9911796707
TMI Blog1964 (12) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1950-51 for which the relevant accounting period is the year ended on August 31, 1949. The assessment for that year was originally made on a total income of ₹ 18,125, being 1/3rd of the share of the assessee in the firm of Messrs. Udani Engineering Company, Madras. Subsequently, on information received by the Income-tax Officer that the assessee had purchased land at Sembium situated within the Madras City limits on November 6, 1946, in the names of his wife and his brother's wife for a sum of ₹ 30,000 and subsequently sold the same on March 18, 1949, at a huge profit for a sum of ₹ 3,17,000, proceedings under section 34(1)(a) of the Act were initiated. The assessee submitted a return dated December 9, 1953, disclosing the same income as was originally returned by him. The Income-tax Officer on March 24, 1954, completed the assessment by adding to his income two sums, namely, (1) ₹ 2,75,000 as profits on the sale of land; and (2) ₹ 12,000 as income from undisclosed sources. The assessee thereupon carried the matter to appeal before the Appellate Assistant Commissioner contending firstly, that the land belongs to his wife and his brother's wif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Holding thus the Tribunal directed the Income-tax Officer to bring to tax the said sum for the assessment year 1949-50, in accordance with law. The assessee then required the Appellate Tribunal to refer to this court questions of law arising from its order and which according to him were four in number; but the Tribunal referred only one question, which is the subject matter of R.C. No. 9/1961: This court on the application of the assessee directed the Tribunal to state the case and refer for decision another question. That question forms the subject-matter of R.C. No. 24/1963. Thus, the above two questions are before us for decision. The first question to be answered is whether the transaction of purchase and sale in question is an adventure in the nature of trade. Admittedly the land was purchased from K.A. Thanikachalam and K.A. Olaganayaki Ammal for a sum of ₹ 30,000 in the year 1946, and was sold thereafter on March 18, 1949, for a sum of ₹ 3,17,000 to Messrs. Addison Co. That the assessee was the real owner is not now open to dispute. It may be seen that, shortly before the purchase, the assessee was the branch manager of the Baluchistan Construction Synd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading activity, evidently commercial in nature, gains and profits are more likely to be an accretion of capital and not an yield of income which may be brought to tax. The question whether a certain speculation is an adventure in the nature of trade has to be determined on a consideration of a variety of circumstances, regard being had to the nature of organising the speculation; nurturing the property; disposing it off and also the circumstances leading to its sale; whether the article purchased in kind and in quantity is capable only of commercial disposal and not of retention as an investment or of use by the purchaser; what was the nature of occupation and profession of the assessee; whether the transaction is in the line of business or trade carried on by the purchaser; what was the dominant intention of the purchaser at the time of purchase; whether the purchaser before resale has caused expenses to be incurred in making the commodity more readily saleable; and whether the transaction is exactly of the kind that takes place in ordinary trade in which resale requires a number of separate disposals or a series of operations. These and various other considerations which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase amount under two crossed cheques drawn by him. The case of the department is that the said amounts were paid from out of his unauthorised withdrawals from the Baluchistan Construction Syndicate, which he could not lawfully appropriate for his own purpose. But that has been denied by the assessee, who contended that, though at one stage he had drawn ₹ 50,000 by cheque, in order to enforce his legitimate demand, which was threatened to be left unfulfilled on the eve of his retirement from that service, which took place in October, 1946, he did not, however, misappropriate the said amount. His bonus of ₹ 10,000 being settled and paid, the balance of ₹ 40,000 was brought to account. In fact this matter was enquired into on a pervious occasion by the income-tax authorities at the time of the assessment for the relevant year and the order of the Appellate assistant Commissioner dated July 16, 1958, which has become final and which, by consent, had been made part of the record, sheds ample light on the matter. That apart, there is no evidence in support of this theory of the department except the hearsay information of Rangaswamy Iyer, a broker, who, not satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was requested to grant a permit for bringing the seeds, stressing on the urgency of an early grant of the said permit. Requisition was also made to the Joint Director of Agriculture for the agricultural implements; and quotations for the charges of tractors and bulldozers were sought for, as would appear from the letter of the Joint Director of Agriculture dated January 19, 1949. No doubt, prior to that, the land was given on lease for one year from June 1, 1947, on a rental of ₹ 320 to Rangaswamy Iyer, as would appear from the lease deed dated June 1, 1947, with a stipulation that the said amount would be paid in two equal instalments on November 30, 1947, and May 30, 1958. But the case of the assessee is that, though the said lease was given at the request of Rangaswamy Iyer and in faith of his much vaunted claim that he had vast experience in agriculture and that as he was unemployed, he could bestow his whole time on the cultivation and raising of crops in the garden, etc., the lease agreement in fact was not acted upon and Rangaswami Iyer did not do anything, nor did he pay even the first instalment of rent. The assessee himself, therefore, in right earnest carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, even the City Improvement Trust has no scheme for the area comprising the properties in questions. Of course, he stated the Government had, however, notified the area under section 12 of the Town Planning Act for preparation and submission of a Town Planning Scheme by the Corporation of Madras, This information, it may be noted, was given under a letter dated December 22, 1953, that is, four years and nine months after the land in question was sold. The letter is silent as to the date when the notification was made. In this state of evidence, it cannot be assumed at all that