefore the subsequent sales thereof would not stamp those transactions with the character of trade or business in them
Since these appeals arise out of References under section 662 we cannot exercise any wider power of interference than that permitted to the High Court under the Act
That was not disputed by Mr Desai
But in support of his contention that this was a case  where the High Court could and should have interfered with the Tribunal s findings he cited a number of decisions
It is not necessary to go into all these decisions as the principles on which such interference can be made and the scope of power under section 66 to do so are by now well established
That the question whether an assessee carries on business or whether certain transactions are in the course of business or whether they amount to adventures in the nature of trade or business is a mixed question of fact and law is well settled
The decision in Venkataswami Naidu  Co vs
T1 is an instance in point where this Court observed that the expression adventure in the nature of trade  appearing in the definition of business  implies the existence of certain elements in the adventure which in law would invest it with the character of trade and that renders the question whether a transaction is in the nature of trade a mixed question of law and fact and the High Court in such a case would interfere if the Tribunal had misdirected itself in law of also Liquidators of Pursa Ltd rs
CIT2
But to distinguish a question of fact and a question of law is not always easy for sometimes there is a common area between the two and though a mere question of fact can be turned into one of law care should be taken against a finding of a mixed question of fact and law being given the unassailability which the Act confers on a pure finding of fact
The case of Sree Menakshi Mills Ltd vs
T3 holds that where an ultimate finding on an issue is an inference to be drawn from facts found on application of a principle of law there is a mixed question of law and fact and such an inference in such a 1 at 603 to 604
2 3 171 case is a question of law open to review by the court
On the other hand when the final determination of the issue does not involve any application of a principle of law an inference is a pure inference of fact drawn from the other basic facts
Such an inference can be attacked only if there is no evidence to support it or if it is perverse
Since the expression adventure in the nature of trade  implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business and the question on that account becomes a mixed question of law and fact the Court can review the Tribunal s finding if it has misdirected itself in law
It is fairly clear that where a person in selling his investment realises an enhanced price the excess over his purchase price is not profit assessable to tax But it would be so if what is done is not a mere realisation of the investment but an act done for making profits
The distinction between the two types of transactions is not always easy to make The distinction whether the transaction is of one kind or the other depends on the question whether the excess was an enhancement of the value by realising a security or a gain in an operation of profit making
If the transaction is in the ordinary line of the assessee s business there would hardly be any difficulty in concluding that it was a trading transaction but where it is not the facts must be properly assessed to discover whether it was in the nature of trade
The surplus realised on the sale of shares for instance would be capital if the assessee is an ordinary investor realising his holding but it would be revenue if he deals with them as an adventure in the nature of trade
The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction
For instance an assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in higher price
Such an investment though motivated by a possibilty of enhanced value does not render the investment a transaction 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
Though the assessee was at the material time a landholder of a large estate that fact by itself would not mean that his transactions in shares securities and bullion cannot be transactions in the nature of trade
They had therefore to be examined in the light of all the facts and circumstances to ascertain whether they had been entered into in pursuit of a trading activity
The first relevant fact iS that the assessees occupation was that of a landholder having on attaining majority a considerable amount of money available for raising income therefrom
The transactions 172 in question were obviously not in the line of any business or trade carried on by him
Since the Tribunal came to a conclusion as regards the nature of the assessee s transactions different from that arrived at earlier it would be useful to tabulate them at one place
