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TMI Blog1957 (2) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee confined his arguments only to questions Nos. 2 and 3, we would state the facts relevant to those two questions. 3. The assessee Raja Rameshwar Rao Bahadur was a jagirdar of the Wanaparti Samsthanam, Hyderabad. One of the villages in his jagir was Madanapur. The assessee, who was getting a small amount of ₹ 185 a year from that village, purchased the maktha rights of the makthadar of the lands for a sum of ₹ 25, 000 and constructed houses thereon at a cost of ₹ 26, 500. He also purchased the patta rights of the pattadars in an extent of 217 acres for a sum of ₹ 25, 502. Thereafter, he converted the land purchased by him into house sites and sold some of them in auction for a sum of ₹ 75, 820. The assessee's case before the Income-tax authorities was that he incurred the expenditure with a view to develop the village of Madanapur as an industrial and commercial centre of the Samsthanam, and, therefore, the amount spent by him for acquiring the village and the land should be deducted from his income under section 14(5)(a) of the Hyderabad Income-tax Act and that, at the same time, the income realised by him by selling the plots wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount that he gave and the amount that he received for them. But if instead of dealing with his property as owner he embarks on a trade in which he uses that property for the purposes of his trade, then he becomes liable to pay, not on the excess of sale prices over purchases prices, but on the annual profits or gains arising from such trade, in ascertaining which those prices will no doubt come into consideration. 5. The learned Judge later on gave the following illustration is support of his proposition : would be different if a land-owner, an individual, entered into the business of buying and developing and selling land; but the case of the owner, whether of land, or pictures, or jewels, selling his own property, although he may have expanded money on them in getting them up for sale, is entirely different; he sells as owner, not as trader. 6. The aforesaid passage brings out in bold relief the distinction between the owner selling his on land by parcelling the same into plots and a person purchasing the land for the purpose of selling them for profit. 7. A similar question was considered by a Division Bench of the Madras High Court in Gajalakshmi Ginning Fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of the definition in the Income-tax Act. It will be trade if the adventures is conceived and carried out with a profit is an adventure in the nature of a trade, and, therefore, profit earned in that adventures is a taxable income. 12. Learned counsel for the assessee contends that the assessee had not profit motive in purchasing and selling the lands but the said transactions were part of the integrated scheme of developing the town of Madanapur as an industrial and commercial centre of the Samsthanam. Assuming that the objective of the jagirdar was to improve the town, can it be said that there is no profit motive in his undertaking ? The two objectives, namely, profit-making and improvement of a town, are not inconsistent and both can co-exist in a development scheme. The intention of the assessee could only be gathered from the facts found by the Tribunal. The assessee purchased the lands in his village, converted the same into house sites, sold them by auction and realised large amounts. They form part of the same scheme. The purchase of lands improving them by building house and shops and converting part of it into convenient house and shops and converting part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme was not out through, no taxable income accrued to the assessee during the accounting year. Reliance is sought to be derived for the aforesaid proposition from K.H. Mody, In re, and Commissioner of Income-tax v. A.K.A.R. Family. Kania, J., in the former decision stated at page 18 : The cases to which our attention has been drawn show that when there is a single venture, i.e., a single transaction which is treated as having been entered into in the nature of trade, the question of assessing the profits arose when the venture came to an end i.e., when the goods purchased were all sold. 16. Much to the same effect was stated by a Full Bench in the latter case when the learned Judges at page 358 observes : The case of In re K.H. Mody is clear authority for the proposition that when only a part of the property has been sold, whilst the rest remind in the hands of the assessee, and might result in a profit or might result in a loss, and the whole transaction is not yet complete, no assessment can be made. 17. So stated, the proposition appears to be unexceptionable. But, in the present case, at any of the stages of this long-drawn litigation neither this point w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the question of deducing the expenditure mentioned in the third question does not arise for the reason that the deduction of the expenditure incurred in a connection with the items mentioned in the question was never disputed and indeed was allowed by the Income-tax authorities and also by the Tribunal, But, we are satisfied that the question sought by the assessee and intended by the Tribunal to be referred to this Court is clearly one involving the dispute between the parties, namely, whether the grows or net expenditure incurred in connection with the scheme of improvement should be deducted from the jagir income. in the application filed by the assessee before the Tribunal, the following question was asked to be referred to this Court : Whether the receipt of ₹ 75, 820 on account of sale proceeds of Madanapur is capital receipt being chargeable to income-tax under the Hyderabad Income-tax Act ? 