High Court Of Rajasthan : Jaipur Bench
Manna Lal Nirmal Kumar Surana vs. CIT
Sections 28(i), 45(1)
Y.R. Meena & K.C. Sharma, JJ.
IT Ref. No. 84 of 1985
2nd January, 2003
Counsel Appeared
N.M. Ranka with J.K. Ranka & Raj Kumar Yadav, for the Petitioner : Anuroop Singh with J.K. Singhi, for the Respondent
JUDGMENT
BY THE COURT :
On an application filed under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following questions for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee family had not really convert capital assets into stock-in-trade on 4th Jan., 1976, for the purpose of carrying on business in jewellery or precious stones and that the ratio of judgment in CIT vs. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) was not applicable ?” “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sale of finished products of 3 items of jewellery was in the nature of realisation sale of capital asset and not a trading activity of conversion of capital assets into stock-in-trade ?” “Whether the Tribunal was correct in law in holding that the sale of the precious stones of the family firm of Manna Lal Nirmal Kumar Soorana & Co. was not trading activity in respect of those sales, but was a sale of capital asset liable to capital gain ?” “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding the assessee family liable to tax on long-term capital gain of Rs. 44,84,116 against the gross profit of Rs. 3,07,665 declared by the assessee-family ?” “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the conversion of a part of jewellery into stock-in-trade was a mere device or pretence adopted by the assessee to reduce its liability to tax.”
2. The assessee is an HUF firm namely M/s Manna Lal Nirmal Kumar Surana. The assessee has disclosed ornaments, cut and polished precious stones, house hold goods, silver utensil and cash under the Voluntary Disclosure Scheme 1975. The details of the items disclosed are in para 5 of the reference application. The assessee has disclosed 121 items of the ornaments under the Voluntary Disclosure Scheme, 1975. Total disclosure of items were of Rs. 88,70,848. Out of these 121 items of jewellery, the assessee claimed that assessee has converted 17 items into stock-intrade from capital investment. On 4th Jan., 1976, partial partition of jewellery took place and jewellery was partitioned in the ratio shown in para 8 of the reference application. These 17 items have been revalued. Rs. 32,58,030 at the time of transfer of the capital assets into stock-in-trade account. The value of 3 items has been taken at Rs. 32,58,030, which were sold on 21st Oct., 1976. In disclosure scheme, the value of these items were shown at Rs. 9,70,950. The case of the assessee was that once the capital assets, which were disclosed under the Voluntary Disclosure Scheme are converted into stock-in-trade account on the revaluation, which has been made at the time of conversion of the assets into stock-in-trade, that value should be taken for the purpose of profit in trading of these three items. This fact has not been accepted by the AO. CIT(A) as well as the Tribunal both also found that these 3 items were not converted into stock-in-trade and they remained as capital assets, as disclosed, therefore, whatever value has been shown under the Voluntary Disclosure Scheme, 1975, that value should be taken and capital gain tax be charged accordingly. The facts have been discussed in paras 65 & 66 of the Tribunal’s order. For ready reference, they are reproduced as under : “65. Was there a real conversion of some of the assets into trading assets as claimed by the assessee ? The next question which arises for consideration is with regard to the alleged conversion of 17 items of jewellery into stock-in-trade. The assessee claims the benefit of the ratio of the decision of the Supreme Court in CIT vs. Bal Shirinbai K. Kooka (1962) 46 ITR 86 (SC) in respect of such conversion. The total value of those 17 items, as declared by the assessee in the voluntary disclosure was Rs. 10,27,970. These have been revalued at Rs. 32,58,030 for the purpose of transfer to the “Jewellery Ornaments Stock-in-trade account”. Out of that stock-in-trade account, the assessee has taken out three items for the purpose of its trading. These are 3 necklaces, whose value, as declared in the disclosure was Rs. 9,70,950 and their value according to the revaluation was Rs. 32,50,400. The precious metal obtained by breaking up the three necklaces has been valued at Rs. 16,000 and the value of the stones transferred to the manufacturing account has been put at Rs. 31,43,000. It is the contention of the assessee that the cost of those three items for purposes of its trading account will be Rs. 32,50,030 and the cost of the stones for purposes of trading account will be Rs. 31,43,400 by applying the ratio of the Supreme Court in Bai Shirinbai K. Kooka’s case (supra). It is on this basis that the assessee has declared the gross profit of Rs. 3,07,665 in respect of the sale of the stones. 66. It has been the vehement contention on behalf of the assessee that it never had any trading in jewellery or precious stones in the past. We have accepted that contention of the assessee. It is also admitted by the assessee that after the sale of stones to the extent of Rs. 34,60,000 on 21st Oct., 1976, and the sale of the precious metal obtained from three items on 28th Oct., 1976, to one Maliram Puranmal, the assessee did not have any trading in jewellery or precious stones in any of the succeeding assessment years also.