So tabulated they are as follows 1 Sale of Government securities in 1938 39 which realised Rs 4425 lacs 2 Opening of an account with this and certain other amounts totaling Rs 48 lacs in the Imperial Bank 3 Purchase out of these funds shares and debentures of the value of Rs 3414 lacs in September 1939 4 Sale in October 1939 ie within a month of some of these shares bringing him Rs 575 lacs 5 Sale of the bulk of the shares in 1940 bringing in Rs 2958 lacs 6 Sale of the remaining shares in 1941 resulting in a small deficit 7 Purchase of 68109 tolas of gold in June 1940 for Rs 2847 lacs 8 Sale of the bulk of the gold ie 55495 tolas in October 1944 resulting in a surplus of Rs 13 lacs and odd 9 Sale of the remaining gold in October 1945 resulting in a surplus cf Rs 33481  10 Purchase of Karanpura shares between December 1944 and April 1945 of the value of Rs 237267  11  Purchase of Victory Bonds in January 1945 of Rs 14 lacs and sale thereof in March 1945 12 Borrowing Rs 510 lacs against gold in 1945 46 13 Purchase of Bokaro Ramgur shares in 1945 46 for Rs 3981 lacs and 14 Sale of Karanpura shares in 1945 46 bringing in a surplus of Rs 88000 and odd
As already stated though these transactions were not in the line of any trade of business carried on by the assessee nonetheless if they possess the characteristics of adventures in the nature of trade the profits resulting therefrom would be liable to tax
But in an enquiry on the question whether these transactions were in the nature of trade or business it would not be altogether irrelevant 173 to notice that in 1938 39 when the assessee sold the Government securities he sold the entire lot and invested the bulk of their sale proceeds in shares and debentures ie as much as Rs 34 lacs
The same features is present also in his purchase of gold in 1940 and its disposal in 1944 and 1945 using its sale proceeds in buying shares which it must be remembered were of two companies only
The transactions thus are not diversified nor are gradual according to the opportunities offered by fluctuating market prices but are in bulk and almost at a time which ordinarily are not the characteristics of the dealings of a person carrying on trade or business in them
Thus in 1938 39 all Government securities were sold and the bulk of their sale proceeds ie Rs 34 lacs and odd used in the purchase of shares
The same was the case when gold was bought and sold
Furthermore when a person trades in shares and debentures he does not ordinarily buy shares of two companies only except when a particular script has the possibility of giving an unusual or a certain profit
There was nothing on record to show nor did the Tribunal find that that was the case with the shares of either of the two companies whose shares the assessee purchased in such large quantity
Prima facie these transactions would appear in the nature of investments and their conversion into what the assessee believed to be better investments as the circumstances changed from time to time
In support of his contention that these transactions were not in the nature of trade or business the assessee had relied on the correspondence between him on the one hand and his bankers and brokers on the other which had satisfied the Tribunal previously with reference to the assessment years 1939 40 to 1941 42
That correspondence lends support to the assessee s case inasmuch as he had there in clearly instructed his brokers to invest the sale proceeds of the said Government securities in such a way as to give him an annual yield of net 7
There can be no doubt that Government securities were sold accordingly and shares of certain companies were purchased from their sale proceeds in accordance with the advice of his brokers and bankers
When it was found that certain shares so purchased were not Likely to yield the percentage he desired they were sold within hardly a month from their purchase
The circumstances in which these transactions were brought about would disclose as was held by the previous Tribunal in the case of the earlier assessments that the assessee s intention then was to change his investments from Government securities into shares and debentures which he was advised would procure him a better yield
This conclusion is consistent with his sale of the entire lot of Government securities at a time his going in for shares with their sale proceeds and the sale in October 1939 of certain shares which were found incapable of giving the return he desired
174 Since the present Tribunal had the advantage of examining the assessee s transactions during the whole of the period ie right from 1938 39 to 1944 45 and thus have a 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 earlier years if the acts and conduct of the assessee taken as a whole throughout the period pointed to a different conclusion as both the Tribunal and the High Court have said
But the only new materials pointed out by the Tribunal from which a different conclusion could be arrived at were 1 the sale of gold in 1944 and 1945 2 the purchase of the said shares from its sale proceeds and 3 the sale of Karanpura shares
The question therefore the Tribunal had before it was whether when the assessee purchased the gold he did so with the intention to deal in it
The Tribunal held and the High Court concurred with it that the assessee s transactions showed that they were in the nature of trading transactions
Two facts however throw considerable doubt on the validity of that conclusion and neither the Tribunal nor the High Court seems to have weighed them with the consideration which they demand
The first fact is that in 1940 he converted his entire share holding into gold a fact consistent with his case that he did so because of the nervousness engendered by the breaking out of the Second World War the initial German victories and the fall of France
