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TMI Blog1974 (12) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed by the civil judge in April, 1943. Deep Chandra preferred an appeal against this decree of the civil judge in this court. During the pendency of this appeal Deep Chandra thought that he was involving himself in a big litigation, the prosecution of which required huge expenditure and possible loss ; he accordingly, in order to lessen his burden, entered into a partnership agreement with the persons named above on April 8, 1944. The partnership deed provided that the same was entered into " to share profits and losses arising out of the said land in litigation ", It further defined respective shares and interests " in the fortunes of litigations and the profits and losses arising therefrom " of the various partners in the said partnership. The appeal filed in this court against the decree of the civil judge dismissing the suit for specific performance of Deep Chandra was ultimately allowed in 1949 in his favour. As the tenants were in possession he succeeded only in obtaining constructive possession of the land in 1950. Actual possession could, however, be had only in 1956. There is some dispute between the parties about the actual user of the land, possession of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the subordinate authorities, dismissed all the four appeals by means of a consolidated order. At the instance of the assessee the Tribunal thereafter referred the following question for answer by the High Court : " Whether, on the facts and in the circumstances of the case, surpluses realised by the assessee on the sale of the land were income, profits or gains from an adventure in the nature of trade within the meaning of section 2(4) of the Act of 1922 chargeable to tax under the head 'business' in the assessment years 1960-61, 1961-62, 1962-63 and 1963-64 ? " The assessments in the instant case with respect to some assessment years have been made under the provisions of the Indian Income-tax Act, 1922, while assessments of some other years have been made under the Income-tax Act, 1961. But, as there is no difference between these two Acts so far as the controversy in question is concerned, we, therefore, propose to refer to the provisions of the Indian Income-tax Act, 1922, alone for the purpose of finding out a solution to the problem. Section 10 of the said Act makes profits and gains of business, profession or vocation liable to taxation under the head " business ". Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........ ". These observations of the Supreme Court require a court to decide the question of a transaction being an adventure in the nature of trade on the basis of the total impression formed. It is not open to consider one or other circumstances alone and treat the same as decisive or conclusive. No general or absolute test can be applied to each and every case to determine the character of the transaction. In P. M. Mohammed Meerakhan v. Commissioner of Income-tax [1969] 73 ITR 735, 738, 739 (SC) the Supreme Court was again required to decide the same controversy, and while enunciating the law, it observed : " The question whether a transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule or principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case. " Although it is correct that it is not possible to formulate a single criterion, yet there are, however, certain tests which can be cul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and are inclined to hold that it is now settled that the question whether profit earned in a transaction has arisen out of adventure in the nature of trade is a mixed question of law and fact. An examination of the question whether a transaction is an adventure in the nature of trade involves, as it does, the application of the relevant provisions of law and an interpretation of the statutory enactment relating to the same. In every case the question which may arise is, whether an authority is justified in treating the profit in question as assessable to income-tax, such a question is not one which can fall within the realm of facts exclusively. It is, therefore, not possible to accept the contention of the counsel for the revenue in this respect. The Supreme Court has exhaustively dealt with the aforesaid controversy in G. Venkataswami Naidu and Co.'s case [1959] 35 ITR 594 (SC). The ultimate decision on the said point is to be found at page 607, where the relevant observations made are in the following words : " As we have already indicated, to avoid confusion or unnecessary complications, it would be safer and more convenient to describe the question about the character of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a finding on which the High Court has to proceed and it cannot reappraise the evidence itself for coming to a different finding. In the case cited by the counsel for the respondent the point involved was whether the receipt held by the Income-tax Officer as income from other sources should have been held to be income from business. Dealing with this controversy the Supreme Court held that the question on that controversy was related to the facts and that the High Court had to accept them as found by the Tribunal and also it should have answered the question referred to it on the basis of those facts. In the present case the question involved is altogether different. The High Court is required to find whether the Tribunal was justified in drawing legal inferences and applying legal principles to the question related to the determination of the character of the transaction. As observed earlier, such a question is necessarily a mixed question of law and fact and, therefore, there is no occasion to apply the law laid down by the Supreme Court in Karnani Properties Ltd.'s case [1971] 82 ITR 547 (SC). Counsel for the revenue is, however, also not right in suggesting that the form in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centuries, has been considered as an item of investment and is not like a commercial commodity which is purchased with a view to reselling it to gain profits. He submitted that there is a strong presumption with regard to the purchases of land, that the same is made for the purpose of investing money and the mere fact that a person or investor has a design to resell at a profit in future if occasion arises, does not destroy the character of the transaction being investment to trade or business. It cannot be denied that the land is not a commercial commodity. Land only is also not a trade in itself. Keeping these considerations in account the Supreme Court observed in G. Venkataswami Naidu Co.'s case [1959] 35 ITR 594, 610 (SC) : " Normally the purchase of land represents investment of money in land. " The same view was reiterated by it in Janki Ram Bahadur Ram's case [1965] 57 ITR 21, 26 (SC) in the following words : " These are cases of commercial commodities. