Ramaswami, J.:— In this case the assessment year is 1947-1948 and the accounting year is the financial year ending with 31-3-1947. On 1-3-1947 the assessee was appointed as a grain stockist at Begusarai. The assessee carried on the grain business till December, 1947. He maintained account books which showed that for the period from March to December, 1947 the income from the grain business was Rs. 1,838. On 12-3-1947 the Commissioner of Excise had granted two permits for molasses in the name of the assessee. One permit was for 1400 maunds from Hussainpur Sugar Mills and the other permit was for 4000 maunds from Sasamusa Sugar works. The Income-tax Officer learnt this fact in consequence of the statement made by the Minister of Revenue in the Bihar Legislative Assembly on 13-10-1947. The Minister disclosed in the course of his statement that persons to whom molasses permits had been given had made huge profits.
2. The Income-tax Officer issued a notice upon the assessee under Section 22(2) of the Income-tax Act. The Income-tax Officer also issued a notice under S. 22(4) of the Act requiring the assessee to produce all the accounts maintained for its business. The assessee did not comply with the terms of these notices, but on 15-6-1949 the manager of the Hindu undivided family Bisheshwar Singh appeared before the Income-tax Officer and produced the following letter:
The Income-tax Officer, Monghyr.
Dear Sir,
I did secure two recommendation letters for molasses from the Excise Commissioner's Office, Patna, but I was unable to obtain molasses from the Sugar Mills, I gave both the recommendation letters to Md. Sabir Ali, brother-in-law of Mr. A.F.A Hamid, I.G of Police.
I do not know till to date for what price he sold the molasses, but I learnt as a rumour only that one of the recommendation letters in the name of Hussainpur Sugar Mills was not honoured by the Management.
This is the correct statement of fact, but I must be income taxed simply because I had obtained two recommendation letters for the molasses; to cut the matter short you may assess me on Rs. 5000/-. This I am suggesting because I do not wish to compromise the position of anybody else. It is better to take the brunt personally than to involve others.
BegusaraiYours faithfully
15-6-49Sd/- Bisheshwar Singh”
3. The Income-tax Officer made enquiry and found that there was no Government control over the price of molasses in the market and that the permit holders indulged in black marketing. He also found that the assessee had built a big residential house and a dozen stalls at an estimated cost of forty to fifty thousand rupees. The Income-tax Officer estimated that the assessee had made a net income of Rs. 61,450 from trafficking in the molasses permits. He found the commission on the rice business to be Rs. 1,838. In the result the assessee was held liable to pay tax on a total income of Rs. 63,288. The assessee preferred an appeal to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee took a further appeal to the Appellate Tribunal which held that the profits of the assessee from the molasses permits should be estimated at the rate of Rs. 7 per maund and not at the rate of Rupees 11/12/- per maund as the Income-tax Officer ordered. The Tribunal accordingly reduced the estimated profit from the molasses permits to a sum of Rs. 37,500. As regards the grain business the Tribunal held that the income from 1-3-1947 to 31-3-1947 was Rs. 498. The Tribunal therefore held that the assessee was liable to pay income-tax on a total income of Rs. 37,998. As ordered by the High Court the tribunal has stated a case on the following questions of law:
“(1) whether in the circumstances of the case the assessee, Sri Bisheshwar Singh was liable to be assessed in the year 1947-48? and (2) Whether the profit from molasses permits to the extent of Rs. 37,500 was a casual and non-recurring income within the meaning of Section 4(3)(vii) of the Income-tax Act, and therefore not liable to be taxed in the hands of the assessee?”
4. As regards the first question Mr. Untwalia submitted on behalf of the assessee that the previous year for the grain business was the period from 1-3-1947 to December, 1947 and there was no justification for the Tribunal to hold that the previous year of the assessee corresponded to the period from 1-3-1947 to the close of the financial year. The argument of Mr. Untwalia is based upon S. 2(11)(c) of the Act. Section 2(11)(c) is in the following terms:
“‘Previous year’ means in respect of any separate source of income, profits and gains, where a business, profession or vocation has ??? the year for which assessment is to be made, the period from the date of the setting, up of the business, profession or vocation to-the 31st of March, next following or to the last day of the period determined under sub-clause (b), or, if the accounts of the assessee are made up to some other date than the 31st of March and the case is not one for which a period has been determined by the Central Board of Revenue under sub-cl. (b), then at the option of the assessee, the period from the date of the setting up of the business, profession or vocation to such other date….”
5. The contention of Mr. Untwalia is that the account of the assessee for the grain business was kept from 1-3-1947 till December 1947 and the-previous year of the assessee must be taken to correspond to that period. I am unable to accept this argument as correct. Under S. 2(11)(c) of the Act it was open to the Income-tax Department to treat the period from the date of the setting up of the business to the 31st day of March, next following as the previous year for the business of the assessee. It was also open, to the assessee to exercise his option and to say that the period from 1-3-1947 till December, 1947 should be treated as the previous year for his business. But there is no material to indicate that the assessee exercised his option. The assessee did not make any statement before the-Income-tax Officer either orally or in writing that the previous year for the business should be from. March to December, 1947. In the absence of any such statement of the assessee it is difficult to hold that there was any exercise of option on his part.
