(The judgment of BHAGWATI and SINHA, JJ. was delivered by
SINHA, J. KAPUR, J., delivered a separate judgment).
SINHA, J.---The only question for determination in this
appeal by special leave is whether the solitary transaction in respect of about
three-quarters of an acre of land in the suburbs of Calcutta, was an adventure
in the nature of trade and, therefore, liable to income-tax. The assessee is the
appellant. He challenges the correctness of the order of the Income-tax
Appellate Tribunal, Calcutta Bench, Calcutta, dated March 26, 1954, passed in
I.T.A. 5263 of 1953-54, in respect of the assessment year 1948-49, reversing
that of the Appellate Assistant Commissioner of Income-tax, Range 'C', Calcutta,
dated September 5, 1953.
The facts of this case leading up to this appeal are as
follows: The appellant is engaged in various types of business activities, being
a shareholder and director or managing director of several limited liability
concerns, and is also a partner in the firm known as "Pioneer Engineering
Works". In respect of his income during the previous two assessment years,
the appellant was assessed to income-tax on the sums of Rs. 53,000 (1946-47) and
Rs. 59,000 (1947-48). The appellant holds investments in shares of the value of
Rs. 2,45,000, out of which, according to the assessee, shares of the value of
Rs. 1,95,000, though standing in his name, belong to other members of his
family, including his father and his wife.
The Hindusthan Co-operative Insurance Society Limited, of
Calcutta, (hereinafter referred to as "the Society"), acquired a block
of about 578 bighas of land lying between Diamond Harbour Road and Tolly's
Nullah, within the Municipal limits of the Corporation of Calcutta, between the
years 1940 and 1942. The Society decided to level the land thus acquired and to
open out roads; and after developing the same, it sub-divided it into small
plots and sites in different blocks suitable for residential purposes under its
scheme called "The New Alipore Land Development Scheme No. XV". The
Society offered such plots for sale. One such plot, being plot No. 77 in block
"E" of the said Scheme, was agreed, by an agreement dated January 10,
1946, to be sold to the assessee at the rate of Rs. 2,550 per katha. In
pursuance of the said agreement, the assessee paid to the Society, a sum of Rs.
13,099 being 10% of the estimated price of the plot with an approximate area of
51 kathas, which subsequently, on exact measurement, was found to be 45.56
kathas. Subsequently, on the acceptance of his offer, the appellant paid another
sum of Rs. 19,649 (omitting annas), being 15% of the estimated price. Thus, in
all, a sum of Rs. 32,748 being 25% of the estimated total price of the land, was
paid by the assessee to the Society. All this area which the Society had
undertaken to develop and sell to different purchasers in small plots, was in
occupation of the Government, which had requisitioned it for purposes connected
with the prosecution of the Second World War. Hence, one of the terms of the
transaction between the assessee and the Society was that the transaction of
purchase would be completed within six months of the lands being released from
Government occupation. It was further stipulated that the assessee would be
entitled to apply, within three months of the receipt of the notice of
de-requisition, for extension of time not exceeding one year, for the completion
of the transaction on the condition that he paid interest at the rate of 7% per
annum on the outstanding amount, during the extended period. If the assessee, as
purchaser, paid to the Society another sum which, together with Rs. 32,748,
already paid, would amount to 50% of the total price of the plot in question
(within six months of the notice of de-requisition), he could get a conveyance
of the property on his executing an English mortgage for the remaining 50% of
the price carrying interest at the rate of 7%, on the expiry of these aforesaid
six months. As there was an apprehension that the Government might acquire the
whole property for its own purpose, it was further stipulated that in the event
of such an acquisition by Government, the agreement for sale would stand
rescinded, and the assessee, in that event, would be entitled to re-payment of
the amounts paid by him to the Society by way of advance for the completion of
the transaction. The assessee's case is that as the terms of the payment of
purchase-price in several instalments, as aforesaid, were convenient to him, he
agreed to take the plot on the conditions aforesaid, with a view to building a
residential house for himself and constructing a workshop in connection with his
business activity. At the end of the Second World War, the assessee's
construction activities began to decline, and there was no immediate prospect of
the land in question being de-requisitioned by Government. In those
circumstances, the assessee negotiated for the assignment of his rights under
the agreement with the Society to Rani Yuddha Rajya Devi of Nepal. The Rani
appeared to have taken a fancy to the plot and to have made an attractive offer
