SHRI TUSHAR T.TANNA and ORS. vs. C.I.T. BOMBAY.

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

INCOME INCOME INCOME TAX REFERENCE NO. 719 OF 1987 TAX REFERENCE NO. 719 OF 1987 TAX REFERENCE NO. 719 OF 1987

Tushar Tanna

.. Applicant.

vs.

The Commissioner of Income-tax.

.. Respondent.

WITH WITH WITH . . .

INCOME INCOME INCOME TAX REFERENCE NO. 62 OF 1990. TAX REFERENCE NO. 62 OF 1990. TAX REFERENCE NO. 62 OF 1990.

Shri Deepak Tanna.

.. Applicant.

vs.

The Commissioner of Income-tax. .. Respondent.

WITH

INCOME INCOME INCOME TAX REFERENCE NO. 38 OF 1992. TAX REFERENCE NO. 38 OF 1992. TAX REFERENCE NO. 38 OF 1992.

Dipak Jyoti & Arati Trust

.. Applicant.

vs.

The Commissioner of Income-tax. .. Respondent.

Shri P.J. Pardiwala withB.D. Damodar i/b Kanga &

Co. for the Applicant.

Shri Ashok Kotangale for the respondents.

CORAM CORAM CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ.

DATED DATED DATED : 13.10.2005. : 13.10.2005. : 13.10.2005.

ORAL ORAL ORAL JUDGMENT: JUDGMENT: JUDGMENT: (Per V.C. Daga,J.) (Per V.C. Daga,J.) (Per V.C. Daga,J.)

The sole question common to all the

references

is based on identical facts, arising out

common order passed by the Income Tax

Appellate

Tribunal, Mumbai, (‘The Tribunal’ for short) for the

A.Y.

1980-81,

in relation to the

assessees,

who

happened

members of the same

family.

The

question referred by the Tribunal for our opinion

reads as under: CNR No : HCBM020001281987 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(2)

Whether on the facts and in the

circumstances of the case, the Appellate

Authority was justified in holding that the

profit earned on sale of gold bonds arose

from an adventure in the nature of trade and

was, therefore, liable to tax as Business

Income.?

The The The Facts: Facts: Facts:

The facts in these references revolve around

transaction

which is practically identical in

case

each

assessee.

The factual matrix of which

not

dispute.

The consolidated

facts

narrated

hereafter, taken from the statement of facts

forwarded by the Tribunal, are as under:

Shri Tushar N. Tanna, HUF on 30.11.1978 into

contract for the

purchase

National

Defence

Gold Bonds 1980 (‘NDG

Bond’

for

short)

worth

1300 gms of Gold at the rate

Rs.

640/-

per

10 gms.

The delivery of NDG Bonds

was,

however,

not

taken

for quite some time.

the

meantime,

the

price of NDG Bonds had shown

upward

trend

in the market.

Each of the five assessees in

the circumstances, thought it better to opt for

purchase of NDG Bonds.

The 2% NDG Bonds which were not exempt from

the

estate

duty,

were delivered to

Andhra

Bank,

which

was

the banker of M/s S.D.

Javeri,

broker Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(3)

through

whom

the gold bonds were purchased by

the

assessees.

Here it will be necessary to point

out

that except in the case of Shri TusharT.

Tanna HUF,

where

these NDG Bonds were delivered by the

Andhra

Bank to Syndicate Bank, i.e.

the assessee’s banker,

all other cases the gold bonds remained with the

Andhra

Bank.

The date of delivery of

NDG

Bonds,

which

was said to be the said date of payment,

was

24.1.1979 in case of Shri Tushar T. Tanna HUF and

4.1.1980 in the case of other four assessees.

These gold bonds were sold on 4.1.1980 at

the

rate

of Rs.

1500/- per 10 gms.in the case

Shri

Tushar

Tanna HUF and on 8.1.1980

the

case

the

other four assessees at the

rate

Rs.1550/-

per

10 gms.

There was thus a profit

the

sale

these gold bonds, in the sum

Rs.