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. " Counsel for the assessee is, therefore, right that from the nature of the property involved in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation that it may be sold at profit. " The Supreme Court reiterated the same view in Raja Bahadur Kamakhya Narain Singh v. Commissioner of Income-tax [1970] 77 ITR 253, 263 (SC) when it said: " The fact that the original purchase was made with the intention to resell if an enhanced price would be obtained is by itself not enough........ " We, therefore, do not find any substance in the submission of the counsel for the revenue that simply because a purchase is made with an intention to resell in future in case its price rises, that is a ground for holding that the money spent was not by way of investment but was a trading venture. A case of commercial commodity certainly stands on a footing different from that of land. In such commercial commodity it is easier to find the purpose, as such commercial commodities are generally purchased with a view to reselling for the purpose of earning profits. A case, where the initial intention solely and exclusively from the stage of purchase is to buy the property and to resell it, stands on a different footing. In such a case the purchaser is not interested in investing his surplus money but in selling it at a profit whenever an occas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from " business ". Dr. R. R. Misra, appearing on behalf of the revenue, however, contended that a case of isolated or single transaction of sale and purchase can also be one which may be considered as adventure in the nature of trade. He referred to and relied upon a number of authorities in support of his contention. These authorities include G. Venkataswami Naidu and Co. v. Commissioner of Income-tax [1959] 35 ITR 594 (SC), Leeming v. Jones [1930] 15 TC 333 (HL), Inland Revenue Commissioners v. Fraser [1942] 24 TC 498 (C Sess.), Rellim Ltd. v. Vise [1952] 22 ITR (Supp) 51 (CA) and the cases of Janki Ram Bahadur Ram v. Commissioner of Income-tax [1965] 57 ITR 21 (SC) and Raja Rameshwar Rao v. Commissioner of Income-tax [1961] 42 ITR 179 (SC), whereas Sri Shanti Bhushan, counsel for the assessee, strongly relied on the decisions in Saroj Kumar Mazumdar v. Commissioner of Income-tax [1959] 37 ITR 242 (SC), Leeming v. Jones [1930] 15 TC 333 (HL) and Californian Copper Syndicate v. Harris [1904] 5 TC 159 (C Exchq.). A close reading of these reported decisions cited by the counsel for the parties, however, indicates that it is not possible to evolve a single or universal formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the property was to enter into the trading venture, appears to be unjustified. Paragraph 3 of the agreement dealing with duration has to be read along with paragraph 2 of the said agreement. If read together, it only means that when the property was received and ultimately disposed of in one of the manners provided therein the partnership would automatically come to an end. It is to be remembered that the partnership was entered into at a time when India was still under the British rule. The question of abolition of intermediaries was not within anticipation. As a matter of fact, purchasing of zamindari property was a recognised form of investment, where zamindars of the properties purchased could realise rents from the tenants occupying land. Realisation of rent used to be a regular source of income. The fact that these properties were inheritable is another feature indicating that the intention was to make investment. In these circumstances, the purchase of land was not made with an eye on the realisation of profits from the sale of property and was, therefore, not a venture. Counsel for the revenue thereafter referred to paragraph 5 of the agreement and submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout sale of land as well, they could hold the land and distribute the receipt from rental income annually in the manner provided therein. Manner of distribution of profits, as mentioned in this paragraph, could also be consistent with the case of investment. We, therefore, do not find any substance in this argument of the counsel for the revenue. As stated above, it was for the revenue to bring the assessee within the taxing provisions of the statute and this they can do only when they establish that the assessee was caught by section 2, sub-section (4), of the Income-tax Act. In a case of purchase and sale of land it is not possible to assume it to be an adventure in the nature of trade unless something more is established. Burden on the revenue in such case is not a light one. This burden will have to be discharged with reasonable certainty by pointing out such circumstances as could lead to the infallible result that the transaction was in the nature of trade. In the instant case the department has relied upon the deed and the subsequent conduct of the assessee of obtaining the permission from the Town Planner and selling the land in several pieces. We have already referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal is again wrong in drawing an inference from the period during which the partnership was to continue that