1971 (9) TMI 54 - HC - Income Tax

Whether a certain transaction of purchase and sale of land effected by the assessees was by way of realisation of investment or was an adventure in the nature of trade - When the assessee buys and sells non-agricultural land whether they intend to re-sell is material to determine whether the transaction was adventure in the nature of Trade - whether there is distinction between purchase and sale by a person residing abroad and by person residing in India

Issues Involved:
1. Whether the transaction of purchase and sale of land was a realization of investment or an adventure in the nature of trade.
2. Whether the surplus realized by each of the assessees on the sale of the land is business income or capital gain.

Issue-wise Detailed Analysis:

1. Whether the transaction of purchase and sale of land was a realization of investment or an adventure in the nature of trade.

The court examined whether the transaction of purchase and sale of land by the assessees was an adventure in the nature of trade or merely a realization of investment. The Tribunal had concluded that the transaction was an adventure in the nature of trade, treating the surplus as business income. The court stated that the question of whether a transaction is an adventure in the nature of trade is a mixed question of law and fact, and it is open to the court to examine if the Tribunal applied the correct legal principles.

The court noted that the burden of proof lies on the revenue to establish that the profit earned is within the taxing provision, and the revenue must show that the transaction is an adventure in the nature of trade. The court emphasized that no single fact or circumstance is decisive; rather, the totality of relevant factors and circumstances must be considered.

For the three brothers residing outside India, the court found no evidence that their intention at the time of purchase was solely to resell the land at a profit. The court observed that merely purchasing a large area of land does not inherently indicate an intention to trade, especially when the amount invested was relatively small compared to their wealth. The court concluded that the purchase was by way of investment, and any profit from resale was merely a realization of the enhanced value of the investment.

2. Whether the surplus realized by each of the assessees on the sale of the land is business income or capital gain.

The court divided the assessees into two groups: D. S. Virani and the other three brothers. For the three brothers, the court concluded that their transaction was not an adventure in the nature of trade, and the surplus realized was capital gain, not business income.

However, the court found that D. S. Virani's case was different. The Tribunal had found that D. S. Virani was a dealer in real property since 1946-47, and the transaction of purchase and sale of his 1/4th share in the land was in the ordinary line of his business. The court agreed with the Tribunal that this transaction was part of his business activity, and the surplus realized was business profit.

The court also addressed the non-production of the agreement dated 2nd October 1959, which led the Tribunal to infer that the terms of the agreement might have indicated a trading activity. The court found this inference reasonable and concluded that the arrangement for the sale of land further indicated that D. S. Virani engaged in the transaction by way of trading activity.

Conclusion:

The court answered the questions as follows:
- For D. S. Virani (Reference No. 11 of 1970), the surplus realized was business income (affirmative).
- For the other three assessees (References Nos. 12, 13, and 14 of 1970), the surplus realized was capital gain (negative).

The court ordered that D. S. Virani will pay the costs of the reference to the Commissioner, while the Commissioner will pay the costs of the reference to the other three assessees.

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