1,11,800/-

the case of Shri Tushar

Tanna,

(HUF), Rs.

1,36,000 each in the case of Shri Tushar

Tanna-individual, Shri Tulsidas J.

Tanna,

and

Rs. 2,72,000/- each; in the cases of Shri

Laxmikant J. Tann and Shri K.J. Tanna.

It was claimed before the Income Tax Officer

that

the

profit on sale of these gold bonds

would

fall

under

the

head

Capital

Gains

and

was,

therefore,

exempt

from tax in view

Government

Notification No. F.4 (29)-W & M/65 dated October Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(4)

19,1965 (58 ITR Statutes 61).

The Income Tax Officer, however, held that

the

purchase and sale of NDG Bonds was an adventure

the trade

and,

therefore,

profit

arising

from

the purchase and sale of these

bonds

amounted to business income.

He, therefore, did not

accept

the

assessee’s

claim of exemption

the

profits

earned on the sale of these gold bonds

and

subjected it to tax along with the other incomes in

the assessment order.

When the matter came up before the Appellate

Tribunal in appeal at the instance of the assessees,

the

appellate

Tribunal

agreed with

the

findings

recorded

the

Assessing

Officer

The

findings

recorded by the authorities below can be summarised

as under:

"The NDGB were purchased on 24.12.1979 in

the case of Tushar T. Tanna HUF and on 4.1.1980 in

the case other four four assessees.

That the aforesaid NDGB were due for

maturity on 27.10.1980.

That considering short life of the bond at

the time of purchase they could not have purchased Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(5)

with a view to make investment.

The NDGB according to the Scheme itself

provided

for a return of only Rs.

2 per annum

per

gm.

which

was

ridiculous

low

return

investment

and

even lower than the

return

savings

bank account interest from where the

money

is said to have been diverted for the purposes of

making the purchases.

Considering all this and looking to the

totality of the facts and circumstances purchase and

sale of NGDB under consideration in the case of each

of the five assessees was an adventure in the nature

of trade.

The profit arising from this adventure was,

therefore profit from business within the meaning of

business as laid down under section 2(13) of the

Income-Tax Act."

The aforesaid findings are the subject

matter

of debate whether purchase and sale of

NDGB

were purchased as a capital investment or adventure

in the nature of trade.

Submissions Submissions Submissions : : :

Shri P.J. Pardiwalla learned Counsel Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(6)

appearing

for

the all the assessees urged that

deciding

the character of such transactions several

factors

which

are judicially recognised

over

the

years

are

required to be taken into account

while

deciding

the of the transaction.

his

submission,

all these aspects were

taken

into

account and applied to the facts of the case at hand

by the Tribunal as such the view taken by the

Tribunal needs to be respected .

Shri Pardiwalla submits that from the fact

that

the

NDG Bonds were sold by all the

assessees

within

a short span of time cannot be said to be

sufficient circumstance for the purpose of coming to

the conclusion that the transactions in question

were adventure in the nature of trade.

Shri Pardiwalla, learned Counsel to support

the

order

the

Tribunal

relied

upon

various

decisions

the

Supreme Court and

various

High

Courts,

including

that

of this

Court

which

are

consistent

with

the

submissions

which

has

canvassed.

In all fairness, he also brought to our

notice 1 or 2 judgments which are running counter

eto this line of submissions advanced by him.

10.

Learned Counsel appearing for the Revenue Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(7)

could not do well in replying the submissions except

reiterating the findings recorded by authorities

below, which were in favour of the Revenue.

In order to unlock the questions involved

herein, it is necessary to look into the various

decisions rendered by the Apex Court.

11.

The judgment of the Supreme Court in the

case

Venkatswami Naidu and Co.

vs.

CIT G.

Venkatswami Naidu and Co.

vs.

CIT G.

Venkatswami Naidu and Co.

vs.

