9911796707
TMI Blog1969 (8) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... lling sizing materials, dealing in chemicals, mill stores, and china clay. He has also a business in forward transactions in shares and bullion. He has branches at Calcutta, Coimbatore, Ahmedabad and other places in India and, besides income from partnership firms. Apart from his business income he also has house property and investment in shares and agricultural lands. The subject-matter of this reference consists of two parcels of land, one being survey No. 150/2 and the other parcel consisting of survey Nos. 140/1-1 and 140/2 of village Kochrab on the outskirts of Ahmedabad city. Survey No. 150/2 admeasures 10,890 sq. yds. and survey Nos. 140/1-1 and 140/2 together 21,751 1/2 sq. yds. The assessee purchased these two plots by two different sale deeds dated respectively, 6th February, 1945 and 9th February, 1946, for a consideration of Rs. 10,285-10-6 and Rs. 79,335-1-0, respectively. At this price the rate of purchase per sq. yard works to 151 annas per sq. yd. and Rs. 3-11-3 per sq. yd., respectively. Having purchased these two plots in 1945 and in 1946 the assessee kept them with him for about 21 years to 3 years and agreed to sell them in one lot on 5th October, 1948. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee stated that he was compelled to sell these family lands as he had to make heavy payments of income-tax and meet other liabilities. He also stated that he would have suffered heavily by fall in the price if he had delayed the sale of these plots and that the alleged amount of profits was nothing but a surplus realised by the assessee from his agricultural capital investment and was exempt from taxation. In support of the assessee's case he also filed an affidavit by the purchaser of these plots, one T. C. Patel, admitting that the plots were purchased at the price mentioned in the sale deeds, that the lands which T. C. Patel purchased were situated in the new town brought into existence at Ahmedabad in which subsequently costly buildings were constructed. He also admitted that after he purchased the land the prices of these lands rose high. The present assessment proceedings were considerably protracted because of a remand and we may now state the facts pertaining to the several orders passed by the different authorities. The Income-tax Officer did not accept the assessee's contentions and by an order passed on the 15th February, 1955, held that the sole intention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase by the assessee. The assessee carried the matter in appeal to the Tribunal and the Tribunal found that the investigation of the case had not been properly made ; that certain aspects of the matter had not been considered and that, since both the sides were agreeable that the case should be remanded to the Appellate Assistant Commissioner for proper verification of facts, they decided to send the case back to the Appellate Assistant Commissioner. They held : " In the circumstances, we vacate the order passed by the Appellate Assistant Commissioner and restore the case on his file. He will give a reasonable opportunity to both the parties to adduce such evidence as they might like and then decide the question de novo according to law. Thus the first proceedings for assessment of the assessee for the year 1949-50 ended. In the second investigation it appears that the Appellate Assistant Commissioner gave an opportunity to both the sides to adduce evidence and the Appellate Assistant Commissioner gave the Income-tax Officer an opportunity to cross-examine the assessee who had filed an affidavit. Both the affidavit and the cross-examination are on the record and we s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had sold two plots of land on which he had realised a profit of Rs. 41 lakhs in one transaction and "about Rs. 3 lakhs in the other transaction" and therefore it is not possible to accept the assessee's contention that the land was purchased with a view to do agriculture and, lastly, that the price paid for the land appeared to be considerably higher than the price of farm land-presumably at the time of the purchase. For these reasons the Tribunal concluded : " We think that the Appellate Assistant Commissioner has given valid reasons for coming to the decision that the land was purchased by the assessee with the primary purpose of doing a venture in the nature of trade. " In the arguments before us counsel on behalf of the assessee has controverted each one of these findings and the reasons given for the same and has contended that the orders of the income-tax authorities as well as of the Tribunal are not based upon any evidence or material which can be accepted. He has pointed out that such reasons as these authorities have given are no more than mere surmises and conjectures and do not amount to legal evidence. Thus, the findings are not based upon any evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment to an affidavit dated 19th February, 1959, particularly paragraph 6 thereof to controvert this statement of the assessee. This affidavit was not before the Tribunal or the income-tax authorities when they passed their respective orders. This affidavit appears to have been filed in the proceedings commenced against the assessee for the assessment year 1949-50 under section 34 of the Indian Income-tax Act, 1922, in respect of the sale of survey No. 148. It was also produced before this court as an annexure to an affidavit filed in this court in support of an application under section 66(2). Since this affidavit does not form part of the record and was not before the income-tax authorities or the Tribunal when they passed their respective orders, we do not think that simply because it was filed