to the appellant. Hence, after exchange of letters between the parties, it was
agreed between them that a sum of Rs. 1,07,000 odd would be deposited by the
Rani with the assessee on suspense account until the transaction of sale between
the Society as the vendor and the Rani or her nominee as the vendee would be
executed and the transaction of purchase finalised upon her undertaking to pay
the sum of Rs. 98,000 odd to the Society, which was the outstanding amount of
the sale-price in respect of the plot agreed by the assessee to be purchased by
him from the Society. After a good deal of correspondence, on December 27, 1950,
the Society executed a deed of conveyance in respect of the said plot, to the
daughter of the said Rani as the vendee. The aforesaid vendee executed a deed of
mortgage in favour of the Society for the outstanding amount of Rs. 50,900,
after payment of Rs. 32,700 odd to the Society. In the result, the assessee
received, on April 3, 1947, a sum of Rs. 1,07,000 odd from the Rani, in
pursuance of the agreement between her and the assessee. Until the execution of
the sale-deed between the Society and the Rani's nominee, as aforesaid, the
assessee continued to be liable to the Society in respect of the agreement of
January 10, 1946. The assessee, thus, received from the Rani a sum of Rs. 74,000
odd in excess of the amount paid by him to the Society. The property, including
the plot in question, was not de-requisitioned until some time in 1949.
In respect of the assessment year 1948-49, the assessee
filed a return of his income to the Income-tax Department, showing a loss of Rs.
2,000 odd for the financial year 1947-48. In pursuance of the notice under
section 23(2) of the Income-tax Act, the assessee appeared before the Income-tax
Officer, Calcutta, and produced all his books of account, including his bank
accounts. The Income-tax Officer, on an examination of the accounts, and after
questioning the assessee, came to the conclusion that the assessee had made a
profit of Rs. 74,000 odd from the transaction in question, which, according to
him, was an adventure in the nature of trade. Hence, on an examination of the
assessee's accounts, the Income-tax Officer included the sum of Rs. 74,485 as
profit from an "adventure in the nature of trade"---taxable under
section 10 of the Income-tax Act---as one of the items of income accrued to the
assessee during the assessment year 1948-49.
The assessee went up in appeal to the Appellate Assistant
Commissioner of Income-tax, and challenged the conclusion of the Income-tax
Officer that the sum of Rs. 74,000 odd was profit from an adventure in the
nature of trade. It was also taken as one of the grounds of appeal by him that
in any event, the receipt accrued to the assessee only in 1950, after the
transaction of sale had been completed as between the Rani's nominee and the
Society. The Appellate Assistant Commissioner did not agree with the Income-tax
Officer that the assessee was not in a position either to complete the
transaction of purchase by paying the full amount of consideration, or to erect
a building thereon, or to use the land in any other way. He pointed out that
under the scheme, the Society had offered terms of purchase on instalments and
on execution of a mortgage in respect of the vended property to the extent of
50% of the consideration money. He also pointed out that the assessee had
considerable investments to the extent of Rs. 2,45,000 in shares of different
limited concerns. He, therefore, came to the conclusion that the assessee was a
man of means, and that it could not be said that he had not intended to purchase
the plot for his own use. He further held that the motive of making a profit at
the time of the purchase, had not been established by the Department, and that
it was a "solitary transaction". On these findings, he found himself
unable to confirm the finding of the Income-tax Officer that the profit was from
an adventure in the nature of trade. He took the view that the appellant had
made an investment which had appreciated considerably in value, and that it was
undoubtedly a case of appreciation of capital. Treating it as a "capital
gain", he came to the conclusion that as the payment had been made in 1947,
the gain accrued in that year and not in the year 1950, as contended on behalf
of the assessee. In the result, he made him liable to pay capital gains tax.
The Department went up in appeal to the Income-tax
Appellate Tribunal, which, by its judgment dated March 26, 1954, allowed the
appeal. The Tribunal pointed out that the assessee was not a map of such large
means as to think of acquiring the plot for his own residential or business
purposes. The admitted shares worth Rs. 2,45,000 standing in his name, the
Tribunal pointed out, were held by the assessee, in respect of the major
portion, on behalf of other members of his family. The Tribunal also observed
that Rs. 32,748 paid by the assessee to the Society had been paid out of
borrowed money. This conclusion does not appear to have been well-founded in
fact. The accounts do show credits in favour of the assessee of a larger amount.