CIT

(1959) (1959) (1959)

ITR

594

ITR

594

ITR

594

laid down

certain

tests

for

determining

whether

in a given case a

transaction

can be looked upon as an adventure in the nature of

trade. It said (Head Note):

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 i; the nature and

quantity of the commodity purchased and

resold; any act subsequent to improve the

quality of the commodity purchased and

thereby make it more readily resaleable;

any act prior to the purchase showing a

design or purchase;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 in the above case also

laid

down

that, in a given case, even an

isolated

transaction

can

satisfy

the

description

adventure

in the nature of trade provided at

least Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(8)

some of the essential features of trade are present

in the isolated or single transaction.

12.

The next judgment of the Supreme Court in

line

the

decision in the case of

Saroj

Kumar

Mazumdar v.

CIT (1959) 37 ITR 242, wherein majority

judgment

held

that

where

transaction

was

isolated or single transaction bereft of the line of

business

the

assessee, the onus

lies

the

Department

prove

that

transaction

was

adventure

the

nature of trade

with

the

sole

intention of selling it later at a profit.

Applying

this

test,

Apex

Court held that at

the

time into

the

agreement with the

society

the

appellant

was doing good business, as was shown

the

large amounts on which he was assessed to

tax,

was

not

unnatural for him to look

forward

continue

his business in as prosperous a way as

had

been

doing

in the recent past, and

raise

sufficient

funds to build his own residential house

to construct a workshop for his own

engineering

business;

and therefore, the probability that

the

site

might appreciate in value did not

necessarily

lend

itself

to the inference that the

transaction

was

venture

of trade, as distinguished

from

capital

investment and that the transaction was not

adventure in the nature of trade and the

amount

was not assessable to tax under section IO of the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(9)

Income-tax Act.

13.

The third judgment of the Supreme Court in

line

the

judgment

in the case

Janki

Ram

Bahadur Ram vs. CIT, (1965) 57 ITR 21, whrein the

Supreme Court observed as under:

No useful purpose would be served by

entering upon a detailed analysis and review

of the observations made in the light of the

relevant facts, for no single fact has

decisive significance, and the question

whether a transaction is an adventure in the

trade must depend upon the collective effect

of all the relevant materials brought on the

record."

The Supreme Court in this case made a

distinction

between

transactions

commercial

commodities

and

transactions on purchase

land

distinguishing

the transactions on purchase of land

from the cases dealing with commercial commodities.

It was observed thus:

But a transaction of purchase of

land cannot be assumed without more to be a

venture in the nature of trade:

24.

The Supreme Court also emphasised that (at

page 26)"

............. a profit motive in

entering into a transaction is not decisive, Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(10)

for an accretion to capital does not become

taxable income, merely because an asset was

acquired in the expectation that it may be

sold at profit." In Raja Bahadur Kamakhya

Narain Singh v. CIT (1970) 77 ITR 253, the

Supreme Court again reiterated that ( at

page 262): " Where a person in selling his

investment realises an enhanced price, the

excess over his purchase price is not profit

assessable to tax."

It was observed:

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 treading

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 then 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."

Khan

Bahaur

Ahmed Alladin and

sons

vs.

CIT

(1968) 68 ITR 573, the Supreme Court reiterated (at

page 581): Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(11)

It is not possible to evolve any

legal test or formula which can be applied

in determining whether the transaction is in

an adventure in the nature of trade or not.

The answer to the question must necessarily

depend in each case on the total impression

and effect of all the relevant factors and

circumstances proved therein and which

determine the character of transaction."

14.

Shri

Pardiwala also referred to judgments

various

other

High

courts including that

the

Madras

and Kerala High Courts.

In the case of

CIT

vs.

Bhandari & Co.

(1985) 152 ITR 687, the Madras

High

Court was dealing with the case where

assesee

had

declared loss in purchase and sale of

National

Defence

Remittance

Certificates.

The I.T.O.

had

held

that the loss in that case arising out of sale

the certificates could only be treated as having

arisen

out

of the transfer of a long-term

capital

asset.

The C.I.T.( A) agreed with the view of

the

ITO.