along with an application under section 66(2) before this court we would be entitled to look at it. Strong objection was taken on behalf of the assessee by Mr. Kolah, though it must be said in fairness to the assessee that Mr. Kolah also argued that even if it was taken on record he was in a position to show that the facts stated therein were correct and in no way detracted from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evail in the matter of such purchase, namely, the pride of possession of agricultural lands, security which is inherent in the investment of money in such property, etc." "The fact", they held, "that the income derived does not bear a proper proportion to the investment cannot, therefore, be taken as conclusive on the question." In the present case, moreover, we do not think that the income was so low as to indicate that the assessee could not think of investing his moneys in the lands. It has to be remembered that the agricultural income was free of tax and for a person like the assessee who had a large income, the income-tax saved would itself come to a sizeable amount. All these considerations as well as the important consideration that he being in management of large lands he could conveniently add these further acquisitions to his capital may have weighed with him. Moreover, no enquiry seems to have been made from the assessee as to how this low income was received. The smallness of the income may be due to several factors adverse climatic condition, want of rainfall and possible leakage of produce by those employed by the assessee to carry on the agricultural operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1956. In paragraph 5(f) thereof he stated on oath that, " the said agricultural lands were purchased at an average rate of Rs. 2-12-0 per square yard equivalent to Rs. 7,000 approximately per biga. This favourably compares with the rate of other agricultural lands in the vicinity sales in respect of which are hereto annexed in a statement marked 'C'." The assessee purchased the two pieces of land in question on 6th February, 1945, and 9th February, 1946, and the purchases on these dates, as shown in the statement, show that the rate of land per square yard was Rs. 4-4-7 on 14th February, 1945, and Rs. 7-8-0 on 29th May, 1946. In other words, the price at which the assessee purchased the land was far below the land value at that time. Here again the positive material directly bearing on the question of the price paid was ignored. We are really surprised that without any reference to the assessee's statement, to his affidavit and to the report of the inspector, the Appellate Assistant Commissioner and the Tribunal should have ventured the conclusion that the price paid for the land was considerably higher than the price of farm land at the time of the purchase. The inspector' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only as building land or for purposes of business as counsel would have us to hold. The next index of trade or business which has been stressed on behalf of the department is that money was borrowed to pay for the purchases of these lands and at a high rate of interest. Here again we may say that the finding given is entirely unsupported by any evidence on the record, but that, on the other hand, whatever material there is indicates the contrary. The correspondence with the assessee makes this clear. In reply to question No. 4 in the Income-tax Officer's letter dated 4th December, 1954, the assessee in his letter dated 14th December, 1954, had categorically stated : " No moneys have been borrowed for the purpose of purchasing the land. " When he was cross-examined by the Appellate Assistant Commissioner on 4th March, 1958, after the remand also no question was put to him that he had purchased these lands on borrowed money. But apart from this the assessee has produced his balance-sheets and profit and loss accounts for the years 1942 to 1949 (vide annexure "K"). All these accounts support the case of the assessee. The assessee does not maintain any personal account of his o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of interest if calculated upon the basis of his liabilities does not exceed above 3% which is by no means an excessive rate of interest in business. It cannot however upon these accounts be concluded, as the Appellate Assistant Commissioner and the rribunal seem to have done, that moneys were borrowed in order to purchase these lands or that interest was paid on that account. It was one general composite account and though no doubt interest was paid upon the liabilities, that was merely incidental to the general business and cannot be attributed to the purchase of these minor pieces of land. Even in the account year with which we are concerned the purchase of these plots for Rs. 89,620 was only a fraction of the total immovable properties purchased by the assessee which amounted to over Rs. 4 lakhs and the total investment in shares and securities which he had made was over Rs. 7 lakhs. In his affidavit dated September 29, 1956, in paragraph 5(h) the assessee averred : " ... it may be noted that the annual turnover of the deponent's business ranges between Rs. 40 lakhs and Rs. 70 lakhs per annum. It is obligatory for a man of the deponent's commitments to have a minimum cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such finding. In other words it did not confirm the finding of the Appellate Assistant Commissioner and, even if it did, that finding is incorrect and not supported by any evidence whatsoever. The principal contention on behalf of the department before us has been to press the case on the lines of the findings given by the Appellate Assistant Commissioner in his first order that : " The decision to shift the university to this