Case: Raja Bahadur Kamakhya Narain Singh Vs. Commissioner Of Income-Tax Bihar And Orissa

to 1944. These indicate that the gold price remained 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 a large bulk of his gold holding, the price was at Rs. 68 per tola. If 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 appears to give credence to his case that by about the end of 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 securities. The further fact that he sold practically the whole of his stock of gold in October, l944 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.18. 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 lace 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 dealings with that account into trading transaction, if otherwise, they were not.19. 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.20. 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 companys management by procuring 51 per cent 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 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 companys management and not for dealing in them, would be on the capital and not revenue account.(see Kishan Prasad and Company Limited v. C. I. T. (1955) 27 ITR 49 = (AIR 1955 SC 252 )and C. I. T. v. National Finance Limited, (1962) 44 ITR 788 = (AIR 1963 SC 835 ). The Statement of Case itself set out facts which were consistent with the assessees case.21. 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]That the question, whether an assessee carries on business or when the 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 and Co. v. C.I.T. (l959) 35 ITR 594  at pp. 603 to 604 = (AIR 1959 SC 359  at pp. 363, 364) 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. 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 profitThough 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 ofhad, 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 in question were obviously not in the line of any business or trade carried on bye 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 assesses purchased in such large quantity. Prima facie, these transactions would appear in the nature of investments and their conversion into what the assesses believed to be better investments as the circumstances changed from time tocorrespondence lends support to the assessees case inasmuch as he had therein 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 per cent. 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 assessees 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 hethe 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 Karanpurathe 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 Karanpurathe 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 KaranpuraAs 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 companys management by procuring 51 per cent 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 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 companys management and not for dealing in them, would be on the capital and not revenueStatement of Case itself set out facts which were consistent with the assesseesStatement of Case itself set out facts which were consistent with the assessees