RAJA BAHADUR KAMAKHYA NARAIN SINGH vs. COMMISSIONER OF INCOME.TAX, BIHAR AND ORISSA

CIVIL APPEAL No. 481/1966Supreme Court[1970] 2 S.C.R. 16301 September 1969Bench: 2 JudgesAuthor: J.M. SHELAT, C.A. VAIDYIALINGAM14 pages
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What were the facts?

The assessee, Raja Bahadur Kamakhya Narain Singh, inherited a vast estate including Government securities worth Rs. 40 lacs. In 1938-39, he sold these securities at a profit. Subsequently, he opened a bank account for share market transactions. In 1939, he purchased shares worth Rs. 34.14 lacs and sold them at a profit in 1939, 1940, and 1941, which were taxed. Between June and November 1940, he purchased gold for Rs. 28,47,380/- from share sale proceeds, selling it at a profit in the accounting periods relevant to assessment years 1945-46 and 1946-47. He also purchased and resold Victory Bonds within two months. The Income Tax Officer taxed profits from gold and Karanpura shares for 1945-46 and 1946-47. The Tribunal initially held profits from shares were not taxable but later, considering the overall pattern from 1938, taxed profits from gold and Karanpura shares. The High Court upheld the Tribunal's view, deeming the findings as facts.

What did the Supreme Court hold?

The Supreme Court held that the High Court was wrong in treating the Tribunal's decision as a finding of fact and refusing to interfere. The question of whether a transaction is an adventure in the nature of trade is a mixed question of law and fact, allowing for court review. On the facts, the Court found that the Tribunal's conclusion that the transactions in gold and shares were in the nature of trading was not justified. The purchase of gold was consistent with war-time nervousness, and its sale in 1944, after the war's fortunes turned, indicated a desire to reinvest in income-bearing securities rather than trade. The name of the bank account was not determinative of trade. The sale of Victory Bonds was for a specific purpose and not trade. The purchase of Karanpura shares was with the intent to gain control of the company, and when that failed, their sale was a realization of a failed investment, not trade. The Court allowed the appeals, holding that the questions referred to the High Court should have been answered in the assessee's favour.

What were the issues?

1. Whether the surplus receipt of Rs. 13,43,469/- from the sale of gold is assessable as income for assessment year 1945-46 under Section 4(3)(vii) of the Income Tax Act, 1922, or if it was a realization of investment. 2. Whether the surplus receipt of Rs. 33,481/- from the sale of gold and Rs. 88,522/- from the sale of certain shares are assessable as income for assessment year 1946-47. Assessee's Contentions: The assessee argued that the transactions in gold and shares were not adventures in the nature of trade but rather realizations of investment. He contended that his purchase of gold was due to nervousness about the war, and its sale in 1944 was when confidence was restored. The name of the bank account was merely to segregate funds. The sale of Victory Bonds was to show a war contribution, and the Karanpura shares were purchased with the intent to gain control of the company's management, which failed, leading to their sale. Revenue's Contentions: The revenue contended that the pattern of transactions from 1938 onwards indicated trading activities. The Tribunal's findings, concurred with by the High Court, were that the profits were rightly taxed as they constituted adventures in the nature of trade.

Which sections of the Income-tax Act were involved?

Section 4(3)(vii),Section 66(2)

AI-generated summary — verify with the full judgment below

A RAJA BAHADUR KAMAKHYA NARAIN SINGH B c D E F G H v. COMMISSIONER OF INCOME.TAX, BIHAR AND ORISSA September 1, 1969 (J. NI. SHELAT AND C. A. VAIDJALINGAl>I, JJ.] Capitlil or Jnco1ne-Purchase and sale of gold and shares-Principles far deciding whether profit on transactinns is revenue or capital receipl- Question is of 1nixed fact and law-High Court in reference not bctrred jru1n going into findi11gs of Tribunal 011 such question on the ground th(lt it iJ one of fact and therefore final.

The assessec inherited a vast cst:.1te c·on'iisting of ngricl1\tural and othei land as also Government sc:urities worth Rs. 40 Ines. In 1937 he attained majority and control of the estate from the Cvurt of Wurds. In the account· ing year 1938-39 he sold some of those smtritics at a profit. Thereafter he opened on account i11 the Imperial llnnk of India i11 the name of his wile nnd called it "nccornlt of 48 lacs l1011ting in the shat'c market.'' In Sopt,m- ber 1939 he purchmd shares worth Rs. 34.14 Ines out of the said fund but sold them, •A•in at a profit in the venrs 19;9, 1940 ond 1941. The profits on the said snles of share• were •uhjectcd to tax by the I ncomc-i.1x Offi

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