JUDGMENT BHARGAVA J. - The question referred for our opinion by the Income-tax Appellate Tribunal is :
"Whether there is any material on which the Tribunal could come to the conclusion that the purchase and sale of silver bars was an adventure in the nature of trade ?"
The original statement of the case and the supplementary statement of the case together show that the assessee, which was a partnership firm, was carrying on the business of agency of cloth and was constituted for that purpose. On December 30, 1941, the assessee purchased ten bars of silver and on January 2, 1942, another five bars of silver, having paid a total sum of Rs. 30,716 as the price of those bars of silver. The transaction was entered in the books of account of the assessee by debiting this amount in an account styled as "silver account" in the ledger maintained for the selling agency business. Eight of those silver bars were sold on September 16, 1944, and the remaining seven on September 17, 1944, as a result of which a total sum of Rs. 55, 385 was realised and, after setting off and expenditure of Rs. 13 incurred in connection with the purchase and sale of the silver bars, the assessee made a net profit of Rs. 24,656. The income-tax autorities held that this sum of Rs. 24,656 was income liable to income-tax as having accrued to the assessee because of an adventure in the nature of trade. The contention of the assessee was that the transaction of purchase and sale of silver, which the assessee had entered into, was an investment and was not an adventure in the nature of trade so that the extra amount realised was capital gain and not taxable income. The Income-tax Appellate Tribunal upheld the decision of the income-tax authorities and has now referred the case to this court after framing the question mentioned above in pursuance of an order by this court under section 66(2) of the Income-tax Act.
In order to answer such a question, the court has first to find out what are the primary facts on which findings have been recorded by the Tribunal. The original statement of the case submitted by the Tribunal did not clearly put down all the facts that had been found by it and it was for this reason that a supplementary statement of the case was called for. Having examined the two statements of the case submitted by the Tribunal as well as the other documents which have been made part of the statements of the case, we find that the following relevant facts have to be taken into consideration in order to answer the question referred to us :
1. That the transaction of purchase and sale of silver by the assessee was outside the line of regular business of the assessee.
2. That it was a solitary transaction of purchase and sale and no regular business in purchase and sale of silver was carried on until some time after this transaction had been completed by resale of the silver bars in September, 1944.
3. That the silver bars were purchased at the end of December, 1941, and in the beginning of January, 1942, when there was a rising market in silver and the prices were going up, so that anyone purchasing silver at that time could be expected to make a profit on its re-sale.
4. That the assessee was unable to establish any other motive for the purchase of 15 silver bars in December, 1941, and January, 1942, apart from the motive of making a profit by subsequent resale. A different motive was suggested on behalf of the assessee which was to the effect that, at that time, there was war and panic due to war as Japan had also joined in he was against the British and it was due to this panic that the purchase was made. The question whether there was such a panic or not was a pure question of fact. The Income-tax Officer noticed the circumstance that Japan entered the war in December, 1941, and not earlier and he came to the view that, at that time, there could be no such panic as could have impelled the assessee to have made purchases of silver taking the money out of its business. On behalf of the assessee it does not appear that any evidence was tendered in support of the plea that a panic had existed and that the purchase was made on account of that panic. The existence of any other motive for purchase and the assessee, on the findings recorded by the income-tax authorities which have been upheld by the Tribunal, failed to discharge this burden.
5. That the assessee was paying interest as entered in the books of account of the assessees selling agency business in an interest khata maintained in the books of account of the assessee firm as well as to the partners. This circumstance has been taken into account by the income-tax authorities for the purpose of drawing the inference that the assessee did not posses, at the time when the purchase was made, such surplus cash as was not earning any income at all to the assessee and which could have been utilised for making a non-productive investment. According to the finding recorded, even in the year 1941, the assessee had to pay interest to partners in addition to a deficit of a sum of about Rs. 5,000 in the interest account. We are unable to hold that the income-tax authorities, in these circumstances, are incorrect in taking the view that, if this amount had not been invested in purchasing silver bars, it could have been utilised for reducing the liability to interest and for thus saving money to the assessee which was being paid by the assessee as interest. This circumstance is indicative of the fact that money was invested in silver bars because that transaction of purchase of silver bars was likely to result in higher profit than the amount of interest which would have been saved by not investing it in the silver bars.
6. That this amount invested in silver was treated as an exclude amount in the computation of the capital for excess profits tax proceedings for the chargeable accounting periods during which this money remained invested in silver bars.
