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TMI Blog1962 (9) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... with Messrs. Hoare Miller Co. Ltd. to purchase the said jute press together with the lands and buildings contained in three schedules annexed to the agreement, for a sum of ₹ 2,45,000 free from incumbrance but subject to the litigation pending. On the 13th November, 1942, it was agreed that the previous payment of ₹ 2,45,000 may be appropriated by Messrs. Hoaro Miller Co. Ltd., although the conveyance had not yet been executed. On the 14th November, 1942, the possession was made over to the assessee so far as was possible. On the 26th February, 1943, the conveyance was executed by Messrs. Hoare Miller Co. Ltd. in favour of the assessee. At this stage, it will be necessary to consider certain features of the transaction. Messrs. Hoare Miller Co. Ltd. had sold the jute press at Baranagore to the assessee, known as the Homer Jute Press. The property conveyed was described in three schedules. The first schedule consisted of lands and structures including office and residential quarters, consisting of a press house and cotton ginning factory and a two-storeyed brick built godown, as also certain corrugated iron-shed godown, etc. In this case, the area of the land wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not at all clear how he did so, since the possession was with Bajoria. In fact, nothing is said about what happened to the ejectment suit. However, it appears that R.P. Saha took possession and ran the jute press for a few months, after which Government requisitioned the same. In 1944, the property was released from requisition. During 1944-48 R.P. Saha ran the jute press, but shortly after partition, removed the entire machinery to Pakistan where they were installed at Chandpur in East Pakistan. As a result of this transaction, the assessee made a profit of ₹ 2,24,864 during the assessment year 1944-45. The question is whether this is to be considered as a capital gain or as an adventure in the nature of trade, and as such assessable to income-tax. The Income-tax Officer held that the assessee had purchased the jute press along with the land and buildings, as a business transaction, for the sole purpose of selling them at a profit, and as such the surplus was taxable as business income. Against this order, the assessee appealed to the Appellate Assistant Commissioner, who upheld the same and this was confirmed in further appeal before the Appellate Tribunal. The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, taxable. On a reference, the High Court held that the transaction was an adventure in the nature of trade and that the department was justified in taxing the amount. Thereupon, an appeal was taken to the Supreme Court. It was held on the facts that the Appellate Tribunal was right in inferring that the appellant knew that it would be possible to sell the lands to the managed company, whenever it thought it profitable so to do; that the appellant purchased four plots of lands with the sole intention of selling them to the mill at a profit, which intention raised the strong presumption in favour of the view taken by the Tribunal, and that the High Court was right in holding that the transaction in question was an adventure in the nature of trade. Gajendragadkar J. said as follows: As we have already observed, it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor against the contention that the transaction was an adventure in the nature of trade. (8)There are a number of judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions, it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the court to draw a similar inference; but it is not a matter merely of counting the number of facts and circumstances pro and con: what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. (9) Another test which is sometimes applied is to ask the question-Was the purchase made with the intention to resell it at a profit? Some judicial decisions apply the test of the existence of an initial intention to the resale, in distinguishing adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is share of profit. It was contended that this profit was not assessable as it was not an adventure in the nature of trade. The General Commissioners found that the transaction in question was not a concern in the nature of trade and it was held that there was no liability to assessment. Lord Buckmaster said as follows: This brings the argument back to the original position. Can the profits made in this case be described as income? Were the respondent a company promoter or were his business associated with purchase and sale of estates, wholly different considerations would apply, but this is negatived: the transaction in this case stands isolated and alone. It is to my mind, in the circumstances, purely an affair of capital. I can see no difference between it and what might have happened had the respondent bought shares in two companies which were going to be amalgamated, and then sold equivalent shares in the amalgamated company at a profit; an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise, its realisation does not make it income. The learned judge t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odd, in excess of the amount paid by him to the society. The department assessed him for income-tax upon this amount, on the basis that this was an adventure in the nature of trade. The Appellate Assistant Commissioner did not agree with the finding and reversed the same. The Appellate Tribunal, however, on appeal upheld the assessment. It held that the assessee was a keen businessman and, therefore, this transaction was an adventure in the nature of trade. From this decision the assessee went up to the Supreme Court. Sinha J. (as he then was) said as follows: 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. Hence, no decided case can, strictly speaking, be a precedent which could govern the decision of a later case, involving a similar question. Those decisions can be used only by way of illustrations of the different view-points which have a bearing on the decision of the case in hand. It has also not been disputed that in a case where a transaction under examination