The Tribunal also pointed out that undoubtedly the "assessee is a keen
businessman and has a number of varied business interests. Admittedly, he is a
director of about a dozen concerns and managing director of two or three. He is
8 annas partner in an engineering concern which is carrying out a number of
construction and other contract works. He is an engineer by profession and a
resident of Calcutta." The Tribunal based its conclusion that the sale was
an adventure in the nature of trade, and that the profits, thus made, were
assessable to income-tax, on the following grounds :
1. That the payment by the assessee to the co-operative
society of Rs. 32,748, came out of a loan taken for the purpose from a company
(which conclusion, as already pointed out, is not borne out by the entries in
the books of account of that company) ;
2. That the assessee could not have paid the balance of
Rs. 98,000 odd, the outstanding amount of the purchase-money, to the insurance
company;
3. That the assessee had no means to construct a house on
the land; and lastly,
4. That the site itself fetched no income, thus, showing
that it could not be an investment but only an excursion into the realm of
trade.
Against this decision of the Appellate Tribunal, the
assessee moved this court and obtained special leave to appeal.
Before we deal with the main question in controversy in
this appeal, we would like to make some general remarks on the nature of the
questions involved in this case. It is not disputed on behalf of the respondent
that the question now before us is a question of law, or a mixed question of
fact and law, as has been recently laid down by this court in the case of
Venkataswami Naidu v. Commissioner of Income-tax. Speaking for the court,
Gajendragadkar, J., after a detailed discussion of the decisions of this court
in Sree Meenakshi Mills v. Commissioner of Income-tax and Oriental Investment
Co. Ltd. v. Commissioner of Income-tax, and of the House of Lords, in Edwards v.
Bairstow, came to the conclusion that the question arising in the case, is a
mixed question of law and fact, and, therefore, open to examination by this
court. In Venkataswami Naidu & Co. v. Commissioner of Income-tax, the
question raised was exactly similar to the question now before us, though in a
different setting of facts. His conclusion may be stated in his own words as
follows:
" In other words, in reaching the conclusion that the
transaction is an adventure in the nature of trade, the Tribunal has to find
primary evidentiary facts and then apply the legal principles involved in the
expression 'adventure in the nature of trade' used by section 2, sub-section
(4). It is patent that the clause 'in the nature of trade' postulates the
existence of certain elements in the adventure which in law would invest it with
the character of a trade or business; and that would make the question and its
decision one of mixed law and fact. "
In that view of the matter, this court further pointed out
that the more proper form of the question is "whether, on the facts and
circumstances proved in the case, the inference that the transaction in question
is an adventure in the nature of trade is in law justified". The recent
decision of this court has examined almost all the relevant cases decided in
Indian as also English and Scotch Courts, and thus, our task in the present case
has been very much simplified. It has further been observed in that case, more
than once, that judicial opinion, was unanimous that no general principles or
universal tests could be laid down, which could govern the decision of all cases
in which the question for determination is similar to the one now before us.
Each case must be determined on the total impression created on the mind of the
court by all the facts and circumstances disclosed in that particular case.
