SRICHAND GOLCHA v. COMMISSIONER OF INCOME TAX
[Citation -1986-LL-1107]

Citation 1986-LL-1107
Appellant Name SRICHAND GOLCHA
Respondent Name COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 07/11/1986
Assessment Year 1974-75
Judgment View Judgment
Keyword Tags business organisation • individual capacity • individual property • stock-in-trade • capital asset • capital gain
Bot Summary: Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee did not discontinue the business of jewellery in 1926 and that the said jewellery business continued to be carried on after 1926 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Tal Khard emeralds continued to be the stock-in-trade of the jewellery business of the assessee and was not a capital asset 3. According to the Income-tax Officer, these Tal Khard emeralds were the assessee's stock-in-trade and their sales by the assessee had taken place in the ordinary course of business. The Appellate Assistant Commissioner held that the assessee was a regular dealer in Tal Khard emeralds for 40 years after which he had stopped his business. The Tribunal came to the conclusion that the findings of the Appellate Assistant Commissioner that the assessee has ceased to do the business of jewellery in 1926 is not correct on facts and in law. The dispute is whether these Tal Khard emeralds on closure of the business by the assessee in individual capacity formed part of the stock-in-trade of the newly constituted partnership firm or remained the individual property of the assessee. The Tribunal has proceeded to decide the case on the assumption that only the form of business organisation has changed but the capacity in which the assessee was doing the business remains the same, namely, as individual.


JUDGMENT JUDGMENT judgment of court was delivered by V. S. DAVE J.-This reference has been made to this court by Income- tax Appellate Tribunal, Jaipur Bench, vide its order dated February 6, 1978, under section 256(1) of Income-tax Act, 1961 (hereinafterreferred to as "the Act "), after framing following questions for its opinion: " 1. Whether, on facts and in circumstances of case, Tribunal is right in law in holding that assessee did not discontinue business of jewellery in 1926 and that said jewellery business continued to be carried on after 1926? 2. Whether, on facts and in circumstances of case, Tribunal is right in holding that Tal Khard emeralds continued to be stock-in-trade of jewellery business of assessee and was not capital asset? 3. Whether, on facts and in circumstances of case, Tribunal is right in holding that sale of Tal Khard emeralds in 1973 was not realisation of capital asset but sale of stock-in-trade and profit arising from sale was assessable as income from business? " Tribunal referred to aforesaid questions as arising out of its order dated June 24, 1977, in Revenue's appeal for assessment year 1974-75. assessee, Srichand Golcha, was carrying on business of sale, purchase and processing of emeralds and other precious stones. This business he continued in his individual capacity up to year 1926. He thereafter stopped his business as individual, but carried on similar business as partner in partnership firm known as M/s. Dhanroopmal Swaroopchand. He ceased to be partner of this firm also and started similar business as partner in firm, M/s. Gem Stones, Jaipur, wherein he continued to be partner till assessment year 1974-75 for which period this reference has arisen. assessee, when he stopped his business as individual in 1926, had at that time some Tal Khard emeralds. He sold these Tal Khard emeralds in assessment year 1974-75 for sum of Rs, 32,576 and in his returns filed, disclosed it as sale of capital asset. He appended note, " assessee sold old Tal Khard emeralds to following parties... Some were in possession of assessee since long, dealings in which were discontinued. It is sale of capital asset and in case of any capital gain/income arising out of same, it may please be computed and added in assessment ". Income-tax Officer did not accept this stand of assessee and held that assessee had realised his stock-in-trade and, therefore, profit of Rs. 31,576 was his business profit. According to Income-tax Officer, these Tal Khard emeralds were assessee's stock-in-trade and their sales by assessee had taken place in ordinary course of business. assessee preferred appeal and Appellate Assistant Commissioner accepted his appeal holding that Tal Khard emeralds were capital asset, sale of which gave rise to capital gain and profit could be assessed as capital gain. Appellate Assistant Commissioner held that assessee was regular dealer in Tal Khard emeralds for 40 years after which he had stopped his business. He retained stock for all this period during which no activity whatsoever was carried on by him. It was further held that business carried on by assessee as partner of firm was altogether in different capacity. Aggrieved by this order of Appellate Assistant Commissioner, Revenue preferred appeal before Income-tax Appellate Tribunal, which was allowed, vide its order dated June 24, 1977. Tribunal came to conclusion that findings of Appellate Assistant Commissioner that assessee has ceased to do business of jewellery in 1926 is not correct on facts and in law. It held that he has been doing jewellery business of his own as individual proprietor prior to 1926 and since thereafter he has been doing it as partner of various firms. It is not, therefore, capacity in which assessee was doing business which has changed. It is only form of business organisation which has changed. Formerly, assessee had been doing it as partner of firm but capacity in which he was doing business remains same, namely, as individual. It further held that assessee had been doing jewellery business and, therefore, reversed finding of Appellate Assistant Commissioner and restored order of Income-tax Officer. Thereafter, on application by assessee, this reference has been made and questions mentioned above have been referred for our opinion. We have heard Mr. Ranka for assessee and Mr. Surolia for Revenue. It is agreed case between parties that up to 1926, assessee was carrying on business in his individual capacity and that Tal Khard emeralds which have been sold in 1974-75 were in possession of assessee. dispute is whether these Tal Khard emeralds on closure of business by assessee in individual capacity formed part of stock-in-trade of newly constituted partnership firm or remained individual property of assessee. Tribunal has proceeded to decide case on assumption that only form of business organisation has changed but capacity in which assessee was doing business remains same, namely, as individual. In our opinion, Tribunal could not have arrived at this finding unless there was evidence to disclose that Tal Khard emeralds which were held by assessee when he closed his business as individual 40 years ago, were handed over by him to partnership firm of which he became partner subsequently. Under income-tax law, person can carry on business both as individual and also simultaneously as partner in partnership firm. In this respect, it is essential to bear in mind definition of " person " and " person who has substantial interest in company ", and, therefore, while deciding point, it was essential for Tribunal to have looked into evidence, if there was any, as to whether Tal Khard emeralds were stock-in-trade of firm, M/s. Dhanroopmal Swaroopchand, and later on of M/s. Gem Stones. In our opinion, questions referred to us do not arise and cannot, therefore, be answered as main controversy has not been decided on facts by Tribunal in true perspective. We are, therefore, of opinion that this matter should be sent back to Tribunal for decision afresh of Income-tax Appeal No. 627/JP of 1976-77 in light of our observations bearing in mind distinction between words " similar capacity and " similar business ", " capital assets " and " stock-in-trade " and individual capacity " and " as partner in firm Accordingly, reference is decided by saying that questions referred by this court for decision by Tribunal do not really arise out of Tribunal's order for reasons already given and that Tribunal is required to decide appeal afresh with advertence to above observations keeping in view real point for decision in appeal indicated by us. case shall accordingly go back to Tribunal for this purpose. *** SRICHAND GOLCHA v. COMMISSIONER OF INCOME TAX
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