area was known to the appellant before he had bought the land. He had done so knowing full well that the price would go up tremendously in the near future. It is accordingly impossible to escape the conclusion that re-sale was one of the motives which prompted the appellant to buy the land. The point to be considered is whether it was the sole motive." Counsel urged that it was a matter of common knowledge by the. year 1943 that the Gujarat University was to be established and that the people's education society and others had started collecting funds for the establishment of that university. It was also well known that a university would be established on lands partly within the area of Kochrab village and that the appellant (the assessee) having com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had not been published on those dates. The first notification was issued on the 22nd October, 1946, and the second on the 20th of May, 1948, long after either of the two purchases made by the assessee. We find it a little difficult to see therefore how upon these notifications the assessee could be fixed with the knowledge that the areas near about the plots in question were going to be acquired for the purposes of the Gujarat University. When pressed, counsel submitted that it was a matter of wide and general knowledge and it must be held that the assessee knew what every one else knew that the Gujarat University was going to be established in the vicinity. We do not think that we can draw any such inference without the slightest material on the record. We certainly cannot presume that the assessee must have knowledge. So far as the notifications are concerned, they are of no value whatsoever in fixing knowledge on the part of the assessee that, if not his own land, at least the contiguous land, were going to be acquired for the Gujarat University. Another piece of evidence relied on is the report of the income-tax inspector. What the inspector had said may be stated in his ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inspector's report cannot be relied upon on behalf of the department. It was a report unilaterally obtained at the instance of the Appellate Assistant Commissioner and no opportunity was afforded, which we can say was even a reasonable opportunity to the assessee to peruse that report or to counter it. The report certainly suggests that some of the lands were purchased from the calendar year 1942 onwards through the Government suggesting thereby that they were being acquired ; otherwise there would be no question of purchasing the lands through Government, but the two notifications to which we have referred clearly show that the acquisition commenced only towards the end of 1946 on and after 31st December, 1946, and not before, and therefore some of the statements in the report themselves are not accurate not to mention that they are utterly vague. But such as it is, a fair opportunity ought to have been afforded to the assessee to meet this report. Counsel on behalf of the department referred to the cross-examination of the assessee where this report was put to the assessee (vide annexure " G "), questions Nos, 32 to 35. No doubt in this cross-examination the report has been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge. All the other reasons which appealed to the Tribunal have been set forth in detail and we do not suppose that only this reason was accepted merely by reference to the reasons given by the Appellate Assistant Commissioner. To this extent, therefore, it must be held that the Tribunal did not adopt as its own the finding of the Appellate Assistant Commissioner. The Appellate Assistant Commissioner also has not relied upon the report of the income-tax inspector and rightly because it could not have been used against the assessee, though the assessee may use it as a statement or admission on behalf of the department. The next circumstance pressed for our consideration in the arguments has been that the assessee had been dealing in lands prior to the purchase of these plots. He, had purchased and sold two other plots in the preceding year and realised profit and this shows that lie was dealing in these plots or at any rate undertaking ventures in the nature of trade in regard to them. The assessee admitted in his letter of 20th December, 1954, that another plot No. 148 at Kochrab was purchased by him on 7th April, 1942, for Rs. 23,141-4-0 and that the assessee had sold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of income-tax and liabilities "(vide annexure "B-3"). He had similarly said in a letter dated 9th February, 1955 (vide annexure "B-4") : " The land at Ahmedabad was the old agricultural land and sold during the year. If the same would not have been sold, I would have suffered very greatly in capital. The said sale has nothing to do with my business but the sale was purely of capital investment of the agricultural land as proved to you. " In paragraph 5(d) of his affidavit dated 29th September, 1956, the assessee gave details to support this statement. He stated that he had heavy commitments and liabilities by way of tax payments in respect of his business dealings and at the close of 1948 when he received a substantial offer for the land he parted with the same to another agriculturist, viz., Thakorlal C. Patel, who continued to carry on agricultural operations on the said lands. Then he stated "the disposal of the said lands was thus necessitated by circumstances and its proceeds were utilised to meet the assessee's obligations as per statement hereto annexed and marked "B". This statement which forms part of the record and is annexure "G" before us, has given every detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which we may hold that they have potential value as