it was formed for trading. This fact rather helps the assessee in showing that the firm was not constituted for trading in land, otherwise its life would not have been limited to the period of disposal of land. This paragraph shows that the partners were only interested in dividing the benefits of investments, if possible, and thereafter to wind up its affairs. For the reasons already indicated earlier in this judgment we are unable to uphold the finding of the Tribunal that the manner of accounting contemplated by paragraph 5 shows that " the main activity was to be the disposal of land and its exploitation in any other manner ". Another reason which impels us to hold against the revenue is that if the partnership was really constituted for trading, one would have expected some other or similar purchases of land by the firm for the purpose of selling them at a higher price after development. It has come in the judgment of the Income-tax Officer that all the five partners were rich. If that was so and they had entered into the partnership for the purpose of earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the High Court was right in taking the view that, on the facts and circumstances proved in this case, the transaction in question is an adventure in the nature of trade. " So far as the case reported in Raja J. Rameshwar Rao v. Commissioner of Income-tax [1961] 42 ITR 179 (SC) is concerned, in that case as well, the assessee of that case had purchased 217 acres of land. After constructing a ganj and shops he sold the rest of the land for Rs. 75,820. The Income-tax Officer treated it as receipt from business. The Supreme Court held on appeal filed by the assessee that when a person acquired the land with a view of reselling it later after developing it, he was carrying on an activity which would ultimately result in profit. In P. Mohammed Meerakhan v. Commissioner of Income-tax [1969] 73 ITR 735 (SC), one A. V. George purchased an estate called Kuttikal Estate from a company. The area of the estate was 477 acres and 71 cents. Under the agreement entered into between the aforesaid parties it was settled that the company would execute the conveyance either in favour of A. V. George or his nominee. Later, on August 15, 1955, A. V. George entered into an agreement with P. M. Moh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the transaction. But in the background of the formation of the firm they can have no other meaning except to suggest that they were modes of commercial exploitation of the land which it was sought to dispose of in a commercial manner. " We have given our careful consideration to this submission of the learned counsel but find ourselves unable to accede to the same. The activity of parcelling out the land, thereafter selling them in the market, was designed to enhance the value of the land in which the money was invested. A person who has no intention of engaging himself in trade of buying and selling property cannot be considered to be a person engaged in an adventure in the nature of trade simply because by taking some steps he might succeed in receiving higher price of land in the market. For the view which we are taking we find strong support from a recent decision in Taylor v. Good [1974] 1 WLR 556 (CA). One Walter Marcus Taylor, who carried on two businesses, purchased a house in an auction. At the time of the auction the taxpayer had not decided what to do with the property if he bought it. Subsequently he went with his wife to see the house. In view of his wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade of dealing in land, of lands previously acquired with no thought of dealing, in my judgment there is no ground at all for holding that activities such as those in the present case, designed only to enhance the value of the land in the market, are to be taken as pointing to, still less as establishing, an adventure in the nature of trade. Were the Commissioners, on a remission to them, to decide otherwise, it seems to me they would be wrong in law. " The Court of Appeal had referred to Hudson's Bay Co. Ltd. v. Stevens [1909] 5 TC 424 (CA), C. H. Rand v. Alberni Land Co. Ltd. [1920] 7 TC 629 (KB) and Alabama Coal, Iron, Land and Colonization Co. Ltd. v. Mylam [1926] 11 TC 232 (KB) in its judgment and after relying upon them reached the conclusion mentioned above. In Hudson's Bay Co. Ltd. v. Stevens [1909] 5 TC 424, 436 (CA) the Court of Appeal accepted the finding of the Commissioner that it was not engaged in the trade of buying and selling land and stated that : " In my opinion it cannot. The company are doing no more than an ordinary landowner does who is minded to sell from time to time, as purchasers offer, portions suitable for building of an estate which has devolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed surplus money in these transactions. The tax authorities claimed tax on surplus on the basis of business profit whereas the assessees asserted the same to be capital gain. Finally, this controversy came up for decision before the High Court in a reference under section 66(1) of the Income-tax Act. The High Court held that since D. S. Virani was a dealer in real property since 1946-47, the income earned by him from the sale of his one-fourth share, being from a transaction in the line of his business, was liable to be taxed as profit from income. But the cases of the other three assessees were distinguished and the view of the High Court was that the income derived by them from sale of plots was capital gain from investment. We respectfully agree with the view taken in this case and in agreement with the same hold that the mere fact that the assessee succeeded in obtaining enhanced value of their land due to future development of that area or subsequent rise in the price of land on account of influx of refugees or some activities carried on over the land, would not in law be sufficient to treat the income as accruing from business. The surplus realised by the assessee was capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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