Judgment

SHELAT, J.:- These two appeals, under special leave, arise from two References to the High Court of Patna under Section 66 (2) of the Income-tax Act, 1922 and relate to the assessment years 1945-46 and 1946-47. In the first appeal, the question arising for determination is whether, on the facts and circumstances of the case, the surplus receipt of Rs. 13,43,469/-. realised as a result of the sale of gold is assessable as income, or profits or gains for the assessment year 1945-46 under Section 4 (3) (vii) of the Act. In the second appeal, two questions arise for determination; one relates to the surplus receipt of Rs. 33,481/- arising out of the sale of some more gold, and the second relates to the receipt of Rs. 88,522/- realised by the assessee as a result of sale of certain shares. All the three questions raise the common problem whether the said transactions in gold and shares were by way of realisation of investment or were adventures in the nature of trade or business.

2. The assessee was at all material times a landholder deriving large income from agriculture, royalties of minerals and income from forests forming part of his estate. Prior to l937 when he was a minor, his estate was under the management of a Court of Wards. On attaining majority, the estate, which included Government securities of the value of about Rs. 40 lacs was handed over to him on August, 19, 1937. During the account year 1938-39 he sold the whole lot of these securities and realised Rs. 44,25,088/- the sale thus resulting in an excess of Rs. 4,55,305/-. This excess amount was assessed as profit by the income-tax officer for the assessment year 1939-40. But on appeal against the assessment order, the Appellate Tribunal set aside that order on a finding that the said sale was by way of a change in investment, and therefore, was not a transaction in the nature of trade or business. On March 23, 1939, the assessee opened an account in the Imperial Bank of India initially with Rs. 46 lacs, which included the said sale proceeds of Rs. 44 lacs and odd and to which on March 27, 1939 he added Rs. 2.60 lacs. The account was opened in the name of his wife and was called "Account of Rs. 48 lacs floating in the share market". In September 1939, the assessee purchased shares and debentures of the value of Rs. 34.14 lacs from out of the funds in the said account. He, however, sold certain shares for Rs. 5,75,723/- in October 1939, and then the rest of them in 1940 and 1941 realising Rs. 29,58,677/and Rs. 64,201/- respectively. The first sale fetched a profit of Rs. 1,17,064/-, the second a profit of Rs. 25,133/- and the third a loss of Rs. 1,642/- The income-tax officer brought to tax the two surpluses in the assessments for the assessment years 1940-41 and 1941-42. But the department was again unsuccessful as the Tribunal once again held, on the strength of the correspondence which had passed between the assessee, his bankers and the brokers in Calcutta, that the only possible conclusion emerging from that correspondence was that the assessee s intention was not to deal in shares and debentures and that the said transactions were a mere change in investment carried out of a single scheme of earning a better yield from investments. The Tribunal s orders in respect of these assessments for the assessment years 1939-40 to l941-42 were made part of the Statement of Case filed by the Tribunal before the High Court in the present References.

3. Between June 28, 1940 and November 9, 1940 the assessee purchased 68109 tolas of gold for Rupees 28.47,380 /- from out of the sale proceeds of the said shares. The gold so purchased was kept in his family vaults at Padma, the seat of his estate, for nearly 4 years. Between October 9, 1944 and October 20, 1944, he disposed of the bulk of the gold i.e., 55494 tolas, for Rs. 36.80,174/- the sale resulting in a surplus of Rs. 13,43,469/-, which is the subject-matter of the first appeal. The remaining quantity of gold was so