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TMI Blog1971 (9) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... brothers is the assessee in References Nos. 12, 13 and 14 of 1970. It is common ground between the parties that D. S. Virani was at all material times resident in Rajkot but the other three brothers were residing outside India. By a sale deed dated 18th April, 1951, D. S. Virani and his three brothers, whom we shall collectively refer as the assessees, jointly purchased certain land admeasuring 1,00,000 square yards situate in village Kotharia on the outskirts of the city of Rajkot for the price of Rs. 10,000 from Thakoreshri Shivsinhji Pratapsinhji and Prince Shri Ajitsinhji Shivsinhji. Each of the assessees contributed an equal sum of Rs. 2,500 towards the purchase price and was entitled to an equal 1/4th share in the land. Nothing was done on the land by the assessees by way of development or plotting or laying out roads; the land remained in the same condition in which it was when purchased. On 2nd October, 1959, the assessees entered into an agreement with one Bhagwanji Khataubhai and three others for sale of 91,571 square yards out of this land at the price of Rs. 1 per square yard. This agreement is not on the record of the case. The Tribunal, at the hearing of the appeals b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Rs. 10,002 for D. S. Virani, Rs. 9,919 for Chhotalal Virani, Rs. 9,852 for Chhaganlal Virani and Rs. 10,002 for Manilal Virani. The question arose in the assessments of the assessees to income-tax for the assessment year 1961-62, for which the relevant previous year was Samvat year 2016, whether the surplus realised by each of the assessees on sale of the land to Bhagwanji Khataubhai and his three colleagues represented capital gain or business profit. If the surplus represented capital gain, the charge of income-tax would be much lighter than what it would be, if it represented business profit. The Income-tax Officer took the view that the transaction of purchase and sale of land was an adventure in the nature of trade and the surplus realised on the sale of land was, therefore, revenue profit and not capital gain. Each of the assessees contested this view taken by the Income-tax Officer in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the contention of the assessees that so far as the assessees other than D. S. Virani were concerned, the transaction of purchase of 1/4th share in the land by each of them was by way of inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of trade, commerce or manufacture". Since the transaction of purchase and sale of land was admittedly an isolated transaction so far as assessees other than D.S. Virani are concerned, the question which falls for consideration is whether it could be said to be an adventure in the nature of trade. Now the law is well settled that the question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact. It was pointed out by the Supreme Court, in what may properly be regarded as the leading case on the subject, namely, G. Venkatswami Naidu and Co. v. Commissioner of Income-tax that the expression "adventure in the nature of trade" in sub-section (4) of section 2 postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business and a Tribunal while considering the question whether a transaction is or is not an adventure in the nature of trade, before arriving at its final conclusion, has to address itself to the legal requirements associated with the concept of trade or business. Such a question is one of mixed law and fact and the decision of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon all the relevant facts and circumstances." Each case must be determined on the total impression created on the mind of the court by all the facts and circumstances disclosed in that particular case. But even so "general criteria indicating that certain facts have dominant significance in the context of other facts" are to be found in decided cases and these serve as guides in determining the true nature of the transaction. If for instance a transaction is related to the business normally carried on by the assessee, though not directly part of it, an intention to engage in an adventure in the nature of trade may be readily inferred; there would be no difficulty in such a case in concluding that it is a trading transaction. But, where it is not related to the business of the assessee, there would have to be clear and positive evidence of facts and circumstances to show that the transaction was an adventure in the nature of trade. The nature of the commodity which forms the subject-matter of the transaction may also throw light on the true legal character of the transaction. If the commodity is a commercial commodity, the transaction may lend itself more easily to the inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into a transaction is not decisive, for, an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit." It is, therefore, clear that if an asset is purchased by way of investment, the transaction does not become an adventure in the nature of trade merely because at the date when the asset was acquired, there was intention to resell it, if an enhanced price could be earned. But, it is equally clear, and that is now settled by the decision of the Supreme Court in G. Venkataswami Naidu and Company's