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TMI Blog1969 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... 956-57 on 13th August, 1959. Under an agreement dated 18th May, 1955, a company called Mundakayam Valley Rubber Co. Ltd. sold and delivered an estate called Kuttikal Estate to one Mr. A. V. George. The area of the estate was 477 acres and 71 cents. Mr. A. V. George had entered into the agreement in his own name and on behalf of another company called the Kailas Rubber Co. Ltd. It was agreed that the vendor would execute the necessary conveyance in favour of Mr. A. V. George or his nominees. On 15th August, 1955, the assessee entered into an agreement with Mr. A. V. George whereby the assessee agreed to purchase 447.71 acres forming part of Kuttikal Estate for Rs. 6 lakhs. An advance of Rs. 11,000 was paid by the assessee. The balance of Rs. 5,89,000 was to be paid by the assessee on or before 25th September, 1955. It was agreed that Mr. A. V. George should execute a sale deed himself or cause it to be executed by Kailas Rubber Co. Ltd. on whose behalf he was acting in favour of the assessee or his nominees. The assessee subsequently divided the area of 477.71 acres into 23 plots and found purchasers for 22 of these plots. The total extent of 22 plots for which he found purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and effect of all the relevant facts and circumstances established in the particular case. In Californian Copper Syndicate v. Harris, Lord Justice Clerk observed : " It is quite a well settled principle in dealing with questions of assessment of income tax that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit ... assessable to income tax. But it, is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business... What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts ; the question to be determined being---is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme for profit-making ? " But in judging the character of such transactions several factors have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re important is the nature of the transaction with reference to the commodity dealt in. The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that that is not the only purpose for which he purchased the article or the commodity, nor the only purpose to which he might turn it if favourable opportunity of sale does not occur. In some of the cases the purchase of a picture has been given as an illustration. An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchase stocks and shares with a view to selling them at an early date at a profit, but, if he does so, he is purchasing something which is itself an investment, a potential source of revenue to him while he holds it. A man may purchase land with a view to realising it at a profit, but it also may yield him an income while he continues to hold it. If he continues to hold it, there may be also a certain pride of possession. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Rs. 52,600. The question was whether the sum of Rs. 43,887, being the excess realised by the appellant by the two sales over its purchase price, was assessable to income-tax. The Appellate Tribunal rejected the contention of the appellant that the properties were bought as an investment and that the plots were acquired for building tenements for the labourers of the mills but came to the conclusion that the transaction was an adventure in the nature of trade. On a reference, the High Court expressed the same view. It was held by this court in appeal that the Appellate Tribunal was right in inferring that the appellant knew that it would be able to sell the lands to the managed company whenever it thought it profitable so to do, that the appellant purchased the four plots of land with the sole intention of selling them to the mills at a profit and that the High Court was right in holding that the transaction was an adventure in the nature of trade. Again in Raja J. Rameshwar Rao v. Commissioner of Income-tax , the assessee purchased 217 acres of land from the pattadars and on a portion of the land the assessee constructed a ganj and shops. The rest of the land he laid out a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the sale to the various purchasers indicate that there was scheming and organisation on the part of the assessee. It was found that the assessee did not have the means and resources to cultivate the land himself and that he had arranged for the sale of 22 plots to different purchasers. Having regard to the total effect of all these circumstances, we are of the opinion that the High Court was right in its conclusion that the transactions of the assessee constituted an adventure in the nature of trade and were, in the course of a profit-making scheme and the question was rightly answered by the High Court against the assessee. It was then contended on behalf of the appellant that, even assuming that there was an adventure in the nature of trade, the profits from such an adventure have not been properly ascertained in the present case. It was said that the income-tax authorities were wrong in holding that the value of the 23rd plot retained by the assessee represented the profit made in the transaction. The argument was that the adventure would terminate after the portion retained by the appellant was also sold and therefore the profits in the adventure could be determined on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket price, whichever is the lower, although there is nothing about this in the taxing statutes. " In Commissioners of Inland Revenue v. Cock, Russell Co. Ltd. Croom- Johnson J., in dealing with valuation of stock-in-trade for purposes of taxation, stated as follows : " There is no word in the statutes or rules which deals with this question of valuing stock-in-trade. There is nothing in the relevant legislation which indicates that in computing the profits and gains of a commercial concern the stock-in-trade at the start of the accounting period should be taken in and that the amount of the stock-in-trade at the end of the period should also be taken in. It would be fantastic not to do it : it would be utterly impossible accurately to assess profits and gains merely on a statement of receipts and payments or on the basis of turnover. It has long been recognised that the right method of assessing profits and gains is to take into account the value of the stock-in-trade at the beginning and the value of the stock-in-trade at the end as two of the items in the computation. I need not cite authority for the general proposition which is admitted at the Bar, that for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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