is not in the line of the business of the assessee, and is an isolated or a single instance of a transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of manufacturing abrasives and steel products. In April, 1944, the directors of the company resolved to acquire a silk mill, and in order to enable it to do so, its memorandum was amended and sanction of the court was obtained. The assessee purchased the silk mill for ₹ 4.25 lakhs. It made some improvements and worked the mill from September, 1944, to February, 1946, and earned profits therefrom and thereafter sold the mill at a profit. This profit was assessed to income-tax. It was held that, on the facts, the assessee company having acquired the silk mill to open a new line of business, the purchase was really in the nature of an investment. The purchase and sale of the mill did not amount to an adventure in the nature of trade, and, therefore, the profit did not constitute income from business and was not assessable to tax. Rajagopalan J. said as follows: The Supreme Court pointed out in Venkataswami Naidu s case (supra). If a person invests money in land intending to hold it, enjoys its income 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 . That in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom auction, railways and other companies, with the sole purpose of selling them at a profit in the ordinary course of business. It is admitted that the assessee did not carry on business in jute at any time before the purchase of the jute press. The next important fact is that at or about the time when the transaction took place, there was a scare in the City of Calcutta due to Japanese bombing and throughout 1942 the karta of the family, the members thereof, as also the munim and other employees, left Calcutta due to panic and the business remained closed for most of the year. In the order of the Appellate Assistant Commissioner, these facts have been elucidated and a number of dates have been given to show that the assessment proceedings were being continually postponed because the assessee and its employees had all migrated from Calcutta and the books had been removed to Ajamgarh. It is further stated that the munim had fled to his native place and Janki Ram had gone to his native place and from there to Kanpur. It is also stated that the business premises was under lock and key. It appears clearly from these facts that throughout 1942 the business was not carried on and the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The said transaction was an isolated transaction and at the time of the purchase your petitioner had no intention of selling the same for a profit. (3) Soon after the purchase of the said jute press there was bombing in Calcutta under the Japanese war and due to panicky conditions skilled labourers were not available. (4) Your petitioner carried out certain minor repairs to the said jute press and kept the said press in a running condition. (5) Your petitioner could not immediately after purchase due to want of labour run the said jute press on its own account. We find, therefore, that the assessee has committed itself to the definite case that it purchased the jute press for the purpose of working it. With that end in view, repairs were done and the press was kept in a runing condition, but it could not be run for want of labour. Now, the income-tax authorities have not believed this story.. The way they have looked at it is as follows: The assessee was a dealer in scrap iron and never ran a jute press. At the relevant time, all the members of the family and the employees thereof had fled from West Bengal in panic due to Japanese bombing scare and even the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see made no effort to purchase or get a transfer of the leasehold interest in the second schedule or the licence in the third schedule. The clear intention was that the structures upon these lands would be dismantled and the iron sold as scrap or as second-hand goods. That clearly militates against the intention of the assessee to carry on the business of a jute press. The surrounding circumstances, namely, that the members of the family including the karta had fled from West Bengal, and that even the munim had similarly fled and the books of account had been taken away and the place of business kept under lock and key, makes it almost impossible to believe that the assessee intended to buy a jute press in the vicinity of Calcutta and to carry on a business there. The fact that the property was sold to the first bidder who came along seems to me to be indicative of the fact that the assessee had always the intention of getting rid of the property as soon as an attractive proposition was received. Therefore, the fact that no attempt was made to contact other purchasers or find out whether a higher bid was possible, and the lack of advertisements, do not, in the background of this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee did not make the slightest effort to commence the running of the press. At no time did he get a licence to run a factory, or even apply for such a licence. As I have stated, the story that it could not do so for want of labourers has not been established. After all, the running of a jute press does not merely depend on labourers. There is no evidence at all to show that the assessee made any other arrangement to run the jute press. The statement of case, which in its final form is an agreed statement, states that when R.P. Saha took over the jute press he experienced no difficulty in getting labourers to run the factory in July, 1943. The deposition of Mr. H.L. Roy, the manager of R.P. Saha, has been annexed to the statement of case. That also shows that there was no difficulty in running the jute press. He said: We had no difficulty in getting people to run the machinery in July 1943 . Therefore, the story of the assessee that it could not get labourers to run the press and, therefore, had to sell it, cannot be believed. If that be so, a question may be asked why this false case has been made? The obvious reason is that the assessee intended to mask its real intention in p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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