The Tribunal did not countenance this case for it thought that if that was so the assessee would have invested the other cash lying with him also in gold and secondly because according to it the war panic started in 1942 and not in 1940
We do not think that this was an accurate approach
The fact that the assessee did not invest all his cash cannot mean as the Tribunal thought that his case about the purchase of gold was not correct
The war had commenced in 1939 and it is a notorious fact that in 1940 the fortunes of the allies were none too bright
The fact was that the assessee sold his entire share holding and applied their sale proceeds and also a further amount of Rs 13 lacs and odd obtained from his lessees Ms Anderson Wright  Co into
The second fact whose significance does not also seem to have been adequately apprehended was 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 that gold in his family vaults for nearly 4 years
The Tribunal had before it the gold prices current during the years 1940 to 1944
These indicate that the gold price remain steady at Rs 42 per tola all throughout 1940
There was however an upward trend noticeable from about the end of 1941 which went up to Rs 65 towards the end of 1942
By the middle of 1943 the gold price had risen to Rs 90 and even more
In October 1944 when the assessee sold 175 a large bulk of his gold holding the price was at Rs 68 per tolaIf the idea of the assessee in purchasing the gold was to trade in it he would not have waited for 4 years without disposing of a particle of it
The price was on the upward trend in 1941 and reached the climax in 1943 when he could have sold the gold and made considerable gain
The fact that he did not do so and waited until October 1944 the war fortunes were turning in favour of  the allies that confidence had gradually been regained by trading circles and that that was why he thought that it was no longer necessary for him to retain the gold any further and could safely invest his money in income bearing securties
The further fact that he sold practically the whole of his stock of gold in October 1944 instead of selling it bit by bit when the price was rising since about the end of 1942 is inconsistent with the hypothesis that the object with which the gold was purchased was to trade in it
Regarding share transactions we think that the Tribunal placed undue emphasis on the fact that when he opened the bank account in March 1939 with the sale proceeds of Government securities he did so firstly in the name of his wife and secondly called that account as one of Rs 48 lacs floating in the share  market
The first had no particular significance and the second properly viewed only meant that he wanted to set apart this fund for transactions in shares and securities and not mix up his other capital and the income arising from his estate
The name he gave  to this account cannot for that reason only render his dealing with that account into trading transactions if otherwise they were not
Similarly the Tribunal was unduly impressed by the fact that he sold away the Victory Bonds within about two months from their purchase
The correspondence produced by the assessee clearly shows that he had bought those Bonds at the pressure of the then Commissioner
The Bonds were not likely to fetch him the yield he desired
His purchase of them had thus served the purpose viz his showing to the authorities that his estate had made a war contribution
The sale by him of those Bonds would not affect the Government or its war effort
The fact that he sold  them soon after the purchase would not invest it with the stamp of  trade or business in Victory Bonds
As regards the Karanpura shares the correspondence between him and the company and the advice he had from his brokers referred to in the Statement of Case show that the assessee did at one time entertain the idea of obtaining control over the company s management by procuring 51 of its total shares
He could do so by purchasing shares in the open market and also by other means
He purchased 7025 shares in the market but that was clearly not enough
There was at that time litigation going on_ 176 between him and the company and he seems to have hit upon the idea that he would compromise his suit if the managing agents of the company were to sell him shares representing its unissued capital at prices offered by him
The object of his offer was that he would not have to pay the market price of the shares which was 3 times more than the one offered by him
The company did not agree and his move for compromise failed
According to him there was therefore no useful purpose for retaining those shares and he sold 6950 shares leaving only 75 shares with him
On these facts the Tribunal was not right in concluding that the shares which the assessee purchased from the market were not for the purpose of acquiring the major share holding in the company and that the control over the company was to be obtained only by purchasing shares representing the unissued capital
Both the purchase of shares and the move to obtain shares representing the unissued capital were part of the same design and if the latter failed his purchase of 7025 shares would obviously not bring him nearer his object
Furthermore the bulk of the sale proceeds of gold went into the purchase of Bokaro
Ramgur shares which remained with him till the assessment years in question
