1969 (8) TMI 8 - HC - Income Tax

An agriculturist businessman purchased 2 plots of agricultural land - a university established near the land and consequently the price of land increased - businessman sell the plots at great profit - assessee purchased these plots only by way of investment and they cannot be treated as held for the purposes of business or in order to undertake a venture in the nature of trade

Issues Involved
1. Whether the Tribunal misdirected itself in law or acted without any legal evidence in holding that the purchase and sale of the two plots in question constituted a venture in the nature of trade.

Issue-wise Detailed Analysis

1. Nature of the Transaction: Venture in the Nature of Trade
The core issue was whether the purchase and sale of two plots by the assessee constituted a venture in the nature of trade. The assessee, an individual engaged in various businesses and possessing agricultural lands, had purchased two plots in 1945 and 1946 and sold them in 1949 at a substantial profit. The Income-tax Officer, Appellate Assistant Commissioner, and Tribunal had held that the transactions were adventures in the nature of trade, thereby making the profits taxable as revenue receipts.

2. Assessee's Contentions
The assessee contended that he was a patidar and agriculturist by custom, and the plots were purchased for cultivation and not for resale. He argued that the lands were cultivated during his possession, were not within municipal limits, and were sold due to financial pressures, including heavy income-tax liabilities. The assessee also provided evidence of agricultural income and land revenue receipts to support his claim.

3. Income-tax Authorities' Findings
The Income-tax Officer concluded that the sole intention behind purchasing the plots was to sell them at a profit. The Appellate Assistant Commissioner found that the price paid for the plots was too high for agricultural land, the yield was minimal, and the location was far from the assessee's other land holdings, indicating a motive for resale. The Tribunal upheld these findings, emphasizing the substantial profit made and the low agricultural income from the plots.

4. Tribunal's Order and Remand
The Tribunal initially remanded the case for further investigation, allowing both parties to present additional evidence. Upon remand, the Appellate Assistant Commissioner reiterated his findings, emphasizing that the payment for the land was made from the business account, and the assessee had incurred heavy interest charges, suggesting a business motive.

5. High Court's Analysis
The High Court scrutinized the evidence and found several errors in the Tribunal's conclusions:
- Agricultural Intent: The Court noted that the assessee was an agriculturist and had cultivated the land during his possession. The small yield was not a conclusive factor, as agricultural income was tax-free and could be influenced by various factors.
- Reasonableness of Purchase Price: Contrary to the Tribunal's findings, the Court found that the purchase price was reasonable based on the Income-tax Inspector's report and comparable sales in the vicinity.
- Borrowed Funds and Interest: The Court found no evidence that the assessee borrowed money specifically for purchasing the plots. The interest paid was related to the general business and not the land purchase.
- Knowledge of University Acquisition: The Court rejected the argument that the assessee had knowledge of the Gujarat University's land acquisition plans, as the relevant notifications were issued after the purchases.
- Prior Transactions: The Court held that the previous sale of another plot (No. 148) was accepted as a capital transaction by the department, and similar treatment should apply to the current plots.
- Compulsion to Sell: The Court accepted the assessee's explanation that the plots were sold to meet heavy tax liabilities and other financial commitments, supported by detailed accounts and affidavits.

6. Conclusion
The High Court concluded that the Tribunal's findings were based on surmise and conjecture, lacking substantial evidence. The assessee's intention was to invest in agricultural land, not to engage in a venture in the nature of trade. The Court emphasized that the burden was on the revenue to prove the transaction was taxable, which it failed to do. The Court answered the referred question in the affirmative, favoring the assessee, and ordered the Commissioner to pay the assessee's costs.

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