6. It was argued by Mr. Untwalia that the mere-production of accounts for the period from March, to December, 1947 would be tantamount to exercise of option on the assessee's part. I do not, think this argument is correct. Apart from the production of accounts the assessee was bound to make some statement before the Income-tax authorities to show that he had applied his mind and that he had exercised the option given to him under S. 2(11)(c). In the present case there is-nothing to indicate that the assessee had exercised any option and the income-tax authorities were therefore right in treating the period from 1-3-1947, to 31-3-1947, as the ‘previous year’ for the business of the assessee.
7. As regards the second question Mr. R.J Bahadur took the objection that the question of law was not taken on behalf of the assessee before the Tribunal and the question has not been discussed or answered by the Tribunal in its appellate order. Mr. Bahadur put forward the contention that the question was not argued before-the Tribunal and the Tribunal had no opportunity to discuss the point or to pronounce upon its validity. Counsel said therefore that the question of law did not ‘arise out of the order’ of the Tribunal within the meaning of S. 66(1) and Section 66(2) of the Income-tax Act. In support of his submission counsel referred to — ‘Kamal Singh v. Commr. of Income-Tax’, AIR 1954 Pat 540 (A), in which a Bench of this Court observed that the question of law which the assessee seeks to refer must be a question of law which has actually been raised before the Tribunal or actually dealt with by it in its order.
8. On behalf on the assessee Mr. Untwalia however pointed out that the order under S. 66(2) was passed by a Bench of this Court after hearing counsel for both the parties and it was not open to this Bench to say that the order passed by the previous Bench was erroneous and ought to be overruled.
9. In support of his submission counsel referred to the decision of the Calcutta High Court in — ‘Chainrup Sampatram v. Commr. of Income-Tax, West Bengal’, 1951 20 ITR 484 (Cal) (B).
10. In my opinion the contention of Mr. Untwalia has great force. It is manifest that the question of law does not arise out of the order of the Tribunal within the meaning of S. 66(1) or 66(2), of the Act and the Bench of the High Court ought not to have called for a statement of the case on this question. But the assessee has succeeded in persuading the previous Bench to call for a statement. The question is whether at this stage we should say that the reference should never have been called for under S. 66(2). That would mean, in substance, that we overrule the order passed by the previous Bench. As the matter stands I think that the question must be dealt with and answered on its merit and the reference cannot now be thrown out on the ground that the question does not arise out of the Tribunal's order.
11. The question is whether the profit from molasses permits to the extent of Rs. 37,500 was legally liable to be taxed in the hands of the assessee. Upon this question counsel for the assessed put forward the argument that profit from molasses permits was not profit arising from business, that at any rate the profit was of a casual and non-recurring character and so was not liable to be taxed. The argument must be examined with reference to Section 10 of the Section 2(4) and Section 4(3) of the Income-Tax Act. Section 10 provides that the tax shall be payable by an assessee under the head ‘profits and gains of business…… in respect of the profits or gains of any business…carried on by him’. The term ‘business’ is defined in S. 2(4) of the Act. Section 2(4) states: “business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.” Reading S. 2(4) in the context of S. 10, it is clear that not only income derived from trade but income derived from any adventure in the nature of trade, is also treated as business income and is therefore taxable under S. 10. Section 4 deals with the total income of an assessee and enumerates the categories to be included or excluded. Section 4(3) provides for a number of exceptions, one of which is contained in Cl. (VII). That clause, read with the opening words of Sub-s. (3) enacts that:
“any receipts not being receipts arising from business which are of a casual and non-recurring nature…… shall not be included in total them.”
12. This clause therefore, provides for the exclusion of receipts of a casual and non-recurring nature, but at the same time enacts that if such receipts are receipts from business they will be treated as taxable income. The clause therefore, provides by implication that any casual receipt from trade or from an adventure in the nature of trade should be regarded as income and should be assessable to tax. The question at issue in this case is, therefore, whether the profits made by the assessee from the sale of molasses permits to the extent of Rs. 37,500 are receipts from business, that is to say, are receipts from an adventure in the nature of trade.
13. What are the tests for determining whether a transaction is to be taken as an adventure in the nature of trade? It is not possible to give a categorical answer to this question. The answer depends very much upon the facts and circumstances of each case. If a person purchases a commodity with the intention of reselling it at a profit, the transaction would possibly be in the nature of a treading transaction. As Lord President Clyde observed in the case of — ‘Rutledge v. Commr. of Inland Revenue’, (1929) 14 Tax Cas 490 (C), when the assessee makes a purchase ‘for no purpose except that of resale at a profit’ an intention to trade can properly be inferred.
