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TMI Blog1965 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment of the court was delivered by SHAH J.- A partnership styled P. K. N. was carrying on money-lending business in several towns in India and also in the Federated States of Malaya. In the course of its business the P. K. N. firm acquired rubber estates and other immovables in the Districts of Muar and Segamat in the Federated States of Malaya. On December 4, 1937, a private limited company was registered in the name of P. K. N. Company Ltd. --- hereinafter called the company --- under the Pudukottai Company Regulation V of 1929 with its head office at Viswanathapuram, in the territories of His Highness the Maharaja of Pudukottai. The share capital of the company was of the face value of 6,60,000 Malayan dollars. Between March 23, 1939, and July 8, 1939, an area of more than 3,000 acres of rubber plantations, several houses and open plots of land, which were the assets of the P. K. N. firm, were transferred to the company for an aggregate consideration of 16,50,000 Malayan dollars. In consideration of the transfer of these properties, the company allotted shares of the face value of ₹ 6,60,000 Malayan dollars to the partners of the firm of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, 1922, the Tribunal referred the following question for the opinion of the High Court : Whether, on the facts and circumstances of the case, the surplus of $1,41,326 realised by the assessee-company by the sale of some of its estates and properties held by it in Malaya was income chargeable to tax under the Indian Income-tax Act ? The High Court answered the question in favour of the company and held that the amount sought to be brought to tax was not income chargeable under the Indian Income-tax Act. With special leave, the Commissioner of Income-tax has appealed to this court. In a recent judgment, Janki Ram Bahadur Ram v. Commissioner of Income-tax, it was observed by this court at page 24 : It is for the revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the income-tax authorities. It has consistently been held by this court that the question whether profit in a transaction has arisen out of an adventure in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease, mortgage, charge, convert, turn to account, dispose of and deal with property and rights of all kinds, and in particular, mortgages, debentures, produce concessions, options, contracts, patents, annuities, licences, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and choses in action of all kinds. (xvi) To sell, mortgage, let, exchange, manage, improve, cultivate, develop, dispose of, turn to account or otherwise, deal with all or any part of the properties, rights and privileges of the company upon any terms, and for any consideration. Barring acquisition of a half share in the house purchased on July 7, 1941, for 5,000 Malayan dollars, the purchase of assets by the company was in two lots. The first lot was purchased between March 23, 1939, and July 8, 1939, from the P. K. N. firm for 1,650,000 Malayan dollars, and the other, which was the Lee Estate, was purchased on March 14, 1941. From the statements of account of the company, it appears that large amounts of money were spent on cultivation and development of the rubber and cocoanut estates, and substantial income was derived therefrom. The total area of 3,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 120,734 43,333 500 31-12-50 1,000 326,462 140,899 180 Total 1,918,328 998,078 485,250 32,454a *These represent transfers only. On an analysis of this table, it is clear that there were no fresh acquisitions after July 7, 1941, till 1950. The two items mentioned in the year of account ending March 31, 1943, and March 31, 1945, are only transfer entries. 30,600 Malayan dollars entered in the last column in the year ending March 31, 1943, it is common ground, represents loss by fire and does not represent loss as a result of a sale transaction. Admittedly, there were sales spread over a number of years resulting in profit to the company. These sales were effected when opportunity arose or necessity dictated. It is not, however, disputed by the department that the primary activity of the company was that of planters. It is disclosed by the books of account maintained at the head office in India that during the year ending March 31, 1948, the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed with a view to develop them and, after developing them to sell them---development and sales going on simultaneously ; and that the company purchased a property jointly with others for 5,000 Malayan dollars, and expended a large sum of money thereon and later sold it for a handsome profit . It may be mentioned that this last statement was the result of misconception of evidence, and. it was corrected by the Tribunal in the statement of the case. But these facts found by the Tribunal do not, in our judgment, justify the inference that the acquisition of the estates was for the purpose of carrying on business in real estate. Existence of power in the memorandum of association to sell or turn into account, dispose of, or deal with the properties and rights of all kinds, has no decisive bearing on the question whether the profits arising therefrom are capital accretion or revenue income. In delivering the judgment of this court in Karanpura Development Co. Ltd. v. Commissioner of Income-tax Hidayatullah J. observed at page 377 : Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that here there was a trade being carried on. These cases merely illustrate that the nature of the transaction must be determined on a consideration of all the circumstances, and the fact that a transaction is within the powers of a trading company is relevant but has standing alone not much significance. The assessee-company did acquire two large blocks of properties between the years 1939 and 1941, but thereafter no substantial acquisitions were made. Limitation upon the admission of members to the company and other attendant features suggest an intention of conserving the properties of the members of the P. K. N. firm. Some of the houses purchased from the P. K. N. firm were destroyed by fire and the vacant sites and outlying properties were sold on account of difficulty of management of outlying portions of the estate. Occasional sales of small and unimportant portions out of the estate acquired from the P. K. N. firm was motivated by necessity and not to realize profits. The Lee Estate was never disposed of and it was treated as a nucleus for carrying on profitable business of producing rubber and selling it on advantageous terms. As already observed, determina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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