Hence, no decided case can, strictly speaking, be a precedent which could govern
the decision of a later case, involving a similar question. Those decisions can
be used only by way of illustrations of the different view-points which have a
bearing on the decision of the case in hand. It has also not been disputed that
in a case where a transaction under examination is not in the line of the
business of the assessee, and is an isolated or a single instance of a
transaction like that, the burden lies on the Revenue to bring the case within
the words of the statute, namely, that it was an adventure in the nature of
trade. That the onus is on the Department has been clearly laid down by Lord
Carmont in the case of Commissioners of Inland Revenue v. Reinhold. That was a
case in which the respondent, the assessee, was a director of a company carrying
on the business of warehousemen, and had bought four houses in January, 1945,
and sold them at a profit in December, 1947. He admitted that he had bought the
property with a view to resale, and had instructed his agents to sell the same
whenever a suitable purchaser was forthcoming. The assessee was made liable for
tax in respect of the profit made by him on the resale. On an appeal by the
assessee before the General Commissioners, it was contended on his behalf that
the profit on the resale was not taxable. On behalf of the Crown, it was
contended that the transaction of purchase and sale in question constituted an
adventure in the nature of trade, and that, therefore, the profits arising out
of the transaction were chargeable to income-tax. The General Commissioners,
being equally divided, allowed the appeal. It was held by the Court of Session
(First Division) that the fact that the property was purchased with a view to
resale, did not, of itself, establish that the transaction was an adventure in
the nature of trade, and that, therefore, the determination by the Commissioners
was justifiable in law. The court, in coming to that conclusion, took into
account the considerations that the respondent was not a property agent, and
that his business was not, in any way, associated with the purchase and sale of
estates. It was an isolated transaction, even though the assessee had purchased
a hotel and sold it again ten years previously. The court made a reference to
the following observations of Lord Buckmaster in the case of Jones v. Leeming :
" ...an accretion to capital does not become income
merely because the original capital was invested in the hope and expectation
that it would rise in value; if it does so rise, its realization does not make
it income. "
Placing that decision alongside of the present case, let
us see what its salient features are. Though the appellant is engaged in various
types of business as a shareholder or a director in limited liability concerns,
as also in building contracts, dealing in landed estates is not in the line of
his business. If such a transaction were in the line of his business, it would
not matter much whether, in the assessment year, he had several such
transactions or only one. Even a single transaction of dealing in landed
estates, being a part of his business, would be liable to income-tax, if a
profit is made in that transaction. But, admittedly, the transaction in question
is the only one of its kind, out of which the appellant has made a considerable
profit which appears to have been in the nature of a windfall. When he entered
into the agreement with the Society for the purchase of the plot, in January,
1946, he had expected that at the end of the World War, the Government would
release the property from its requisition, and that the Society will develop the
land by laying the necessary roads and providing other amenities to the
plot-holders. But as the Government did not release the property, and as the
appellant was a businessman, who was interested in return from his capital, and
as he had already paid Rs. 32,000 odd by way of advance towards the purchase
price, and as in 1947, at the end of the Second World War, his business in
contracts for building constructions began to decline, he, naturally, thought of
making the best of the bargain. If he did not get out of the transaction, his
financial difficulties in meeting his further liabilities under the agreement,
as a result of slump in his main line of business, might lead to the forfeiture
of the advance of Rs. 32,000 odd, he would naturally be on the look out for a
good purchaser. He was lucky to find a lady with a lot of money to spare, who
had, as he alleged, taken a fancy to the plot in question. Thus, he could assign
to her the benefit of his agreement with the Society on terms which were highly
profitable to him. There is no clear evidence in support of the inference of the
Appellate Tribunal that the land was purchased with the sole intention of
selling it later at a profit. The Tribunal considered two alternatives in
relation to this transaction---one, that the land was purchased in order to
build a residential house, and the second, that it was purchased in the hope of
selling it later for a profit. The first alternative, the Tribunal rejected on
the ground that "he does not seem to have very much of means at his
disposal." That itself is a statement which does not bear close scrutiny.
During the two years previous to the year under assessment, the appellant had
been assessed to income-tax on Rs. 53,000 and Rs. 59,000, as already indicated.