The Tribunal, however, held that purchase and

sale

the

certificates

were

not

solitary

transactions

and that the sale and purchase of

the

certificates

having

occurred

during

the

normal

course

of the assessee’s business, the loss

should

treated

a business

loss.

Reversing

this

finding

reference, the Madras High

Court

held

that

the

assessee had purchased

the

certificates

from

different parties and sold them later to other

parties

could not by itself establish that it was a

line of business that was carried on by the assessee Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(12)

apart from its usual business import and export.

15.

Further sec. 2(44) inserted in the Act by

the

Finance Act of 1966, with effect from 1st April

1966,

which

excludes the certificates in

question

from

the

purview

short

term

capital

asset.

Consequently,

the loss arising out of the

transfer

of certificates was taken to be the loss arising out

of the sale of long-term capital assets that is how,

the Madras High Court refused to treat it to be a

business loss.

16.

The Kerala High Court in the case of Michael

Kallivayalil

vs.

CIT (1976) 102 ITR

102

was

dealing

with an assessee who was owning 1000

acres

land

and derived income by owning and

managing

estates.

In 1958, he entered into an agreement

buy

575 acres of land and borrowed money for making

the

purchase.

Subsequently, he sold 225 acres

land out of it and made a profit.

The tribunal held

that

the sale transaction amounted to an

adventure

the

nature of trade because:

(i) the

assessee

had

borrowed money for purchase (ii) he intended to

resell the land at a profit and (iii) at the time of

making

the

sale

the assessee was

under

dire

necessity

sell.

On reference the

Kerala

High

Court

held

that the Tribunal was not justified

holding

that

the sale of the land by the

assessee Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(13)

represented

adventure in the nature

trade.

The

High Court held that the fact that the assessee

had

borrowed money for purchasing the land or

that

intended

resell

profit

would

not

necessarily

mean

that

the

transaction

was

adventure

in the nature of trade.

The assessee who

had

bought land was an estate owner who already the

owner

of the thousand acres of land and was

making

his

living

by managing estates.

He never into the transaction of purchase of land or estates,

as such it was held that income shown could not be

said to be business income.

17.

Shri Pardiwalas also relied upon judgments

this

Court in the case of Ashok Kumar Jalan

CIT

(1991)

187

ITR 316;

CIT vs.

Dhable,

Bobde

Parose,

Kale, Lute and Choudhari (1993) 202 ITR 98;

CIT vs. Mahavirprasad R.MoraRKA (1992) 193 itr 530,

to support his contentions.

In CIT vs. Asian Dry Dock Co. (1977) 108

ITR

822,

this

Court

had also

observed

that

determining whether a transaction is an adventure in

the of trade it is the total effect of

all

the

facts

and

circumstances

that

have

considered.

The

same

principles

have

been

reiterated

this

case in the case

CIT

vs.

Radheshyam R. Morarka (1981) 127 ITR 111 anf in CIT Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(14)

v. V.A. Trivedi (1988) 172 ITR 95.

18.

Shri Pardiwalla, as

already

stated

hereinabove, brought to our notice one more judgment

of this Court in the case of Tribhuvandas Vallabhdas

vs.

CIT,

Bombay South, (1966)41 ITR 518,

wherein

the

assessee

HUF

had carried on the

business

commission

agency

and

money lending but

did

not

carry

on business of its on account.

purchased

111

silver bars out of which 5 were used for making

utensils and after 7/8 years, remaining were sold on

profits.

Dealing

with this

transaction,

the

Division

Bench of this Court held that the purchase

silver bars was not with the intention of making

investment

and the sale of the bars was not for the

purpose

of any need or under pressure.

Transaction

purchase and subsequent sale at profit raised

very

strong presumption that it was an adventure in

the of trade.

Further as the purchase

was

made

at the beginning of the war which was expected

cause a rise in the price of silver and sale was

effected at the time when event had come to an end.,

was cl,ear that the object of purchase by him

seems to be to take adventage of an opportunity that

had

occurred to enter into a transaction and make a

profit

out of it, and the profits from resale

were

right held to be income and assessable as such to

income tax. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(15)

19.