20. By raising the question in this form, the assessee presumably attempted to side-track the dispute between him and the Department, namely, whether the alleged scheme of improvement of the village was really a business carried on by him within the meaning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question in suitable cases. See Mahabir Pershad Niranjanlal v. Commissioner of Income-tax U.P., Seth Ganga Sagar, In re, and Commissioner of Income-tax, Bombay v. National Mutual Association of Australasia. We, therefore, amend question No. 3 as follow : If the answer to question No. 2 is in the negative, whether the assessee is entitled to claim as a revenue expenditure the money spent by him on the acquisition of the village of Madanapur, on the construction of houses etc. and on the acquisition of 217 acres of land without deduction therefrom the sale proceeds of the plots sold by him amounting to ₹ 75, 820. 21. The argument of the learned counsel on the said question may be stated thus. The assessee is entitled to invoke the doctrine of double advantage . He claims an allowance under section 14(5) of the Hyderabad Income-tax Act for the expenses incurred in respect of the work of public welfare undertaken by him and seeks to escape taxation in respect of the sale proceeds on the ground of capital receipt. The former is allowed and the latter is not taxable under the income-tax law and so long as the law allows, the assessee is entitled to both the allowance as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an integrated one and the development is a continuous process till the scheme is completed. It is not possible, therefore, in such a scheme to predicate the expenses incurred unless both sides of the account are considered and the balance ascertained. The expenses incurred on the scheme is the amount in respect whereof the assessee is out of pocket and that can be known only after taking into account the amount realised in the course of the implementation of the scheme. The expenses incurred by him, therefore, is the difference between the sale proceeds and the amount spent by him in the first instance. In this view, the Tribunal was certainly justified in giving allowance only to the net expenditure incurred by the assessee on the scheme. 23. The cases relied upon by the learned counsel in support of the doctrine of double advantage may now be considered. The leading case is that of the Court of Appeal in Hughes (Inspector of Taxes) v. Bank of New Zealand. The assessee, a bank registered and resident in New Zealand, claimed exemption from income-tax in respect of the interest from certain loans and at the same time included in its trading expenses to be deducted from profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite unable to read it as meaning that in giving effect to that exemption by implication some repercussion is to take place on a different provision of the Act altogether. 26. The raison d'etre is apparent. The Income-tax Act treats the entire trade as one, provides for the deduction of certain expenses incurred in respect of the trade and allows an exemption from taxation in respect of certain other income. There is no provision allowing the apportionment of the monies borrowed for earning the exempted income from and out of the general reading expenses deductible from profits. Though the assessee had double advantage, he was allowed to take advantage of both, as the provisions allowed him to do so. But, in the present case, the permissible deduction is only the expenses incurred by the assessee is only the net expenditure incurred by him. The argument based on an attempt to equate the expenses initially incurred by the assessee to the trading expenses and the sale proceeds to the exempted income may appear to be plausible but, on a deeper scrutiny, it is not sustainable. The provisions of the English Act provide for the ascertainment of the taxable income after deducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting certain income from taxation and the other providing deduction of interest on the amounts borrowed, is not of any assistance to construe the words expenses incurred on a public work within the meaning of section 14(5). 29. The third decision relied upon by the learned counsel in Commissioner of Income-tax, Bihar and Orissa v. Ranchi Electric Supply Co. Ltd. turned upon the construction of the words actual cost to the assessee within the meaning of section 10(5)(a) of the Income-tax Act. The learned Judges of the Patna High Court held that the words meant the actual cost incurred in installing service connection irrespective of any consideration as to the amount actually contributed by the company or the amount actually recouped ultimately from the consumers. There, the electric supply company incurred expenditure on the installation of a service connection. the learned Judges held that it must be treated as a capital expenditure and the company was, therefore, entitled to depreciation on that amount. At page 95, Ramaswami, J., say : The only point to be determined is what is the actual cost of installation of service connection and not what is the proportion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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