That does not lend countenance to the surmise that the appellant was not a man
of means. Admittedly, he held marketable shares of the value of about 2 1/2
lakhs of rupees, though all those shares standing in his name were not claimed
by him as his own. Apparently, he was carrying on a lucrative business during
the immediately preceding years. It is true that in the year of assessment, on
his own showing in his income-tax return, he had suffered a loss, but that may
have been a turning point in his fortunes, and that would not necessarily lead
to the inference that he was not in a sound financial position on the date of
the agreement with the Society. It may be that his hopes of flourishing in his
business in the years to come were not realized after the conclusion of the
Second World War. But even assuming that the Tribunal was right in its
conclusion as to the second alternative, namely, that the purchase was made in
the hope of making a profit after re-sale, the matter is not concluded. In this
connection, a reference may be made again to the decision in Commissioners of
Inland Revenue v. Reinhold, at page 392, where it was argued on behalf of the
Revenue that a profit made in a transaction which was in the nature of an
investment in the hope and expectation of a rise in price, may be an accretion
of capital, but that if at the time of the purchase the purchaser had resolved
to sell the property in the event of a profit being made, and instructions had
been issued to his agents accordingly, the transaction could not have been
treated as an investment, but was truly an adventure in the nature of trade, and
the profit thus made must be treated as income. This argument was not accepted
as valid. In that connection, reference was made to the following observations
of Lord Dunedin in the case of Jones v. Leeming at page 423:
" The fact that a man does not mean to hold an
investment may be an item of evidence tending to show whether he is carrying on
a trade or concern in the nature of trade in respect of his investments, but per
se it leads to no conclusion whatever. "
The decision of the House of Lords in the case aforesaid,
which is also reported in 15 T.C. 333, is rather instructive. In that case, the
appellant was a member of a syndicate of four persons, formed to acquire an
option over a rubber estate, with a view to selling at a profit. The option was
secured, but the estate was considered to be too small for re-sale. An option
over another joint estate was accordingly secured, and it was decided to re-sell
the two estates to a public company to be formed for the purpose. Another member
of the syndicate undertook to arrange for the promotion of the company. The
syndicate's rights were transferred to a company. This company floated another
company to which the properties were sold. The syndicate's profits were divided
between the members, and the appellant, as one of the members of the syndicate
was assessed to income-tax in respect of his shares of the profits. The General
Commissioners, on appeal, were of the opinion that the interest in the property
in question had been acquired with the sole object of making a profit, and that
there was no intention of holding it as an investment. Hence, the assessment to
income-tax was affirmed. The King's Bench Division, at the first hearing,
remitted the case to the General Commissioners for a finding as to whether there
was a concern in the nature of trade, and the Commissioners found that the
transaction was not such a concern. It was held by the House of Lords that the
profits were not liable to tax on the basis that they were income from an
adventure in the nature of trade. Viscount Dunedin, in the course of his
opinion, referred, with apparent approval, to the dictum in Ryall v. Hoare, to
the following effect at pages 421, 422:
" A casual profit made on an isolated purchase and
sale, unless merged with similar transactions in the carrying on of a trade or
business is not liable to tax. "
He also approved of the following dictum of Lawrence, L.
J., in the case of Leeming v. Jones :
" It seems to me in the case of an isolated
transaction of purchase and re-sale of property there is really no middle course
open. It is either an adventure in the nature of trade, or else it is simply a
case of sale and re-sale of property. "
Lord Warrington of Clyffe, in the course of his opinion in
the case of Jones v. Leeming, made the following observations, which apply with
full force to the facts and circumstances of the present case at p. 425 :
" Here we have a case of the acquisition of an item
of property and a profit made by the transfer thereof to another. In this I can
find nothing but a profit arising from an accretion in value of the item of
property in question and the realisation of such enhanced value. There is in
this nothing in the nature of revenue or income. The fact that the parties
intended from the first to make a profit if they could does not in my opinion
affect the question we have to determine. "
As already indicated, the line of demarcation between
cases of isolated transactions of purchase and sale being ventures in the nature
of trade, and those which are not such ventures, if any, is very thin. The cases
in which single transactions have been held not to belong to the class of
ventures in the nature of trade, have been noticed above, and the considerations
which led those courts to hold that such ventures were not liable to income-tax,
apply to the case in hand. On the other side of the line, there is a series of
cases in which single transactions have been held to have been ventures in the
nature of trade, for reasons which do not apply to the present case. We may
notice some of the typical cases which illustrate the reasons for which a single
transaction was brought within the ambit of a venture in the nature of trade.
