1984 (3) TMI 150 - AT - Income Tax

Adventure In The Nature Of Trade, Manufacture And Sale, Purchase And Sale, Revenue Expenditure

Summary

Issues Involved:
1. Nature of the profit from the sale of the margarine plant.
2. Admissibility of additional evidence.
3. Classification of the transaction as an adventure in the nature of trade or a capital asset transfer.
4. Set off of brought forward business losses.

Issue-wise Detailed Analysis:

1. Nature of the Profit from the Sale of the Margarine Plant:
The primary issue was whether the profit from the sale of the margarine plant should be classified as business profit from an adventure in the nature of trade or as a short-term capital gain. The assessee-company argued that the profit was from an adventure in the nature of trade, while the Income Tax Officer (ITO) classified it as a short-term capital gain.

2. Admissibility of Additional Evidence:
The Tribunal previously ruled that the Appellate Assistant Commissioner (AAC) had erroneously admitted additional evidence (minutes of the board meetings) without giving the ITO an opportunity to review it. The Commissioner (Appeals) later directed the ITO to examine this evidence and submit a remand report.

3. Classification of the Transaction as an Adventure in the Nature of Trade or a Capital Asset Transfer:
The Tribunal considered several factors to determine the nature of the transaction:
- The assessee-company could not use the margarine plant in its existing business of manufacturing and selling desi ghee.
- The plant was purchased with borrowed funds, and related expenses were treated as revenue expenditure.
- The intention from the beginning, as evidenced by the board minutes, was to purchase and sell the plant at a profit.
- The plant was shown in the balance sheet under 'Plant and Machinery' but was not treated as a fixed asset for depreciation purposes.

4. Set Off of Brought Forward Business Losses:
The Commissioner (Appeals) upheld the AAC's decision that the profit from the sale of the margarine plant should be treated as business profit, allowing the set-off of brought forward business losses under section 72(1)(i) of the Income-tax Act, 1961. The Tribunal agreed, noting that the transaction was an adventure in the nature of trade, thus qualifying for the set-off.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision, confirming that the profit from the sale of the margarine plant was a business profit resulting from an adventure in the nature of trade. The appeal by the revenue was dismissed, affirming the assessee's right to set off the brought forward business losses against this profit.