7. That a separate silver khata was being maintained in the books of account of the assessee relating to the selling agency business.
These are, it appears to us, the only facts and circumstances which have to be taken into account in order to determine whether this transaction of purchase and sale of silver bars was or was not an adventure in the nature of trade. One more fact was mentioned by the Income-tax Appellate Tribunal and the income-tax authorities which was used as an argument against the assessees point of view but which learned counsel for the assessee before us tried to use as an argument in favour of the assessee. This point was that, according to the finding recorded this sum of Rs. 30,000 and odd was used for purchase of silver bars at a time when there was a balance of about one and a half lakhs of rupee with the assessee. The Income-tax Officer mentioned that this balance was in the bank whereas the Tribunal has mentioned that this sum of one and a half lakhs of rupees or so represented the capital of the assessee. Both the Income-tax Officer and the Tribunal drew the inference that utilisation of Rs. 30,000 and odd only out of one and a half lakhs of rupees for purchase of silver bars indicated that this was not an investment, because, if the intention had been to make an investment, only some portion of the money available would not have been utilised. We are unable to follow this line of reasoning. Even if a large surplus of about one and a half lakhs of rupees was available, a part of it could have been utilised for investment, regaining the remaining part for carrying on the business and it would always depend on the businessman to decide which is the more advantageous course to be adopted in the circumstances existing at the time. A businessman, in these circumstances, may invest some portion of the surplus, retaining only the rest for purposes of business. At the same time, it is equally possible that, even though money may or may not be needed for the business, the businessman may enter into a profitable transaction by purchasing a commodity outside the normal line of business with the sole object of making a profit on it. The fact of investment of Rs. 30,000 and odd out of the sum of one and a half lakhs of rupees or so is, therefore, one which is consistent with either case and must be ignored when arriving at a decision as to the nature of the transaction in question. Further, it appears to us that the finding that there was a surplus of about one and a half lakhs of rupees available to the assessee is, to some extent, inconsistent with the other finding that the assessee was paying interest to the partners, because that money said to be surplus could have been utilised for reducing the interest being paid. In the circumstances, we ignore this fact relating to the investment in silver bars being only a small portion of the money available in the banks or in the capital account.
Having summarised the facts and circumstances which are relevant to the determination of the question before us, we have now to take the totality of those circumstances and come to the view whether the transaction was or was not an adventure in the nature of trade. Of the circumstances summarised above, there are three which normally point towards the transaction not being in the nature of trade. One is that the transaction was outside the regular line of business; the second is that it was a solitary transaction and the third is that it was treated as an excluded amount in the computaion of the excess profits tax assessment. These three circumstances are, no doubt, in favour of the assessee, but where other and much stronger circumstances exist, they cannot be decisive of the matter, particularly because these circumstances can co-exist with the transaction being in the nature of trade. Even one solitary transaction outside the line of business can be entered into by a businessman with the sole and exclusive object of earning a profit and not at all with the object of making an investment for keeping his money safe or getting earnings from that investment or using the property in which the money is invested. In such a case, as indicated by the Supreme Court in Venkataswami Naidu and Co v. Commissioner of Income-tax, a very strong presumption arises that the transaction was an adventure in the nature of trade and such a presumption can only be displaced by other cogent circumstances. In the present case, there was the fact that the purchase was made at a time when the market was a rising market and good profit could be expected from the resale of the silver bars which were purchased. This purchase was made of a commodity which, as an investment, could give no return while the money remained invested in it, except as a profit on resale only. There was no suggestion at all that the silver bars were intended to be used as such by any of the partners of the assessee firm. The silver bars were purchased in spite of the fact that they would be a non-productive commodity at a time when the money utilised for making purchases could have been profitably used for reducing the liabilities on account of which the assessee was being made to pay interest in the interest khata or to the partners. There is the further finding that the purchase was not made due to panic or with any other motive, so that the sole and exclusive motive for the purchase was to make a profit. No doubt, the silver bars were kept unsold for about two years and nine months but there is nothing to show that the sale of silver bars at an earlier period would have been more profitable than the sale at the time when they were actually sold. These circumstances thus lead to the conclustion that the transaction of purchases was entered into by the assessee with the sole object of making a profit on resale, that there was no there object of making the purchase and that no other cogent circumstances that the transaction was an adventure in the nature of trade.
We, consequently, answer the question referred to us in the affirmative. The department will be entitled to the costs of this reference which we fix at Rs. 250.
Question answered in the affirmative.