The case of Californian Copper Syndicate v. Harris, related to the purchase and
sale of a mining property. In that case, a company had been formed for the
purpose, inter alia, of acquiring and reselling a mining property. That company
acquired some mining property and sold the same to a second company,
consideration for the sale being paid-up shares of the latter company. It was
held by the Court of Exchequer (Scotland) Second Division, that the difference
between the purchase price and the value of shares for which the property was
exchanged was a profit assessable to income-tax. It was pointed out by the court
that the case involved a deal which was a "proper trading transaction, one
within the company's power under their articles, and contemplated as well as
authorised by their articles." The ratio of the decision in that case
appears to have been that though it was a single transaction in which profit was
made, it was an adventure in the nature of trade, being in the line of the
business adopted by the company. The next case of Martin v. Lowry is another
instance of a single transaction of purchase of property being treated as a
venture in the nature of trade, on account of the very nature and magnitude of
the commodity dealt in by a person whose usual line of business was wholly
outside the scope of the new venture. That was a case in which a wholesale
agricultural machinery merchant, who never had any dealings in linen trade,
purchased from the Government its surplus stock of aeroplane linen (some 44
million yards). In order to dispose of this huge stock of linen purchased by
him, the assessee embarked upon an extensive advertising campaign, rented
offices and engaged expert staff to organise the sales. The number of
transactions of sale of that huge stock of linen ran into thousands. The House
of Lords affirmed the determination of the courts below, holding that the
transaction amounted to the carrying on of a trade of which the profits were
chargeable to income-tax and excess profits duty. Another case in the same
volume is Commissioners of Inland Revenue v. Livingston. In that case, the
persons sought to be taxed were a ship repairer, a blacksmith and a fish
salesman's employee, who joined in the venture of purchasing a large vessel with
a view to converting it into a slow-drifter, and selling it. That was a new line
of business for them. Extensive repairs and alterations to the ship were carried
out, and the result was a sale of the converted vessel at a profit. It was held
that the transaction, though an isolated one, was a venture in the nature of
trade, and thus liable to income-tax. The ratio of the decision was stated in
the following words of the Lord President :
" If the venture was one consisting simply in an
isolated purchase of some article against an expected rise in price and a
subsequent sale it might be impossible to say that the venture was 'in the
nature of trade'; because the only trade in the nature of which it could
participate would be the trade of a dealer in such articles, and a single
transaction falls as far short of constituting a dealer's trade, as the
appearance of a single swallow does of making a summer. The trade of a dealer
necessarily consists of a course of dealing, either actually engaged in or at
any rate contemplated and intended to continue. "
The case of Rutledge v. Commissioners of Inland Revenue,
is another illustration of a case in which a single transaction of purchase and
sale was held to be an adventure in the nature of trade for the reason that the
commodity purchased was of such nature and of such a vast magnitude that it
could not have possibly been intended for the consumption of the purchaser
himself or his family. In that case, the assessee was a money-lender who was
also interested in a cinema company. In the interest of his cinema business, he
happened to be in Berlin, and there took the opportunity of purchasing, for a
very cheap price, a very large quantity (one million rolls) of toilet paper for
pound 1,000---and realised pound 12,000 by sale of that commodity. He was taxed
on the net profit of pound 10,895. It was held by the Court of Session, Scotland
(First Division), that it was certainly an adventure, because the assessee made
himself liable for the purchase of that vast quantity of toilet paper, obviously
for no other conceivable purpose than that of reselling it for a large profit.
As regards the question whether the adventure was in the nature of trade, it was
contended on behalf of the assessee that it was essential to the idea of trade
that there should be a continuous series of trading operations. The court
rightly pointed out that the question was not whether it was a trade but whether
it was a venture in the nature of trade. Hence, though the single transaction of
purchase and sale may not have amounted to what is ordinarily understood by
trade in the sense of a series of transactions, it was certainly a venture in
the nature of trade, because from the very beginning, the intention was manifest
that the purchase was made not with a view to utilising the commodity for the
personal use of the purchaser, but with a view to making profit by a re-sale,
which was apparent from the very nature and magnitude of the commodity
purchased. Another illustration of the same rule is to be found in the case of
Balgownie Land Trust Ltd. v. Commissioners of Inland Revenue. That was the case
of a landed estate which was left by the owner to trustees with a direction to
sell it. The trustees, being unsuccessful in their efforts to sell the estate,
formed a company with general powers to deal in real property, and transferred
the estate to this company. The company made certain other purchases of property
by way of accretions to the original estate. The property was sold in parts
during the years 1921, 1924, 1926 and 1927. The company was assessed to
income-tax for the profits from the sales of those lands. The court, confirming
the assessment of the company to income-tax on the profits made on those sales,
held that the company was doing precisely what it meant to do, namely, carrying
on business of a company dealing in a real estate. The case of Commissioners of
Inland Revenue v. Fraser, is another illustration of the rule that if a person
enters into a single transaction outside his ordinary avocation of life, with
the sole object of making a profit by re-sale, it may amount to an adventure in
the nature of trade. In that case, a wood-cutter bought, for re-sale, whisky in
large quantities, and, without taking delivery of the whisky, sold it at a
profit. It was the assessee's sole dealing in whisky, but all the same it was
held to be liable to income-tax on the ground that the nature of the
transaction, with reference to the commodity dealt in in large quantities, which
would not ordinarily be meant for personal or family consumption, may indicate
that it was an adventure in the nature of trade.