In other words, the sale of these three items of jewellery stands in isolation and does not represent a continuous trading activity on the part of the assessee in jewellery or precious stones. Thus, even according to the contentions put forward on behalf of the assessee, this is an isolated transaction. It has been the contention of the assessee that the sales of jewellery during the accounting years relevant for the asst. yrs. 1965-66 to 1966-67 and 1967-68 were sales of capital assets but the income from which was surrendered for taxation as a matter of expediency for the purpose of a settlement with the IT Department. Shri Sharma had vehemently contended on behalf of the assessee that from this circumstance alone, a history of trading in jewellery on the part of the assessee should not be inferred. We have accepted that plea put forward on behalf of the assessee also. In the circumstances the net result would be that the assessee did not have any trading activity in jewellery or precious stones prior to 21st Oct.,
1976. Even subsequent to that date, the sale was only of the precious metal obtained from the breaking up of the same three items. Thus, the assessee’s claim of having traded in jewellery and precious stones is based solely and exclusively on the sale of the three items of jewellery appearing at Sl. Nos. 46, 53 and 57 of the list of jewellery enclosed with the voluntary disclosure. It is interesting to note that out of the 17 items of jewellery allegedly transferred to the “Jewellery Ornaments Stock-in-trade Account”, the 14 items remaining after the three items were taken out for sale were again distributed to the 5 members of the family namely Vimal Kumar Surana, Narendra Kumar Surana, Nirmal kumar Surana, Km. Nirmala Surana and Smt. B.D. Surana by way of partial partition on 16th Aug., 1978.” Heard learned counsel for the parties. Whether the 17 items were converted into stock-in-trade account from the capital assets is basically a question of fact. While discussing the facts, Tribunal found that the three items, which were disclosed in the Voluntary Disclosure Scheme, 1975, the value thereof has been shown at Rs. 9,70,950 and at the time of conversion, the value of these very items has been shown at Rs. 32,50,400. Tribunal has also noticed that before this conversion, the assessee was not dealing in jewellery, the type of which has been shown. All these three items were sold on 21st Oct., 1976, and even thereafter also the assessee has not dealt with in this line of business. It was also noticed by the Tribunal that neither the assessee purchased nor sold any other similar type of items. Mr. Ranka, learned counsel for the assessee also could not explain as to what was the necessity and reason to convert the 17 items of jewellery out of 121 items discussed under the Voluntary Disclosure Scheme nor there is any explanation that when the assessee was not in the trading line of the items involved, why these 17 items were picked up for conversion in the stock-in-trade account. If the conversion is bona fide, why there was no further purchase and sale of similar type of items, if it has the intention to deal in the trading line. Not only that, after sale of these 3 items, rest of the items were again partitioned among the members of the HUF. Considering these facts, we do not find any perversity in the finding of fact found by the Tribunal that there was no conversion of these 17 items into stock-in-trade account. When we have not accepted the genuineness of the conversion of the items into stock-in-trade account, the ratio of judgment delivered in the case of CIT vs. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) will not apply. The same will only apply when we accept that the conversion was genuine. We see no perversity or infirmity in the order passed by the Tribunal. In the result we answer all the aforestated questions in affirmative i.e., in favour of the Revenue and against the assessee. Reference so made stands disposed of accordingly.
[Citation : 263 ITR 328]