case, that if the purchase of the asset was made solely and exclusively with an intention to resell it at a profit, it would be a strong factor indicating that the transaction is an adventure in the nature of trade. The Supreme Court pointed out in G. Venkataswami Naidu and Company's case, at page 610 of the report; "Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Virani. The facts found by the Tribunal are that these three assessees were throughout the relevant period residing out of India. None of them had entered into any transaction of purchase or sale of land either prior or subsequent to the purchase of the land in the present case. It was not the business of any of these assessees to trade in land and dealing in land was not in the line of business of any of them. The transaction of purchase and sale of the land was an isolated transaction so far as these assessees were concerned. It would, therefore, appear, on the application of the general criteria discussed above, that the transaction of purchase and sale of the land would not be regarded as an adventure in the nature of trade unless the revenue would point to facts and circumstances which would show that such was its true character. The revenue contended that the land was acquired by the three assessees with the sole and exclusive intention to resell it at a profit and it must, therefore, be presumed, unless there are circumstances which offset such presumption, that the transaction was an adventure in the nature of trade. Three circumstances were strongly relied upon by the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifling amount having regard to the large wealth possessed by them. The question is whether, on these facts alone, an inference can be raised that the sole and exclusive intention of the three assessees at the time of purchase was to resell their respective 1/4th shares in the land at profit. Our answer to this question can only be in the negative. It is quite possible that since the area around the city of Rajkot was fast developing, the three assessees who belonged to Rajkot might have thought that it would be desirable to invest some moneys in the purchase of land near or around the city of Rajkot. The land which might be purchased might come in useful at any time in the future and the assessees might be able to make use of it for themselves and the members of their respective families or they might be able to earn rent out of it, if there was future development of that area. We do not think that the revenue is right when it says that there could be no intention of earning return from the investment in the purchase of the land. It is true that there was no immediate prospect of earning return on the amount invested, but the possibility of earning return, if the area developed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t D.S. Virani also purchased sanatorium land in Rajkot in Samvat year 2013, that is, 1956-57, and after leaving 600 square yards for roads, he parcelled it into plots and sold the plots at a profit. This profit was also admittedly business profit in the hands of D.S. Virani. These transactions of purchase and sale of land at different times clearly show, as held by the Tribunal, that D.S. Virani was a dealer in real property since long before the purchase of 1/4th share in the land in the present case. The transaction of purchase and sale of 1/4th share in the land by D.S Virani was, therefore, clearly in the ordinary line of his business and must be regarded as part of his business activity. It is true that the land was purchased by D.S. Virani jointly with the other three assessees but that cannot militate against the inference that he did it as a trading activity. Merely because the transaction of purchase and sale of the land. so far as the 1/4th share of each of the other three assessees was concerned, was by way of investment does not mean that the transaction in so far as it related to 1/4th share of D.S. Virani was also by way of investment. It is not at all impossible that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leagues and that might have thrown light on the true nature of the transaction. But, even from the document dated 7th November, 1963, executed between Bhagwanji Khataubhai and his three colleagues, it is evident that the purchase price of the land was not to be paid by Bhagwanji Khataubhai and his three colleagues to the assessees, but Bhagwanji Khataubhai and his three colleagues were to lay out roads and divide the land into plots and sell the plots to outside parties and the purchase price for the sale of the land was to be received by the assessees from the purchasers of the plots at the rate of Re. 1 per square yard. It would thus appear that the assessees by entering into such an arrangement, received the benefit of a higher price which would ordinarily follow from laying out roads, dividing the land into plots and selling the plots. This arrangement also indicates that D.S. Virani who entered into the transaction of sale did it by way of trading activity so far as his 1/4th share in the land was concerned. The Tribunal was, therefore, right in taking the view that the surplus realised by D.S. Virani by sale of his 1/4th share in the land was business profit. Our answers to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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