We have set out the illustrative cases on the two sides of
the thin line of demarcation that may possibly be said to distinguish one class
of case from the other. The question still remains, on which side of the line,
the present case should be placed ? The learned Solicitor-General placed strong
reliance on the recent decision of this court in Venkataswami Naidu & Co. v.
Commissioner of Income-tax. The question, therefore, is whether the present case
falls on the same side of the line as the recent decision of this court, which
had to deal with a similar question, as already indicated. In that case, the
assessee had purchased four plots under four different deeds. During the time
that the assessee was in possession of those plots, he made no efforts to put up
any structures, or to utilize them in other ways. The assessee was in a
fiduciary position with the mills contiguous to which the plots purchased were;
and it was also found that the assessee was in a position to influence the mills
to purchase those plots at a price favourable to him. It was in that setting of
the facts, that this court made the following observations :
" When section 2, sub-section (4) refers to an
adventure in the nature of trade it clearly suggests that the transaction cannot
properly be regarded as trade or business. It is allied to transactions that
constitute trade or business but may not be trade or business itself. It is
characterized by some of the essential features that make up trade or business
but not by all of them; and so, even an isolated transaction can satisfy the
description of an adventure in the nature of trade. "
Can it be said, in the setting of the facts and
circumstances of the present case, set out above, that the transaction in
question has such characteristics as to point to the conclusion that it was a
venture in the nature of trade? It was suggested that the area of the land in
question, namely, three quarters of an acre in the suburbs of Calcutta, was
large enough to indicate that the assessee would not have intended to take it
for his own use and occupation. In the first place, the area is not so large as
to lead necessarily to the inference that it could not have been meant to be
used by him in the way of his business or for his own residence. Certainly, the
Society, having acquired more than 500 bighas of land in a lot, could not claim
that the land was meant for its own use. On the other side, it was meant to be
developed into small building sites, as they actually did. But the Society had,
without developing the area, sub-divided it into building sites, one of which
was sought to be acquired by the appellant. He was carrying on an engineering
concern, and it is not, therefore, unlikely that he may have intended, as he
alleged, to put up a small workshop on a portion of the land to be acquired, and
to build his own residential house on the other portion. It was not suggested
that the appellant had his own house in Calcutta, and was, therefore, not in
need of a building site. At the time he entered into the agreement of purchase
with the Society, he was doing good business, as is shown by the large amounts
on which he was assessed to income-tax. It was not unnatural for him to look
forward to continue his business in as prosperous a way as he had been doing in
the recent past, and thus, to raise sufficient funds to build his own
residential house, or to construct a workshop for his own engineering business.
Hence, the possibility or the probability that the site may appreciate in value,
would not necessarily lend itself to the inference that the transaction was a
venture in the nature of trade, as distinguished from a capital investment. In
all the circumstances of this case, the total impression created on our mind is
that it has not been made out by the Department that the dominant intention of
the appellant was to embark on a venture in the nature of trade, when he entered
into the agreement which resulted in the profits sought to be taxed.
For the aforesaid reasons, we would allow this appeal, and
set aside the orders of the Tribunal below with costs.
KAPUR, J.---I regret I am unable to agree that the appeal
in the present case should be allowed and my reasons are these: On the facts
which were proved the Income-tax Appellate Tribunal came to the conclusion that
the purchase of land by the appellant was an adventure in the nature of trade
and profit arising therefrom was assessable to income-tax. In coming to this
conclusion the Appellate Tribunal took into consideration certain facts; (1)
that the only payment the appellant made for the purchase of the land was of a
sum of Rs. 32,748 which he borrowed from his company and he was not in a
position to pay the balance of Rs. 98,246; (2) the appellant had no money
available at all to pay the part of the purchase price of Rs. 1,30,994 and he
had no means to construct the house (3) that his financial resources were such
as not to justify the purchase of the plot of land for the construction of a
house ; (4) the site itself fetched no income but it was a kind of investment
with the hope of making a profit out of it and the land was purchased only for
the purpose of sale; (5) that the appellant being a keen businessman had
intimate knowledge of the trend of the rise in prices of land and therefore the
purpose for which he made the purchase was in order to make profit and not
merely an investment.
