9911796707
TMI Blog1968 (10) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... f India, the assessee was a resident of Lahore. In the year 1938, the assessee along with his father-in-law, Shri A, N. Mehra, formed a partnership under the name and style of M/s. Sonepat Electric Supply, hereafter referred to as " the firm ". The firm obtained an electric licence from the Government of Punjab to generate electricity and supply it to Sonepat town. For that purpose, the firm obtained a piece of land measuring 20 bighas and 15 biswas on lease from the Sonepat Municipality on April 9, 1938, for a term of 18 years, on a rent of Rs. 100 per annum. The firm constructed a power house on a portion of the leased land and installed electrical equipment for generating electricity. On January 18, 1940, a limited company under the name and style of M/s. Sonepat Light, Power and General Mills Limited, hereafter referred to as " the company ", was floated, and the assessee became its managing director. On October 24, 1940, the firm took on lease another piece of land measuring 27 bighas, 10 biswas, which was adjacent to the previous piece of land from the Sonepat Municipality for a term of 18 years and on a rent of Rs. 50 per annum, On January 19, 1941, the Registrar of Joint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Rs. 34,692. Out of these amounts, he deducted Rs. 1,000 in each of the two years as cost of land and certain operation schemes, leveling, etc. the balance amounts were treated by the Income-tax Officer as surplus profit, and assessed to income-tax. The assessee preferred two appeals to the Appellate Assistant Commissioner of Income-tax against the two assessment orders, and contended that the surplus amounts realised by him in the sale transactions were only accretions to the capital, and could not be taxed as income from business or other sources. By his common order, dated November 25, 1958, the Appellate Assistant Commissioner held on a consideration of the facts and circumstances of the case that the crucial fact which must be established in order to tax the excess in both the years was whether the purchase of the land was made with an intention to re-sell, and that the facts and circumstances in the case proved that the intention of the assessee at the time of purchase was merely to purchase the land as a capital asset and there could not be any intention to re-sell the same at that time, that even if the assessee had started developing the land for purposes of sale, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequence, and that, therefore, the amounts in question were only a capital gain not liable to income-tax. The said view was obviously incorrect, as it is now well settled by the decisions of the Supreme Court that the matter does not rest merely on the initial intention of the assessee at the time of the purchase, but his entire conduct from the moment of acquisition to the moment of the sale has to be taken into consideration. In G. Venkataswami Naidu Co. v. Commissioner of Income-tax, the Supreme Court observed regarding the question as to whether a transaction is in the nature of trade or business, as follows : " This question has been the subject-matter of several judicial decisions ; and in dealing with it all the judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. " Similarly, in Khan Bahadur Ahmad Alladin and Sons V. Commissioner of Income-tax , the Supreme Court observed as follows : " The answer to the question whether a transaction is an adventure in the nature of trade does not depend upon the application of any abstract rule, princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of trade. Even so, the presumption is not conclusive ; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances. " We shall, therefore, consider the facts and circumstances in the present case, keeping in view the above-mentioned principles laid down by the Supreme Court. The assessee, along with his father-in-law, Shri A.N. Mehra, formed the partnership firm in 1938, and obtained an electric licence from the Government of Punjab to generate electricity and supply it to Sonepat Town. On April 9, 1938, the firm obtained a piece of land measuring 20 bighas and 15 biswas on lease from the Sonepat Municipality and constructed a power house on a portion of the leased land and installed electrical equipment for generating electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plots, developed the area and sold the said plots. Thus, the various transactions mentioned above do suggest that at least from 1940, the firm was anxious to transfer its assets to the limited company and obtain the additional land on lease with the intention of transferring the said land also to the limited company, and not to hold the same itself. Negotiations for the purchase of the land from the municipality were started even in March, 1941, and after the purchase of the land in 1946, nothing appears to have been done on the land by the assessee. On the other hand, as already stated above, the assessee was taking steps to sell the land in plots. Out of the entire land, he sold only a small extent to the limited company for about Rs. 16,150, while he sold a larger portion to about 88 parties, making a large profit. The said conduct of the assessee does show that his intention in purchasing the land in his own name was not to hold the same for himself, but to re-sell the same for a profit. On a consideration of all the facts and circumstances, we are of the opinion that there was a scheme and a design on the part of the assessee in making the purchase and the sales, and the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see at the time of the purchase was not to re-sell the land for a profit, but that the subsequent conduct of the assessee showed that he had since become a trader. The Accountant Member accordingly agreed with the conclusion of the Judicial Member that the profits arising from the sale should be subjected to income-tax as profits arising from an adventure in the nature of trade. In other words, the Members disagreed in the reasoning adopted by them in arriving at a conclusion on the point for determination in the appeal, but agreed with each other on the conclusion on the point. As they were agreed about the final conclusion on the point for determination in the appeal, viz., that the profits made by the assessee should be subjected to income-tax, they did not make any reference to a third Member. As already explained above, in dealing with the first question, a decision regarding the initial intention of the assessee at the time of the purchase is not by itself decisive or conclusive. Even if the initial intention was to purchase the property as an investment and not to re-sell for profit, the assessee may change his mind and deal with the property subsequently as a trader, and en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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