14. It is true that the intention of reselling at a profit is not a conclusive test but it is certainly an important element to be taken into consideration. Another test is to find out whether the bulk of commodity purchased is so much that in order to sell it the purchaser must have necessarily recourse to some organised activity of a treading kind (see — ‘Commrs. of Inland Revenue v. Livingstone’, (1926) 11 Tax Cas 538 at p. 542 (D)). Again another test adopted is this: What is the character of goods bought or sold? Is it one that gives aesthetic pleasure or a pride of possession; or is the character of the goods such that they must needs be sold and they cannot be possessed or enjoyed by the assessee: see — ‘Commrs. of Inland Revenue v. Fraser’, (1942) 24 Tax Cas 498 (E). All these matters are important and must be considered; but the question cannot be finally determined upon any single test.
15. In the present case the Tribunal has found that the assessee obtained permits on 12-3-1947 and that he sold the permits to Mr. Sabir Ali brother-in law of Mr. A.F.A Hamid, Inspector General of Police, on or before 31-3-1947. It is clear that there was definite intention on the part of the assessee to recall the permits and to make immediate profit from the transaction. It has also been found by the Tribunal that both the permits were issued for a total quantity of 5400 maunds of molasses. The quantity of molasses covered by the two permits is so large that it is reasonable to attribute a commercial intention to the assessee. The Tribunal has also found that Mr. Sabir Ali exploited the permits in a business like manner, that he took delivery of the molasses through gatepasses and that he actually sold the molasses in the market.
16. The Tribunal has referred to the fact that the Minister of Excise has stated in the Bihar Legislative Assembly that the persons to whom the molasses permits were given had made huge profits. The Tribunal has also found that “trafficking in permits was common”. All these facts suggest that there was an organised exploiting of the molasses permits, that there was regular operation and scheme of profits making on the basis of the molasses permits. It is clear that the transaction of the assessee constituted an activity in the nature of trade and the profit derived by the assessee from the transaction is therefore liable to be taxed by the income tax department. Mr. Untwalia on behalf of the assessee stressed the point that the assessee had taken part only in an isolated transaction of sale of permits to Mr. Sabir Ali. But an isolated transaction is sufficient in itself to constitute an adventure in the nature of trade. It is not necessary for the department to prove a course of multiple dealings on the part of the assessee. To quote the language of Lord President Clyde in — ‘Balgownie Land Trust Ltd. v. Commr. of Inland Revenue, (1929) 14 Tax Cases 684’ at p. 691
“a single plunge may be enough provided it is shown to the satisfaction of the Court that the plunge is made in the waters of trade.”
17. In the present case I am satisfied from the circumstances proved that the assessee had obtained profit from an adventure in the nature of trade and that the amount of Rs. 37,500 was rightly taxed in his hands by the Income-tax authorities.
18. An argument was presented by Mr. Untwalia on behalf of the assessee that the profits made from the molasses permits were of a casual and non-recurring nature and so the exemption provided in S. 4(3)(vii) of the Act would be applicable. I have already said in the earlier part of this judgment that the exemption provided by S. 4(3)(vii) does not apply to receipts arising from business. In other words, the phrase “not being receipts arising from business” in S. 4(3)(vii) is an exemption from an exemption. I have already held, for the reasons I have given, that the receipts from the sale of molasses permits are receipts arising from the course of business of the assessee. If this conclusion is right there is no question of applying the exemption of S. 4(3)(vii). I shall, however, assume in favour of the assessee that my conclusion on this point is not correct. Even so, the exemption of S. 4(3)(vii) cannot be conferred upon the assessee for the facts stated in the case do not suggest that the receipt from the sale of molasses permits was a receipt of a casual nature in the sense used in the Income Tax Act. The expression “Casual” is defined in the Oxford Dictionary as follows:
“1. Subject to, depending on, or produced by chance; accidental, fortuitous.
2. Occurring or coming at uncertain times; not to be calculated, uncertain, unsettled.
3. Subject to chance or accident.”
19. In the present case the assessee obtained profits by sale of the molasses permits which were known and anticipated and worked for by the assessee. The assessee did not obtain the profits in an accidental or fortuitous manner, and it is therefore impossible to accept the argument of Mr. Untwalia that the consideration paid by Mr. Sabir Ali to the assessee was a receipt of a casual nature. A similar view has been taken as to the construction of S. 4(3)(vii) in — ‘Commr. of Income-tax, Madras v. V.P Rao’, AIR 1951 Mad 1 (G). In my opinion the argument of Mr. Untwalia on this point must be rejected as unsound. For the reasons I have endeavoured to state I hold that both the questions referred to the High Court must be answered against the assessee and in favour of the Income-tax Department. The assessee must pay the cost of this reference; hearing fee Rs. 250/-.
Kamla Sahai, J.:— I agree.
V.R.B
20. Answer accordingly.