As against these circumstances various facts were brought
to our notice which it was argued militate against the findings of the Tribunal
; (1) that the appellant was carrying on an engineering concern and therefore it
was not unlikely that he intended, as he alleged, to put up a small workshop on
that portion of land; (2) that the appellant did not have his own house in
Calcutta and therefore he could have been in need of a piece of land on which he
could build a house; and (3) that at the time he entered into an agreement of
purchase he had a prosperous business which is shown by the amount of income-tax
which he paid for two years and he could legitimately expect that his business
would continue to remain prosperous; (4) that these facts could not lead to the
necessary consequence that the transaction was a venture in the nature of trade
and that it was not the dominant intention of the appellant at the time when he
entered into the transaction to embark upon a venture in the nature of trade.
Under the income-tax law it is the exclusive function of
the Appellate Tribunal to find facts. Even though the powers of this court under
article 136 are very wide yet they have to be exercised within the limits
imposed by the decisions of this court and one such limitation is that this
court will not ordinarily interfere with findings of fact. It has been held by
this court that the question whether an adventure is in the nature of a trade or
not is a mixed question of law and fact. The facts have to be found by the
fact-finding authority and to those facts the law has to be applied and whenever
it is necessary to get a correct finding on a question of fact it is the
fact-finding authority which is called upon to consider the evidence and give
its finding. (See Venkataswami Naidu & Co. v. Commissioner of Income-tax).
Therefore if there arose a question of law out of the order of the Appellate
Tribunal then the appellant could have had the case stated to the High Court
under section 66(1) and if the Appellate Tribunal refused to state the case it
was open to the appellant to have the case stated under section 66(2) of the
Indian Income-tax Act. No doubt he did make an application to the Appellate
Tribunal to state the case under section 66(1) but he did not make any
application to the High Court till 1957 after he had obtained special leave in
this court and the High Court dismissed the petition on the ground that it was
barred by time. The position comes to this that the Tribunal refused to state
the case under section 66(1) of the Income-tax Act and the appellant did not
apply to the High Court under section 66(2) till long after the period of
limitation had expired. In these circumstances the courses open to this court
would be (1) to set aside the order of the Appellate Tribunal and remit the case
to the Tribunal for decision in accordance with the observations made by this
court as was done in the case of Omar Salay Mohamed Sail v. Commissioner of
Income-tax or it may be open to this court to direct a reference as was done in
Jogta Coal Company Ltd. v. Commissioner of Income-tax. Then in Dhakeshwari
Cotton Mills v. Commissioner of Income-tax, this court only remitted the case to
the Appellate Tribunal to proceed in accordance with law on the ground that
certain principles of natural justice had been violated and the assessee was not
given an opportunity to rebut the evidence against him.
The income-tax law has prescribed a procedure to have
questions of law determined and an assessee cannot bye-pass the various steps
prescribed under that law. The position therefore comes to this that if there is
no evidence to support the finding the question is one of law which would fall
under sections 66(1) and 66(2) of the Income-tax Act; (2) if in giving its
finding the Appellate Tribunal disregards certain pieces of evidence or proceeds
in a manner which is violative of natural justice the finding will be vitiated
but if there is evidence to support the finding of fact and these findings are
properly arrived at then it will be a pure question of fact which this court
will not ordinarily interfere with; (3) if there is an error of law arising as
above or because of misinterpretation of the income-tax law then the case has to
be stated to the High Court in the manner provided in the Income-tax Act and if
the assessee does not choose to follow the procedure prescribed then he cannot
come to this court disregarding the remedy provided by the income-tax law and
(4) the legal effect of facts found where the point for determination is a mixed
question of law and fact would fall under section 66(1) and (2) of the
Income-tax Act. (See Venkataswami Naidu & Co. v. Commissioner of
Income-tax).
This is a case in which certain essential facts have not
been considered by the Appellate Tribunal and therefore it is a case which
should be remitted to the Income-tax Appellate Tribunal to determine the facts
in accordance with the observations made by this court and in the light of those
findings to determine whether the transaction was an adventure in the nature of
a trade or not.
I would order accordingly.
ORDER OF THE COURT.---In view of the opinion of the
majority, the appeal is allowed with costs.
Appeal allowed.
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