Income-tax---

----Business---Adventure in the nature of trade---Solitary transaction of purchase and sale of gold bonds---Burden on Revenue to prove that transaction amounted to an adventure in the nature of trade---No evidence to show that purchase had been made with an intention to re-sell---Profit from sale not assessable as income from business.

In deciding the character of a solitary transaction of purchase and resale, 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 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 re salable; any act prior to the purchase showing a design or purpose; the incidents 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. Where a transaction is not in the line of business of the assessee- but is an isolated or single instance of a transaction, the onus is on the Revenue to prove that the transaction was an adventure in the nature of trade.

The assessee purchased National Defence Gold Bonds, 1980 on April 3, 1980, at the price of Rs. 1,125 per bond. He, however, sold these bonds in one lot on October, 1,1980. He made a profit of Rs. 33,500 and claimed that it was not taxable. The Income-tax Officer brought the amount of Rs. 33,500 to tax as income from an adventure in the nature of "trade. This finding was upheld by the Appellate Assistant Commissioner and the Tribunal. On a reference:

Held, that there was no material to establish that the only motive of the assessee in purchasing the bonds was to sell them at profit at a later date. The assessee had not purchased bonds in very large quantities. The assessee had the means to pay for the bonds and in fact he paid for them. There was also no material to show that the assessee was carrying on any business similar to that of buying and selling bonds such as dealing in stock or shares; or that the resale of bonds was allied to the assessee's usual trade or business or was incidental to it. The transaction of purchase and sale of (Indian) National Defence Gold Bonds, 1980, did not amount to an adventure in the nature of trade and, therefore, the amount of Rs. 33,500 was not taxable as income from business.

G. Venkataswami Naidu and Co. v. CIT (1959) 35 TTR 594 (SC) and Saroj Kumar Mazumdar v. CIT (1959) 37 ITR 242 (SC) applied.

Janki Ram Bahadur Ram v. CIT (1965) 57 ITR 21 (SC) ref.

S.B. Dastur with Arvind Sonawne instructed by M/s. Kanga & Co. for the Assessee.

G.S. Jetley with Ms. Manjula Singh and K.C. Sidhwa for the Commissioner.

JUDGMENT

MRS. SUJATA V. MANOHAR, J.----This is a reference under section 256(1) of the Income-tax Act, 1961. The following question has been referred to us for determination:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transaction of purchase on April 3, 1980, and sale on October 1, 1980, of the National Gold Bonds, 1980, which was effectively held by the assessee only for a period of two days from September 29, 1980, to October 1, 1980, was entered into with the intention of making profit and that such profit earned on the sale of National Gold Bonds, 1980, would be assessable as business income in the hands of the assessee?" ,

In our view, the question as framed does not bring out correctly the points at issue which we are required to determine. It is also framed in a manner which begs the question. With the consent of the parties, therefore, we have refrained the question as follows:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the transaction of purchase and sale of the National Defence Gold Bonds,1980 amounted to an adventure in the nature of trade and the resulting profit was taxable as business income in the hands of the assessee?"

The assessee purchased National Defence Gold Bonds, 1980, on April 3, 1980, at the price of Rs. 1,125 per bond. He purchased bonds worth 1,000 grams of gold. The actual payment of the purchase price was made by him by cheque on September 29, 1980. Under the National Defence Gold Bonds, 1980, scheme, the bonds were to be exchanged by the holder for gold on October 27, 1980. The assessee, however, sold these bonds in one lot on October 1, 1980. He made a profit of Rs.33,500.

In a note attached to his return of income for the assessment year 1981-82, the assessee declared this profit resulting from the purchase and sale of National Defence Gold Bonds of 1980, amounting to Rs.33,500 as a capital gain exempt from tax on the ground that under section 2(14)(iv) of the Income-tax Act, 1961, the National Defence Gold Bonds, 1980, are excluded from the definition of "Capital assets". Hence, no capital gains tax is payable in respect of the profit arising from the transaction. The Income-tax Officer, however, brought the amount of Rs.33,500 to tax as income from an adventure in the nature of trade. This finding was upheld by the Appellate Assistant Commissioner and the Tribunal. Hence, the present reference.