the Government has issued the notification before the said date of sale. Be that what it may, it is clear that Rangaswamy Iyer's statement that the assessee had applied to the Corporation for permission to treat it as a colony fit for house site is palpably false. He had also stated that for one year, due to lack of finance, the land was not improved and by that time they received a reply from the Madras Corporation that they will not permit it for Town Planning, since Addison Co. had started an industry in that area. This statement also cannot be true. No such reply has ever been produced. Further, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land in question lay in between the high road and the Addison Co's. land. There was no doubt some other way from their land to the high road but it was through the cremation ground and it was inconvenient and difficult for them to take their lorries along the same. They asked the assessee, therefore, for permission to pass through his land. The assessee was, however, agreeable to allow them for a temporary period but at the same time insisted on a writing to that effect, so that trouble may not arise later on. But Messrs. Addison Co. were not prepared for the same. They wanted a way through the land. They started to trespass into the land and assaulted the watchman in the land. As a result, litigation began which tended to develop both on the criminal and civil side. A complaint was lodged under sections 324, 340 and 352 Indian Penal Code against the assessee with V. Muthuswamy, Secretary, Messrs. Addison Co. as the complainant. The assessee also filed a complaint against the Secretary of Messrs. Addison Co. and others for offences under section 147, 426, 448 and 323, Indian Penal Code. The civil litigation was started by Addison Co. on the original side of the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of the purchase had agreed to pay 25% of the profits realised by the resale that may be effected later on after making improvements in the land. But curiously enough such an agreement which involved huge amounts was not evidenced by any writing; nor is there any other independent evidence in support thereof. Rangaswamy Iyer was a broker and in fact was paid brokerage. But he claims himself a partner in the transaction of purchase and also says that he did all he could for improving the land as a partner and took part in the proceedings civil and criminal, whether in defending or prosecuting. Except for his ipse dixit, there is no evidence to support any of these contentions. As regards the purchase, his name does not find any place in the deed; nor his agricultural operations do bear any reference in any of the documents filed. Further, he was in no sense a party to the proceedings which took place whether in civil or criminal courts; nor does his name bear mention in the transaction of resale. Of course, Rangaswamy Iyer was connected with several other transactions as broker. When he found that the assessee had realised huge profits by the sale of the land by a happy coin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to act upon his statement mainly because the assessee in spite of opportunity did not choose to cross- examine him. Of course, this was not the sole ground for reaching the conclusion. There were other circumstances also which had moved the Appellate Tribunal to come to the conclusion that the assessee while making the purchase was motivated by a desire to resell the land at a huge profit after making necessary improvements and, hence, the transaction is an adventure in the nature of trade. Those circumstances are as below : 1. That Rangaswamy Iyer spoke to that effect and he was not cross- examined in that behalf. 2. That the assessee, after all, was an employee earning a few hundred rupees at the time when these lands were purchased and he had not sufficient means to embark on this enterprise and he for this purpose unauthorisedly withdrew certain amounts from Baluchistan Construction Syndicate where he was employed and utilised the same for purchasing the land in question. 3. That there was another plot of land purchased in the near-about locality, viz., Vyasarpadi, by Udani Engineering Company, in which the assessee also was a partner and that company had applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already discussed that the assessee had means to pay and did pay by two crossed-cheques the purchase amount at the time of purchase. The fact that the assessee had withdrawn a sum of ₹ 50,000 about a month prior to the actual sale transaction does not, in the absence of any positive evidence, raise a presumption that such amount must have been utilised for the purchase of the land, specially so when it is clear that, even prior to the purchase, the said amount was brought to account in the account books of the Baluchistan Construction Syndicate. On the third point, it is no doubt true that certain land in Vyasarpadi was obtained by Udani Engineering Company in which the assessee is a partner and it is also a fact that a layout plan was submitted in connection therewith. But that land is situate at a distance of two miles away from the land in question and altogether in a different locality. It was further purchased not by the assessee in his individual capacity, but by the partnership firm, which is a business concern, and it must further be noted that the said land is still in the possession of the firm, even though several years have elapsed after the said applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and relevant evidence; and, if the High Court is satisfied that the inference is the result of improper admission or exclusion of evidence, it would be justified in examining the correctness of the conclusion. It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence; or that the impugned conclusion drawn from the relevant facts is not rationally possible; and if such a plea is established, the court may consider whether the conclusion is not preserve and should not, therefore be set aside. It is within these narrow limits that the conclusions of fact recorded by the Tribunal can be challenged under section 66(1). This view was reiterated by the Supreme Court in Commissioner of Income-tax v. Daulat Ram Rawatmull [1964] 53 I.T.R. 574 (S.C.), where it was held that the finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse. In the instant case the Tribunal has not considered the entire material on record while reaching the findings on primary evidential facts. As already noticed, while coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any such proof, it would simply be a case of resale of the property resulting in a mere accretion of capital value. As observed by Lord Buckmaster in the