Having taken survey of various cases cited

the

Bar, in our view the

following

principles

emerge to find out whether or not the transaction in

question is an adventure in the nature of trade:

(i).

No principle can be laid in deciding whether

person is indulging in business in the nature of

trade.

(ii).

Whether transaction is isolated one or forms

part of series of transactions showing transaction

to be in the nature of adventure in trade.

(iii).

The fact that the property was sold within

short

time

itself

does

not

indicate

that

transaction was in the nature of adventure in trade.

(iv).

Property was purchased with intention to

investment and not in adventure in the nature of

trade.

(v).

It is not a case on merely on facts

and circumstances of the case. To consider their

distinctive character in each case. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(16)

Consideration: Consideration: Consideration:

21.

Considering the aforesaid parameters culled

out

from various cases, let us turn to the facts of

case

hand which is little close to the case

Ashok

Kumar Jalan.

(cited supra), Let us find

out

facts of that case.

In that case, Ashok Kumar Jalan

had

purchased the bonds on 3rd April 1980 and

were

sold

only

in October 1980.

He made profit of

Rs.

33,500/-

and claimed that it was not taxable.

The

Income

tax

Officer

brought

the

amount

Rs.

33,500/-

to tax as income from an adventure in

the trade.

This finding was upheld

the

Appellate

Assistant Commissioner and the

Tribunal.

reference, the High Court held that there was no

material

establish that the only motive of

the

assessee

in purchasing the bond was to sell them at

profit

a later date.

The assessee

had

not

purchased

very large quantities.

The assessee

had

the

means to pay for the bonds and in fact he

paid

for

them.

It was, therefore,held that

transaction

purchase

and sale of NDGB did not amount to

adventure in the nature of trade and, therefore, the

amount of Rs. 33,500/- was not taxable as income

from business.

. Having noticed various cases and having Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

(17)

taken

survey

divergent

views, it

not

dispute that the NDG Bonds which were purchased were

sold

by the assessees in a very short span of time.

The transaction in question involved in each case is

isolated one and did not form part of series

transaction.

None of the transations are from

the

line of business persued by each assessee.

Tulsidas

Tanna into contract dated 15.5.1979,

took

delivery

bonds

4.1.1980

and

sold

8.1.1980 making profit of Rs.36,000/- on the sale of

gold

bonds.

The transaction in

question

reveals

that

the payment was made and delivery of bonds was

taken after six monthss though they were sold within

days

from the date of delivery but

that

itself

cannot

ground to hold that the

asessee

has

indulged

the

transaction

the advnture.

Similar

are

the facts of the

case

Kalyanji

Tanna and Lamikant Tanna whereas the

case

of Shri Tushar Tanna (HUF) is on a better footing so

far as admitted fact of showing purchase of bonds on

30.11.1978

whereas delivery was taken on 24.12.1979

that

almost after one year whereas sale

4.1.1980.

Initially,

intention appears to

investment

because in some cases purchase price was

paid

almost after one year .

However, delivery was

taken

after

a period of one year.

Though,

after

taking

delivery

within a short span of

4/5

days,

bonds were sold. The fact that the bonds were sold Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29

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within

short

time,

does

not

indicate

that

transaction

was in the nature of trade.

There does

not

appear

be any material to show

that

only

motive

was to show that bonds were sold at a

later

date.

Purchase of bonds was not in much

quantity.

such, there is no material to conclude that

the

transaction in question was an adventure in the

nature of trade.

In the circumstances, question refered for

our opinion is answered in favour of the assessee

and against the revenue.

(J.P. (J.P. (J.P. DEVADHAR,J.) DEVADHAR,J.) DEVADHAR,J.)

(V.C.DAGA,J.) (V.C.DAGA,J.) (V.C.DAGA,J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 08:03:29 Powered by TCPDF (www.tcpdf.org)