Whether a solitary transaction of purchase and sale such as this, can be considered as an adventure in the nature of trade is a mixed question of facts and law. In a number of cases, this question has come up for consideration before the Supreme Court and other High Courts. The Supreme Court in the case of G. Venkataswami Naidu and Co. v. CIT (1959) 35 ITR 594, laid down certain tests for determining whether any given transaction can be looked upon as an adventure in the nature of trade. It said (headnote):

"In deciding the character of such transactions several factors are relevant, such as e.g., 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 quantity 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 resale-able; any act prior to the purchase showing a design or purpose; the incidents 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:"

The Supreme Court also said that, in a given case, even an isolated transaction can satisfy the description of an adventure in the nature of trade provided at least some of the essential features of trade are present in the isolated or single transaction.

The Supreme Court in the case of Saroj Kumar Mazumdar v. C.I.T. (1959) 37 ITR 242, observed that where a transaction was not in the line of business of the assessee but was an isolated or single instance of transaction, the onus was on the Department to prove that the transaction was an adventure in the nature of trade.

In the present case, the assessee's income consists of salary, guarantee commission and the like. In the return of income for the assessment year 1981-82, the assessee, has shown his income from salary as Rs.54,200, interest Rs.184 and he has shown business income in the form of (1) guarantee commission of Rs.22,951 and (2) interest from Soorajmull Nagarmull at Rs.12,000. There is no other business income. The transaction of purchasing National Defence Gold Bonds, 1980, and selling them after a few months is a solitary transaction. It is, therefore, for the Department to establish that this transaction was an adventure in the nature of trade. According to Mr. Jetley, the fact that actual payment for the purchase was made on September 29, 1980, and the sale took place on October 1,1980, would indicate that the sole motive for purchasing these gold bonds was to make a profit by selling them. This argument ignores the fact that the bonds were purchased on April 3, 1980, and were sold only in October, 1980. There was, therefore, no question of any quick profit.

There does not appear to be any material which would establish that the only motive of the assessee in purchasing these bonds was to make a profit by selling them at a later date. The assessee had not purchased bonds in very large quantities thereby indicating a desire to trade in them nor is there any material to show that he had no intention of retaining the bonds and exchanging them for gold on the due date, October 27, 1980, as he could have done. The assessee had the means to pay for these bonds and in fact he did pay for them. The mere fact that he sold them on October 1, 1980, is not sufficient for the purpose of coming to a conclusion that this was an adventure in the nature of trade. There is also no material to show that the assessee was carrying on any business similar to that of- buying and selling bonds such as dealing in stock or shares; or that the resale of bonds was allied to the assessee's usual trade or business or was incidental to it. In these circumstances, in our view, the Department has not discharged the burden of establishing that this was an adventure in the nature of trade.

Mr. Dastur, learned counsel for the assessee, has also drawn our attention to a decision of the Supreme Court in the case of Janki Ram Bahadur Ram v. CIT (1965) 57 ITR 21, where the purchase by the assessee of a jute factory and its resale within six months were, in the circumstances of that case, held by the Supreme Court not to be a business' venture. In the present case, the burden of establishing that the solitary transaction was an adventure in the nature of trade was on the Department. It has not discharged that burden. We, therefore, need not go into the cases which are referred to by the Supreme Court in the two decisions cited earlier. These cases do indicate, however, that the transaction must have some trappings of a business nature before it can be considered as an adventure in the nature of trade, such as bulk purchase, advertising for its sale, similar other profitable ventures, no likelihood of retaining the purchased item for one's own use, etc. In the present case, none of these features have been established by the Department.

In the circumstances, the question as refrained is answered in the negative and in favour of the assessee.

There will be no order as to costs.

M.B.A./1557/TReference answered.