9911796707
TMI Blog1963 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... u Manikyala Row) was a merchant doing business in timber, tiles, furniture, ironware and hardware in partnership with others and on his own. His business activities were carried on at various places in the Andhra area transporting cargo and passengers. He belonged to a family of bankers and traders and he and his two brothers were among the foremost business men of Masulipatam. 3. On August 29, 1941, he entered upon a new venture and purchased for a sum of ₹ 62,500 a 25/56th share in a final mortgage decree for sale from one Sarvarayudu. The concerned mortgage deed had been executed on July 25, 1927, by Bommadevara Naganna Naidu, the then Zamindar of North West Vellar, in respect of a loan of ₹ 1,12,000 advanced by the said Sarvarayudu, his elder brother, and the latters wife. On a partition of the joint family, a 25/56th share in the mortgage dues fell to the share of Sarvarayudu. In 1935, the mortgagees filed a suit for the recovery of the mortgage money and on February 24, 1936, a preliminary decree was passed in their favour for ₹ 2,60,257 and a final decree followed on August 5,1937. It would appear that during this period Sarvarayudu got into financial diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Officer was that the profit made from the purchase and realisation of the decree was only a casual gain from a transaction outside his line of business and as it was not an income from an adventure in the nature of trade, it was not liable to tax. This contention was negatived by the Income Tax Officer by holding that, throughout the venture, the assessee had no intention whatever of acquiring and possessing the mortgaged property, but his real intention was to make a profit out of the transaction. Another contention seems to have been raised before the Income Tax Officer, although it does not appear from his order, but was adverted to in the order of the Appellate Assistant Commissioner while dealing with the appeal preferred to him by the assessee from the order of the Income Tax Officer. That contention was that the assessee had taken over the decree to help his friend Sarvarayudu out of his financial difficulties and also to oblige his brother, Venkata Subba Row, who had purchased the equity of redemption in a part of the mortgaged property and was desirous of consolidating his position in regard to those lands. (It may be mentioned here that out of the eight villag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive disallowed. - The disallowance of this amount is unjust and unfair." 9. It will be seen from sub-grounds (b) and (c) that the stand taken by the assessee before the Appellate Assistant commissioner was that his intention in taking the assignment of the decree was to accommodate a friend in need, meaning thereby Sarvarayudu, and also to acquire the property by bidding at the court sale. It was not taken as a ground of appeal that the assessees object was also to help his brother, Venkata Subba Row, and the latters son-in-law, Nagapotha Row, by preventing the three villages in which they had an interest, from being sold in execution of the decree. 10. Although such a ground was not taken, the Appellate Assistant Commissioner dealt with it in the following manner : "His intention to make a profit by the deal was clear. But he stated to the Income Tax Officer that he took over the debt to help Sarvarayudu in his difficulties and at the instance of his brother, Jaldu Venkata Subba Row, who had purchased a part of the mortgage property and was desirous of consolidating his (Venkata Subba Rows) position in regard to the properties purchased. He could produce no letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in respect of the three villages which the latter and his son-in-law had acquired. It was apparently because such a ground was not taken before it, that the Appellate Tribunal did not consider and give a finding upon it. It, however, dealt with the connections that were actually raised before it. This is what the Tribunal said in paragraphs 3,4 and 5 of its order : "3. No doubt the assessee had no similar transactions before or after. It is stated that he was persuaded to enter into this transaction as the property involved in the decree was in close proximity to some villages owned by his brother along with is own inclination to help Sarvarayudu out of his difficulty. By furnishing this background it is sought to be made out that the purchase of the decree is not in the regular line of business of the assessee, and further that, at the time of purchase the profit motive was not predominating, the primary idea being to try and possess the property adjoining his brothers. It is not clear how the assessee intended to go about acquiring all the 8 villages in question in this manner as he had after all only a 25/56 interest in the decree and that he had to all intents and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the profit arising therefrom did not fall within the exemption contemplated by section 4(3)(vii) of the Income Tax Act. In the result the assessees appeal was dismissed. 15. However, on the application of the assessee, the Appellate Tribunal referred the question set out supra for the decision of the High Court under section 66(I) of the Income Tax Act. On a consideration of the facts and circumstances of the case, this court, by its judgment dated january 20, 1955, agreeing with the conclusions reached by the Appellate Tribunal held that the transaction in question was an adventure in the nature of trade and that it was a clear case of laying out money with a view to reap profit, and accordingly, answered the question referred to it in the negative. 16. On the High Court refusing to grant a certificate of fitness for appeal to the Supreme Court the assessee moved the Supreme Court, under article 136(1)(I) of the Constitution and obtained special leave to appeal from the judgment of the High Court. 17. In support of the appeal before the Supreme Court several contentions appear to have been raised but their Lordships considered only one of those contentions, and as they felt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubba Row, and the latters son-in-law, Nagapotha Row by preventing the mortgaged properties purchased by them from being sold in execution of the decree. The High Court will dispose of the case on the new finding of fact so placed before it by the Tribunal after considering the entire case in the light of that finding. Costs in this court will abide the result." 