The profits made on the sale of shares acquired with the intention of obtaining control over the company s management and not for dealing in them would be on the capital and not revenue account
see Kishan Prasad  Co Ltd
CIT1 and CIT vs National Finance Ltd 2
The Statement of Case itself set out facts which were consistent with the assessee s case
In our view the Tribunal misdirected itself in applying the law to the facts found by it both in the matter of gold and shares and the High Court would have been entitled to interfere with its findings instead of holding that it could not do so as the findings were findings of fact
The questions involved being mixed questions of fact and law the hypothesis on which the High Court acted that the findings were purely findings of fact and therefore were unassailable was in our view not correct
The appeals therefore will have to be allowed and the answers given by the High Court set aside
We hold that the two questions referred to the High Court should have been answered in assessee s favour and we do s0 accordingly
The respondent will pay to the appellant costs of these appeals but only one hearing fee
3C Appeal allowed


Summary:
The assessee inherited a vast estate consisting of agricultural and other land as also Government securities worth Rs 40 lacs
In 1937 he attained majority and control of the estate from the Court of Wards
In the accounting year 1938 39 he sold some of these securities at a profit
Thereafter he opened an account in the Imperial Bank of India in the name of his wife and called it account of 48 lacs floating in the share market
 In September 1939 he purchased shares worth Rs 3414 lacs out of the said fund but sold them again at a profit in the Years 1939  1940  and 1941
The profits on the said sales of shares were subjected to tax by the Income tax Officer in the years 1939 40 1940 41 and 1941 42
The Tribunal however held that the asessee was not a dealer in shares anti  held the profits not to be taxable
Between June
and November 1940 the assessee purchased gold for Rs 2847380 from out of the sale proceeds of the aforesaid shares
This gold was sold at a profit in the accounting periods relevant t0 the 1945 46 and 1946 47 assessment years
With the sale proceeds certain shares including 7025 shares of Karanpura Development Co Ltd were purchased most of which were sold at a profit
Certain Victory Bonds were purchased and resold within two months
The Income tax Officer subjected the profits from the sales of gold and 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 conclusion 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 was 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 H ii Since in the present case the Tribunal had the advantage of examining the assessee s transactions during the whole period ie 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 earlier years
if the acts and conduct of the assessee taken as a whole throughout the period pointed to a different conclusion
174 A B 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 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 holding into gold in that year was consistent with his case that he did so because of the nervousness engendered 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 go1d was not correct
174 D F The Tribunal also failed to give due significance
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 years
The price of gold began to rise 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 confidence restored that he felt it safe to invest his money in income beating securities
The further fact that he sold practically the whole of his stock of gold in October 1944 instead of reselling it bit by bit after the price was rising since 1942 was inconsistent with the hypothesis that the object with which the go1d was purchased was to trade in it
174 G H 175 A D b The fact that the account in the Imperial Bank opened in 1939 was called Rs 48 lacs floating in the share market was given undue significance by the Tribunal
Properly viewed it only meant that the assessee wanted to set apart this fund for transactions in shares and securities and not mix up his other capital and the income arising from his estate
175 D E c The sale of the
Victory Bonds within two months of their purchase would not invest the transaction with the stamp of trade or business they were only purchased to show to the authorities that his estate had made a contribution to the war effort
175 d The Karanpur shares were purchased by the assessee with a view to getting control over the company s management by procuring 51 of its total shares
When that plan failed he sold these shares
In these circumstances the transaction could not be considered to be on revenue account
175 G H 176 D Kishan Prasad  Co Ltd
CIT and CITv
National Finance Ltd  applied
e The expression adventure in the nature of trade  implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business
The question therefore whether a particular transaction is an adventure
in the nature of trade is a mixed question of law and fact and the court can review the Tribunal s finding thereon
Therefore in the present case the High Court was wrong in treating the Tribunal s decision as a finding of fact and refusing to interfere on that ground
171 A C Venkataswami Naidu  Co
CIT  603 604 and Liquidators of Pursa Ltd vs
CIT  referred to