1965 (3) TMI 19 - SC - Income Tax

Whether profit made by the appellant by sale of the property to Ranada Prasad Saha was taxable under section 10 of the Indian Income-tax Act,1922? Held that - It appears that Ranada Prasad Saha on coming to learn that the factory was for sale approached the company after the sale deed was executed in favour of the appellant and he was informed that it had already been sold to the appellant. Thereafter Saha contacted the appellant and agreed to purchase the property. The property purchased was not such that an inference that a venture in the nature of trade must have been intended by the appellant in respect thereof may be raised. A person purchasing a jute press may intend to start his own business even if he is not already in that business, or he may let it out on favourable terms. The property purchased by the appellant was capable of being let out and it had in fact been let out by the company before the date of sale in favour of the appellant. It was capable of fetching annual income, and there is no evidence that at the material time it could not be reasonably let out. Appeal allowed.

Issues Involved:
1. Whether the profit from the sale of the jute press was taxable as an adventure in the nature of trade.
2. Interpretation of Section 10 of the Indian Income-tax Act, 1922.
3. Determination of the nature of the transaction (capital gain vs. business income).

Issue-wise Detailed Analysis:

1. Whether the profit from the sale of the jute press was taxable as an adventure in the nature of trade:
The core issue was whether the profit earned by the appellant from selling the jute press to Ranada Prasad Saha was taxable as income arising from an adventure in the nature of trade. The Tribunal and the High Court had previously held that the transaction was indeed a trading venture. The Tribunal found that the appellant purchased the jute press with the sole object of reselling it at a profit at the earliest opportunity, indicating a trading venture. The High Court agreed with this view.

2. Interpretation of Section 10 of the Indian Income-tax Act, 1922:
Section 10 of the Indian Income-tax Act, 1922, makes profits and gains of business, profession, or vocation carried on by an assessee taxable. The expression "business" is defined in section 2(4) as inclusive of "any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture." The court had to determine if the transaction fell within this definition.

3. Determination of the nature of the transaction (capital gain vs. business income):
The court examined whether the transaction was an isolated venture or an adventure in the nature of trade. The appellant argued that the purchase of the jute press was an isolated transaction not related to his usual business of dealing in iron scrap and hardware. The court noted that the appellant had closed his business in iron scrap and hardware due to abnormal conditions in Calcutta and had not engaged in jute pressing business. The appellant had also not organized a jute pressing business, obtained a license, secured orders, or employed laborers. The court emphasized that a profit motive alone is not decisive; an accretion to capital does not become taxable income merely because an asset was acquired with the expectation of being sold at a profit.

The court concluded that the purchase of the property by the appellant was an isolated transaction and not related to his usual business. The appellant had put the factory in a working condition but had not started a jute pressing business. The court found that the appellant's intention to start a venture in the nature of trade could not be presumed solely based on the expectation of profit and realization of profit by selling the property. The court also noted that the appellant had demolished certain godowns and sold the material as scrap, but this did not necessarily indicate a trading venture.

Conclusion:
The court discharged the answer given by the High Court and recorded a negative answer to the question submitted by the Tribunal. The appeal was allowed, and the Commissioner was ordered to pay the costs in both the Supreme Court and the High Court. The court held that the transaction was not an adventure in the nature of trade and, therefore, the profit earned by the appellant was not taxable as business income. The judgment emphasized that the nature of the transaction must be determined based on all facts and circumstances, and no single fact has decisive significance.

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