1981 (5) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of Rs. 47,30,892 as business income.
2. Whether the transaction amounted to an adventure in the nature of trade producing business income u/s 2(6C) of the Indian I.T. Act, 1922.

Summary:

Issue 1: Taxability of Rs. 47,30,892 as Business Income
The Tribunal held that the amount of Rs. 47,30,892 was taxable under the head "Business." The assessee, who controlled both Dalmia Jain Airways Ltd. and Asia Udyog Pvt. Ltd., entered into agreements that transferred the liability of Rs. 67,00,000 to him for a consideration of the same amount. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) concluded that the assessee derived a gain from this transaction, which was a planned effort to make a profit. The Tribunal agreed, noting that the payments to be made by the assessee aggregated to Rs. 20,30,892, resulting in a net assessable business income of Rs. 47,30,892.

Issue 2: Adventure in the Nature of Trade
The Tribunal found that the transaction amounted to an adventure in the nature of trade, thus producing business income within the meaning of s. 2(6C) of the Act. The Tribunal observed that the assessee used his position to derive gain from the so-called "liability" to the shareholders, and the agreements were a camouflage to conceal the real gain. The dominant intention of the assessee was to embark on a venture in the nature of trade, and the gain resulted from an activity that was itself a business activity. The court referenced similar cases, such as G. Venkataswami Naidu & Co. v. CIT and Dalmia Cement Ltd. v. CIT, to support the conclusion that even isolated transactions can be considered adventures in the nature of trade if the intention is to make a profit.

Conclusion:
The court answered both questions in the affirmative, in favor of the department and against the assessee, confirming that the amount was taxable as business income and that the transaction was an adventure in the nature of trade. The assessee was ordered to pay costs, with counsel's fee set at Rs. 500.