1982 PLP (Trib (PTD)

ABRAR HUSSAIN NAQVI (MEMBER). In this appeal only one question is involved namely as to whether the income derived from Satta in cotton is assessable to income‑tax or not.

2. The assessee earned profit to the tune of Rs. 99,850 in this assessment year out of speculation transactions in cotton Satta. The assessee claimed this income as exempt on the ground that it was a casual and non‑recurring receipt and therefore was exempt under section 4 (3) (vii) of the Income‑tax Act. The I. T. O. disallowed the claim on the ground that it was a business income and was not of casual and non‑recurring nature. The appeal of the assessee having been dismissed by the A. A. C. he has come up in appeal before us.

3. Section 4 (3) (vii) is reproduced below for convenience "Section 4 (3) (vii).‑Any receipts not being capital gains chargeable according to the provision of section 12(b) and not being receipts arising from business or the exercise of a profession, vocation or occupation which are of a casual and non‑recurring nature or are not by way of addition to the remuneration of any employee." A perusal of the above provision would indicate that the receipts are to be excluded from the total income of a person on the following conditions:‑ (a) it should not be capital gain; (ii) it should not be receipt from business or the exercise of a profession, vocation or occupation; (iii) it. should be casual and of non‑recurring nature; and (iv) it should not be by way of addition to remuneration of an employee. For the purposes of this case only conditions (ii) and (iii) above are relevant which are examined in detail. Before proceeding further it may first be seen as to what is the exact nature of the receipts from speculation in cotton Satta. A person involved in Cotton Satta becomes a member of the Cotton Association and deposits some security with the brokers dealing in cotton. Without making actual investment in the purchase of cotton whose rates fluctuate from day‑to‑day and minute to minute, purchases of cotton are made through these brokers with the intention to resell on profit. Such purchases are subsequently sold either at profit or on loss depending on the circumstances. If the cotton is sold on profit, the profits are credited in the Members' accounts or in the case of loss the losses are debited to their accounts. At intervals the profit and loss is calculated and after deducting brokerage of the brokers net profit or loss is credited or debited in the Members' accounts. In case the losses exceed the security amount a further security is demanded from the Member. It was in these transactions that the assessee had earned income of the amount mentioned above. It is not out of place to mention here that the assessee otherwise has also dealings in cotton being associated as Director with C. T. T. M. L.

4. Now first of all we have to see as to whether these receipts have arisen from business or the exercise of a profession, vocation or occupation. It was contended before us that the speculation in cotton Satta was not the business nor the receipts were in exercise of profession, vocation or occupation. It was submitted that in any case these receipts were of casual and non‑recur ring nature and therefore, fell within the ambit of section 4 (3) (vii) of the Income‑tax Act. In order to examine the contention we have to see as to what is business. This term has been defined in the Act as follows: `business' includes any trade, commerce or manufacture of any adventure or concern in the nature of trade, commerce or manufacture. Now this definition is not restrictive in its nature but only explanatory. Whether any particular adventure is in the nature of trade or not depends on the circumstances of each case. To treat any adventure as a trade depends on a number of factors. In some cases even a single purchase or a single sale could be said to be an adventure in trade. In the case of Retuledge v. Commissioner of Inland Revenue cited in the case of S .R .P .v. .C .B .((1939) 7 I T R 470) M .R .a money‑lender and film Director, had gone to Berlin for business in connection with his film. He bought toilet paper from a bankrupt firm of manufacturers for 1000 and sold the some in Lotion at net profit or 10,985 Lord Clyde held in that case that though this adventure was an isolated one but this deal was in the nature of trade. In S .R .case it was held that the profit on an isolated transaction if it constitutes as adventure in the nature of trade is assessable to income‑tax. Every speculation has element of adventure but not necessarily it is in the nature of trade. However where the speculation is made purely in purchasing with the intention of reselling for profit it is certainly an adventure in the nature of trade. It is true that mere purchasing and ultimately selling it on profit would not by itself make it an adventure in the nature of trade in each case. Much depends on the intention at the time of purchase. For instance if a person purchases work of art, decorates it in his drawing room but subsequently sells it on profit it would not make it an adventure in trade though he has earned profit out of the transaction. The criterion broadly would be that the intention at the time of purchasing should be to earn profit by selling it and not for any other purchase. In the case of S .L .G .v. C. .I .((1958) 33 I T R 786) it was held that clear and exclusive intention to resell raises a strong presumption in favour of an adventure in the nature of trade. Similarly in the case of K .M .B .L .N .((1950) 32 I T R (?)) the A .H .C .held that purchase of bales of cotton from a person in one lot reselling was in nature of an adventure in trade. In that case the assessee was dealing, on whole basis, in cloth and prints. He purchased 200 bales of cotton with the only intention to make the profit and the cotton was sold when the market was going up and thus earned profit of Rs. 12,

417. Upholding the order of the Tribunal the H .C .held that this was an income, profits and gains arising out of carrying on adventure in the nature of trade within section 2 (4) of the Income‑tax Act.