case of Jones v. Leeming [1937] A.C. 415, 420, 423; 15 Tax Cas. 333: ...an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise, its realisation does not made it income. Whether the dominant intention at the time of purchase was to sell the property at profit or to hold it as an investment has further to be determined on a number of circumstances including the nature of the article, its extent and how it has been dealt with. Further, as observed by Lord Dunedin in the same case: The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments, but per se it leads to no conclusion whatever. This passage shows merely the evidentiary value of a man's intention not to hold an investment which may justify the inference that the individual in question is eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances under which the sale became inevitable, it is difficult to hold that the dominant intention of the purchaser at the time of purchase was to resell the land as house sites with profit or the transaction of purchase and sale is an adventure in the nature of trade. The very fact that agricultural operations were started immediately after the purchase make it improbable that the purchaser had intended to make use of the potentiality of the land as house sites. The various known circumstances of the case thus lead to the only conclusion that it was a capital investment and not an adventure in the nature of trade. Now we advert to the cases cited at the Bar which enunciate various tests to be applied in determining the question. The earliest vase which is somewhat nearer to our case referred to is Radha Debi Jalan v. Commissioner of Income-tax [1951] 20 I.T.R. 176, where a lady, who was habituated to invest her moneys in shares from time to time and owned specified number of shares in a public limited company, purchased some shares in the course of investment and then on a similar occasion sold the shares purchased. The question was, whether the lady by doing so had emb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing it out into different plot's and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of a trade . There the learned judges were concerned with a company, which had purchased a ginning factory with extensive lands pertaining thereto and also a plot containing some fruit stalls for a certain sum. Some years thereafter, the assessee-company sold the factory and some of the lands pertaining thereto and parceled 5.00 acs. of land into several small plots and sold them by public auction and in the next accounting year the remaining plots and also fruit stalls were sold and profit was realised. The learned judges held that the profit received from the sale of the plot of land and fruit stalls is a capital receipt. In another case in P.K.N. Co. Ltd. v. Commissioner of Income-tax [1963] 47 I.T.R. 195, 207, where the partners of a firm formed a private company and transferred to it item by item all the properties one after the other during a course of three years till 1940, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the public limited company promoted by co-owners, the consideration for the transfer being allotment of share in the company, the assessee's profit from this transaction was assessed to tax as arising from an adventure in the nature of trade. The Tribunal upheld this taxation on the ground that the assessee had intended to resell the estates at the time of purchasing them and this conclusion was reached, because the money for the purchase had been borrowed land further the joint purchaser of the estate was a dealer in the purchase and sale of such estates. It was held by the Madras High Court that the mere circumstance that the joint purchase had been made with borrowed capital could not lead to the conclusion that the property had been purchased with the intention to resell, as the co-owners had worked the estate for six years and the income derived from the estate was in part applied in the discharge of the loan originally taken and this fact negatived the existence of an intention to resell and that the transaction was not, therefore, an adventure in the nature of trade. In Vadlamani Kameswara Rao v. Commissioner of Income-tax [1964] 51 I.T.R. 304, this court had to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd one of the terms of the agreement was that the transaction of purchase would be completed within six months of the lands being released from Government occupation. The assessee assigned his rights under the agreement with the society to another person for a consideration of ₹ 1,07,000 the amount to be paid by him on suspense account until the plot of land to be purchased was finalised. The purchaser undertook to pay the balance of the sale price, which was ₹ 98,000, to the society. Ultimately, on December 27, 1950, the society executed a sale deed in favour of the purchaser. As the adventure resulted in a sum of ₹ 74,485 in excess of the amount the assessee had paid, the Appellate Tribunal came to the conclusion that the sale was an adventure in the nature of trade and the excess was profit assessable to tax. The reasons given therefor were: 1. That the payment of ₹ 32,748 came out of a loan from a company; 2. That the appellant could not have paid the balance of the purchase price of the plot and had no means to construct a house; 3. That the site itself fetched no income, thus showing that the appellant's venture could not be an investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that the circumstances of the present case do not bring the transaction in question within the description of an adventure in the nature of trade. We, therefore, answer question No. 1 in the negative. Then, turning to the second question, it is indisputable that the receipts of the sale of the land which took place on March 18, 1949, can come in for taxation only for the assessment year 1949-50, for which the previous year was 1948-49, as the accounting year ended on March 31, 1949. The Tribunal also held to the same effect, but at the time directed the Income-tax Officer to bring to tax the said sum for the assessment year 1949-50. The question is, whether the Tribunal had jurisdiction to give such a direction. Whatever the judicial opinion before, now all doubts have been removed and the law on the point has been explained and authoritatively laid down in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das [1964] 52 I.T.R. 335 (S.C.). There their Lordships construed the expressions finding and direction and held that where the appeal related to a particular assessment year, the finding and direction must necessarily be limited to that particular yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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