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TMI Blog1961 (8) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... of the purchase money was found by raising a loan on the security of these properties in Mayfair Road, Calcutta. Within four years of the incorporation, the company sold away in 1939 one of the properties and again, within a period of three years therefrom, the company sold four other properties in 1942. The difference of ₹ 1,328 between the purchase price and the sale price for the first sale in 1939 was assessed to income-tax for the year 1940-41. The sale of the properties in 1942 produced an income of ₹ 2,40,000 and a surplus of ₹ 1,00,673 was made after deducting the cost price, law charges, brokerage, etc., all aggregating to ₹ 1,39,327. The Income-tax Officer brought this surplus to tax. 3. The four properties that were sold in 1942 were Nos. 3 and 5, Mayfair Road, and Nos. 1 and 1/1, Old Ballygunge Road. 4. The assessee then appealed to the Appellate Assistant Commissioner who upheld the decision of the Income-tax Officer finding that the sum of ₹ 1,00,673 has been rightly assessed as a business income. The Appellate Assistant Commissioner further points out the circumstances of the first sale by finding that the assessee made an appeal again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if a limited company such as the assessee had paid off a mortgage of over ₹ 2,00,000 it would have at least receipts, cheques and other documents to show that such payments were made. It is also established on record that the assessee conceded that these four house properties were fetching good rent and, therefore, it could not be said that there was any need for selling them. On behalf of the department it was contended that the assessee took advantage of the war period to earn this large profit in 1942 by sale of these four houses in accordance with the declared object of the assessee in its memorandum of association. 6. Dr. Pal, learned counsel for the assessee, has put forward the same contentions that were presented before the Tribunal. He contends that the receipt of this surplus is a capital receipt or a casual receipt. The reasons which he advances in support of his contention are : firstly, that this company's main business is to hold properties and to let them out on rent and earn an income from such rents and is, therefore, an assessee under section g of the Income-tax Act from the source " income from property "; secondly, his reason is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum total of the income classified and computed under various heads. That it is not a collection of different taxes on each separate head of income, is a principle which is well settled both here and in England: see the observations of the House of Lords in Attorney-General v. London County Council [1900] 4 Tax Cas. 265 and Salisbury House Estate Ltd. v. Fry (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 266. 8. Dr. Pal's next submission is based on the English decision in Glasgow Heritable Trust Ltd. v. Commissioners of Inland Revenue [1953] 35 Tax Cas. 196. It is a complicated case where there was more than one order for additional statements by the court from the income-tax authorities. The main use of the case which Dr. Pal made was to emphasize that property-owning was not trade and that mere realisation of capital asset was not trade and for that purpose he relied on the observation to that effect by the Lord President Cooper at page 215 of that report. It may not be out of place to open the discussion on this point by quoting the wholesome caution of Lord President Cooper himself in that case at page 212, where the following observations were made: When the choice l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, clearly points out at page 217 of that report that the Special Commissioners "allowed their minds to be warped by their insisting on the actings of the individuals or the partnership which formerly dealt with properties which are not held by the company. 11. Now if that is the finding of fact in that case that the company was a company only "to hold and realise properties", then the decision in Glasgow Heritable Trust's case (supra) follows as a matter of course that the receipt in such a case could not be said to be a trading receipt, for the company there was not trading in properties. But the facts before us are very different. It is quite impossible to hold on the facts of this case that the present assessee company was formed only to hold and realise properties. Not only the memorandum of association and objects but also the actual business of the assessee prove and establish beyond doubt that the assessee carries on the business of trading in properties by sale. 12. Clause 3(1) of the objects of the company expressly confers upon the assessee company the power "to traffic in land and house and other property of any tenure and any interest the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. 15. The second principle which the Supreme Court laid down in the same case at page 609 is: 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 of merely 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. 