5. In the case under consideration the assessee is engaged in the business of purchasing and selling cotton with an only object of earning profit. This in view of the above discussion, is obviously an adventure in nature of trade and this is covered by the term business. The contention that no investment has been made in purchasing the cotton and therefore it cannot be called a business or an adventure in trade is without any force. In fact such transactions could be regarded as credit purchases on the strength of security deposited with the brokers. Whether a particular transaction o a number of transactions are in the nature of trade or not are not dependen upon investment. There. may be cases where no investment is made at al but still income is earned out of some trading activities. For instance sale of import permits does not require any investment and still income derived from such sales would certainly be taxable income. In the case of B ..S ..v. C. I. T. ((1955) 22 I T R 376) the sale of permit for profit was held to be a trade adventure and the profit was held taxable. The next contention of the learned A. R. that these receipts were casual and non‑recurring in nature is equally without merit. Obviously a number of transactions have taken place which have recurred and the assessee had been earning profit out of these transactions. It was argued that there are always chances of loss in Satta business. The contention is misconceive as in all business there is a chance of loss. There may be difference in degree for chances of loss in various business. The mere fact that chance in speculation business of cotton are more does not take these trading activities out of the ambit if the provisions of section 2 (4) of the Income‑tax Act nor the receipts could be considered as casual and non‑recurring. The learned A. R. in support of his contention quoted the case of P ..C ..P ..C ..Co v. C. I. T. ((1973) 28 Tax. 115) in which it was held that the amount received after the discontinuance of business, profession or vocation or operation are neither taxable income nor income. In that case the assessee had discontinued his business and some outstanding amount was realised after discontinuance of the business. It was in that context that the view mentioned above was expressed. That case has no relevancy with the present case. The other cases cited by the learned A. R. were C.I.T v. N ..C ..G ..W ..C ..((1974) 30 Tax. 158) and J ..A ..S ..J ..v. C. I. T. ((1960) 2 Tax. 569). In both these cases it was held that horse‑racing and betting activities of the assessee did not constitute business within the meaning of section 2 (4) of the Income‑tax Act. These cases as well are not relevant and cannot help the assessee in the present case. In both these cases the facts of the case were that the assessee had other main business but was breeding horses and in that connection also had been betting on his horses and getting rewards as a hobby and pass time. At page 161 in N ...C ..W ..C ..case the High Court, after giving definition of business, observed as follows : "The above connection of the term 'business' would clearly appear to exclude hobbies and pass times although there may be element of profit and income in that and that may be carried for considerable length of time." It is obvious that in both the cases cited by the learned A. R. the facts were different. In those cases the assessee were engaged in horse‑breeding and racing as hobby and pass time though their actual trade and profession was different. It was in that context that the income from horse‑betting and horse breeding was considered as casual and non‑recurring income. In the present case the assessee's sphere of business is not in the nature of hobby or pass time. It was a regular trading activity with expectation of profit. It is also pertinent to note that a particular trading activity may in some circumstances give rise to casual and non‑recurring income but in some type of trading activity in different circumstances the nature of income may no be called casual or non‑recurring. For instance if a Doctor or a Lawye purchases a painting for decoration purposes but sells it ultimately on profit would be certainly a casual and non‑recurring receipt within the meaning of section 4 (3) (vii) of the income‑tax Ace. However a person who deals in paintings and purchases a painting and sells it on profit his receipts wilt not be of casual and non‑recurring nature. In the present case we have to keep in mind that the assessee is also associated with the cotton business as income is enjoyed from a textile mill and therefore the dealing in cotton can rightly be said to be an allied business connected with the assessee's main business. In this view of the matter we have no doubt in our mind that speculation business of the assessee in cotton Satta is au adventure in trade and its receipts are neither casual nor non‑recurring in nature and therefore are not exempt under section 4 (3)(vii) of the Income‑tax Act.

6. The appeal in‑ the result fails and is dismissed. Appeal dismissed.