19. It will be observed that the contention which had been abandoned before the Appellate Tribunal was reagitated before the Supreme Court. However, in pursuance of the Supreme Courts direction, this court by an order dated December 19, 1958 called for a finding by the Appellate Tribunal as to whether the assessee had, in acquiring the decree, the intention to assist his brother, Venkatasubba Row and the latters son-in-law Nagapotha Row preventing the mortgaged properties purchased by them from being sold in execution of the decree. 20. By the time the case went back to the Appellate Tribunal, the assessee, Jaldu Manikyala Row, had died. He died on August 11, 1959. (His brother Venkata Subba Row gad dies sometime in the year 1949). The legal representatives of the assessee filed an application before the Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the Tribunal to the High Court in paragraph 6, which is as follows : "Before the Appellate Tribunal it was contended for the assessee that the transaction was a solitary one of a casual and non-recurring nature unconnected with the assessees business in timber entered into by the assessee at a time when an application for scaling down the decree was pending and abolition of zamindaries was in the air; and that the transaction was entered into in order to help a friend, namely, M. Sarvarayudu, and so as to secure and consolidate the position of his divided brother J. Venkata Subba Row, and another Nagapotha Row (son-in-law of Venkata Subba Row), who had already purchased the equity of redemption in three out of the eight villages......."P 23. This statement is wrong as no such contention was ever raised before the Tribunal and we do not find any such contention in the grounds of appeal before the Tribunal as stated supra. 24. Now that a finding is called for from the Tribunal, the question arose as to whether the Tribunal was to take in fresh evidence in regard to this question or whether it was to decide on the material available on record. Since we do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee of a share in the mortgage decree and the subsequent realisation of a substantial profit by taking a series of calculated steps, constitute an adventure in the nature of trade. It may now be taken as settled by a catena of Supreme Court ruling that the question whether or not a given transaction is a venture in the nature of trade, is in most case a mixed question of fact and law and as such is open to review by the High Court in the exercise of its jurisdiction under section 66 of the Income Tax Act, 1922. It is equally well settled that it is the province of the Appellate Tribunal to find primary evidentiary facts, and a finding on a question of fact should not be disturbed by the High Court except where it is shown to be unreasonable or reverse. It is also well established that for determining whether a venture is in the nature of trade, no general or universal test can be laid down and it is not possible to formulate a single criterion or apply an exclusive yardstick. The decision in a particular case must depend on the cumulative effect of, and the legitimate inference to be drawn from, the totality of circumstances present in that case. 29. However, certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of trade. But what is a good deal more important is the nature of the transaction with reference to the commodity dealt in. The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that this is not the only purposes for which he purchased the article or the commodity nor the only purpose for which he might turn it if favourable opportunity of sale does not occur. In some of the cases the purchases of a picture has been given as an illustration. An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchases stocks and shares with a view to selling them at an early date, at a profit, but if he does so, he is purchasing something which is itself an investment, a potential source of revenue to him while he holds it. A man may purchase land with a view to realising it at a profit, but it also may yield him an income while he continues to hold it. If he continues to hold it, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is statement may be broadly true; and so some judicial decisions apply the trust of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test, distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. 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 and unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the assessee purchased the decree, he could not have hoped to make a profit because at that time, an application for scaling down the decree debt under the provision of the Madras Agriculturists Relief Act No. IV of 1938, filed by one Addepalli Ramaseshayya, who had purchased the equity of redemption in a portion of the hypotheca, was pending and further, the proposal to abolish zamindaries was in the air. It seems to us, however, - as subsequent events showed - that the risks and fears unreal or exaggerated. Perhaps it suited the assessee to paint a very gloomy picture so as to convince Sarvarayudu that a great favour was being done by a selfless friend and induce him to part with the decree for a low amount. The said Ramaseshayya had acquired an interest only in a fraction of the hyoptheca and neither the zamindar who had mortgaged the properties nor Venkatasubba Row and his son-in-law, who were bankers and business men, could possibly claim the benefits under Act IV of 1938. Ultimately even the application filed by Ramaseshyya was dismissed. As for the threatened legislation, if the sword of Damocles was hanging over the heads of zamindars at the time the assessee negotiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived the amount in April, 1947. As a consequence, he made a profit of ₹ 74,485 out of deal. 36. On those facts and in those circumstances, the question arose whether the transaction carried out by the assessee amounted to an adventure in the nature of trade, so as to render the profit arising therefrom taxable under section 10 of the Income Tax Act. Their Lordships of the Supreme Court found that there was no clear evidence in support of the inference drawn by the Appellate Tribunal that the land had been purchased by the assessee with the sole intention of selling it later at a profit, but on the contrary, their Lordships found that the initial intention with which the assessee had bought the land was to build a residential house and a workshop upon it. Thus the existence of a profit-making motive at the crucial point of time was altogether ruled out. Consequently their Lordships held that the possibility or the probability that the site might appreciate in value did not necessary lend itself to the inference that the transaction was a venture in the nature of trade, as distinguished from capital investment. Their Lordships concluded : "In all the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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