16. In that case the Supreme Court came to the conclusion that the transaction in question was an adventure in the nature of a trade. The property purchased and resold in that case was land. The contention there raised by the counsel for the assessee was that the four purchases made by the assessee represented nothing more than an investment and if resale had produced some profit that could not impress the transaction with the character and nature of trade. One of the facts that weighed with the Supreme Court in that case in coming to the conclusion was that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from it The General Commissioners considered that the profit in 1949 was an appreciation of a capital asset and decided that the purchase and sale were not in the nature of trade. But the Court of Session held that the purchase and sale of the property were an adventure in the nature of trade, the profit on which was assessable to income-tax. The objects in the memorandum of association of that company permitted purchase, sale and traffic in property almost in the same way as the objects of the assessee company here before us. Lord President Cooper at page 18 of that report rejected the two reasons given by the Commissioners in the following terms: The majority of the Commissioners have given the reasons for their view in two propositions, first, that the company was a distinct legal persona, and second, that the company had derived an income from this isolated property transaction for a number of years, and from this they conclude that the transaction was an investment. For myself, I cannot see the necessary relevance of either of the factors founded upon, and I am certain that they are not conclusive in favour of the result which the majority of the Commissioners have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held there that one single transaction was, on the facts of that case, not an adventure in the nature of trade. Bhagwati and Sinha JJ., who delivered the majority judgment, emphasized that, "where a transaction was not in the line of the business of the assessee but was an isolated or a single instance of a transaction, the onus was on the department to prove that that transaction was an adventure in the nature of trade ". Kapur J. gave a dissenting judgment. There are many distinguishing features of that case which will be clear from a perusal of the report at page 249. The assessee there was engaged in various types of business, as a shareholder and a director in limited liability concerns, as also in building contracts, but dealing in landed estates was not in the line of his business at all. Admittedly, there, the transaction in question was the only one of its kind, out of which the assessee made a considerable profit which was found by the Supreme Court to have been "in the nature of a windfall". It was also found as a fact by the Supreme Court that there was no clear evidence to support the inference that the land in that case was purchased with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contention of the companies was that they were investment companies and had never carried on a trade. The Commissioners, on the other hand, found as a fact in each case that the company was carrying on the trade or business of buying and selling properties with a view to profit. The Chancery Division Bench of the High Court in London upheld the Commissioners' decision. Wynn-Parry J., at page 310 of that report, noticed the number of sales during the period of years and observed: "Figures such as those must at once lead the enquiring mind to wonder whether or not a business of dealing in properties is going on...." That therefore is a relevant factor. Here the number of sales and their frequency, although do not in any way equal the number of sales and their frequency found in Emro Investments case (supra) nevertheless we have found them fairly large and frequent in the present case before us. In Mitchell Bros. v. Tomlinson (H.M. Inspector of Taxes) [1957] 37 Tax Cas. 224, Danckwerts J. at page 230 observed: There are ample facts upon which the Commissioners could infer an intention to depart from their policy of investment and retaining the houses for purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them are part of their trading assets, so that the profits are part of their trade, or whether they are something different, a so-called investment, that being a word of rather vague import but meaning something in which money is locked up so as to be outside the trading activities of the company. 30. Harman J. points out again at page 616 on the facts of that case: No attempt was made to sell them when built; they were retained and let. The company also had at least three other ventures, and may be more, in building houses for prompt sale, and those ventures ended in leaving on their hands what apparently are called in the trade ' builders' remainders', that is to say, houses put up with the rest of the estate for sale and not sold. 31. Each case must, however, be decided on its own facts. No case is a real precedent for another on this vexed question. It will, therefore, be unnecessary to notice any further cases on the point except the case of Commissioners of Inland Revenue v. Hyndland Investment Company Ltd. [1929] 14 Tax Cas. 694, on which much reliance was placed by Dr. Pal. There, a company was formed in 1899 to purchase certain lands on which, under cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64-4-0. The value of the four properties sold fetched as much as ₹ 2,40,000. The total municipal valuation of the properties included in the Mayfair Block was ₹ 50,111 at the time of purchase, whereas at the time of sale the total municipal valuation of the four properties sold alone amounted to ₹ 11,420, which is about 25 per cent. of the total municipal valuation. 34. Lastly, Dr. Pal's argument that the company in this case only sold properties but did not purchase any, cannot, in our view, take this sum out of revenue. To be a trade it is not necessary that there must be simultaneous sales and purchases. If a real estate company such as the assessee company here sells a portion of its properties to make a profit in a rising market it cannot be said that these profits were not part of their trading when they are justified by their memorandum of association simply because they had made no corresponding purchases of properties also at the same time or contemporaneously. 35. For these reasons we are of opinion that on a true construction of the memorandum of association of the company as well as the facts and circumstances of the case the sum of ₹ 1,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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