building sites. That was a matter which could have been established upon evidence but it has also been held that the land is of potential value or it is so converted later on after the impugned transaction would not lead to any inference that the assessee had purchased the property with a view to reselling it and make a profit out of it. See Janab Abubucker Sait's case, to which we have already referred in another connection. There is moreover absolutely nothing to show that the assessee was aware of the potential value of these plots. We have thus examined the circumstances attendant upon the transaction sought to be taxed in some detail, in order to show that the several weighty considerations which appear upon the record were not taken into account at all by the Tribunal who disposed of the entire matter in one paragraph (paragraph 2) of their order. The five reasons given by the Tribunal in that paragraph cannot be sustained upon the material before us and having regard to all the circumstances, they are based purely upon surmise or conjecture. Even after taking into account the five reasons stated in paragraph 2 the final c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intention to earn profits. In order that it may be held that a person is undertaking a trade or business or entering into an adventure in the nature of trade it is essential that the particular transactions under scrutiny should have been entered into with the intention of earning a profit. Though that is not a conclusive test it is certainly an essential test before such a conclusion could be drawn, but such a case is quite different from the case of a person purchasing the property with the dominant intention of using it himself or enjoying it himself but, at the same time, expecting at some future date, if it goes up in value, he may take advantage of the rise in the price. All the circumstances referred to by the Tribunal in coming to the conclusion that the assessee had entered into an adventure in the nature of trade are circumstances which show perhaps that the assessee expected to make profit out of the land but they do Dot show that he intended to do business with the land or to enter into an adventure in the nature of trade. The distinction was pointedly brought out in the decision of the English Court of Appeal in Commissioners of Inland Revenue v. Reinhold at page 393 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased with a view to resale did not of itself establish that the transaction was an adventure in the nature of trade. The same distinction was adverted to by the Supreme Court in G. Venkataswami Naidu Co. v. Commissioner of Income-tax, where they observed : " Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the borderline that cause difficulty. If a person invests money in land intending to hold it, enjoys its in ome for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In our opinion the present case clearly falls within the principle laid down in the said case. The other point upon which in our opinion the Tribunal was in error in law was that, in judging the question as to what was the intention of the assessee, it failed to note that the important consideration is what was the intention at the commencement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee at the inception is an important circumstance and that is precisely what the Calcutta High Court has also stated at page 577 in the case of Praise Co. Private Ltd . With respect we accept the statement of the law as correct that the Initial intention is an important relevant circumstance. In the present case, however, this important requirement of the law does not appear to have been given any attention in the orders of the Appellate Assistant Commissioner and the Tribunal. The third error which appears also in the orders of the Appellate Assistant Commissioner and the Tribunal is that they failed to take into account the nature of the property which was the subject of the dealings in the present case, namely, the land-an agricultural land. We have already referred in this respect to a decision in Reinhold's case, which shows that land "is normally used for investment". The following passage in the judgment of Lord Russell at page 394 brings out the point with great emphasis : " The Lord Advocate contended that if a person buys anything with a view to sale, that is, a transaction in the nature of trade; that the purpose of the acquisition in the mind of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of trade. Having regard to the totality of the circumstances in this case, we are unable to sustain the findings of the Tribunal. On the other hand, we think that the intention of the assessee both at the inception and subse quently was to treat this land as his capital investment. He was an agriculturist and possessed extensive cultivation and in order to add to that cultivation he purchased further plots out of the spare capital belonging to him. During the whole time that he was in possession of these plots from 1945 to 1949 the assessee did not evince any intention to deal with them by way of business. He has, not altered the nature of the land while it was in his possession. During the time that he was in possession several offers were made to him which he declined, expressly stating that, he was holding on to the land because it was meant for cultivation and there is nothing to counter those letters. At the time of sale he has given reasons why he sold them, which reasons, upon the evidence, are amply supported and there is nothing to indicate to the contrary. He was indebted and wanted to wipe off his liabilities and therefore he selected these blots for dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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