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TMI Blog1993 (5) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... Woronzow, both of whom were non-residents in India and also non-citizens for a long time. They became joint owners of the land left by their father and did not carry out any physical division. Shri E. F. Dinshaw did not marry and died in 1970 leaving a will, according to which he bequeathed his half share in the land to his sister Smt. Bachoobai Woronzow for her life-time and the reversion ary rights were given to two charities, viz., the Salvation Army, New York and the American Society for Prevention of Cruelty to Animals, New York. Initially, three Administrators were appointed, but consequent to a judgment of the Bombay High Court dated 21-12-1972, Shri Nusli M. Wadia was appointed as the sole administrator of the estate. 3. On the other hand, Smt. Bachoobai Woronzow leased out 72 acres of land jointly owned by her and her brother to one M/s. Haven Kores Real Estate Pvt. Ltd. for 99 years on 27-12-1973. Thereafter, on the next day, on 28-12-1973, she created three charitable trusts, as under :-- (i) F. E. Dinshaw Foundation - with corpus consisting of reversionary interest of herself and the Administrator in the land leased to Haven Kores Real Estate Pvt. Ltd. (ii) F. E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. since the sales were taking place on account of compulsion due to encroachments, etc. and thus there was no business motive. The magnitude of the transactions was also insignificant in the background of total holdings. Further, in a business there would be both purchases and sales, whereas in this case, there was only sale and no purchases by the present owners. It was submitted that the transactions were not even an adventure in the nature of trade, relying on the decision of the Supreme Court in the case of Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765. The Assessing Officer held otherwise. He observed that the steady, systematic and continuous sales consisted of an operation for making profits in real estate and relied on the decision of the Supreme Court in the case of Raja Bahadur Kamakhya Narain Singh v. CIT [1970] 77 ITR 253. He also listed out some other cases, but did not discuss them. The Assessing Officer also highlighted the nature of expenses debited to the income and expenditure account, the quantum and the activities, and the manner in which the value of trust properties was reduced. He pointed out the gradual decrease in rental and leased income. He als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated, or repaired and sold, or is converted into a different commodity and sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with a character of a trading venture. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. " 8. The CIT (Appeals) also took guidance from the judgment of the Supreme Court in G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594. Relevant extract is given below :-- " In deciding the character of such transactions several factors are relevant, such as e.g., whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it ; the nature and quantity of the commodity purchased and resold ; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable ; any act prior to the purchase showing a design or purpose, the incidents associated with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out three weeks the land was again sold to the assessee. The assessee took the risk of clearing disputed and defective title. Judicial notice was also taken of the fact that after the formation of the State of Gujarat, there had been a spurt in building activity in Ahmedabad and land had ceased to be a commodity of investment and had become a commodity of trade and commerce. The CIT (Appeals) observed that there were no such special facts in the present case and, therefore, the ratio of the above judgment could not be applied in preference to the other case law relied upon by him. He, therefore, directed that the income should be taxed as capital gains and not as business income in all three cases. The revenue objects to this decision and is in appeal before us. 12. The learned departmental representative submitted before us that there was a steady, systematic and continuous activity of sale of lots of land and it was not a case of a few isolated sales. The assessees had started getting earnest money from assessment year 1975-76, when the sum of earnest money was Rs. 13.53 lakhs. The increase in the activity could be judged from the fact that the earnest money in assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (Appeals) should be reversed and the surplus on sale of land should be treated as business income. 17. The learned counsel for the assessee, on the other hand, supported the order of the CIT (Appeals). He submitted that a history of the land showed that late Shri F. E. Dinshaw had himself leased out some land during his life-time and the ground rent was being assessed as income from other sources. Further, after 1947, there was dearth of land and encroachments became frequent on the land. He submitted that suits were filed for eviction in various courts and the number of such suits ran into hundreds, leading to expenditure of Rs. 3 to 4 lakhs per year. The assessee claimed that the expenditure was deductible under section 57 of the Income-tax Act and should be set off against income under the head " other sources ", but the Department had declined to set if off, treating it as capital expenditure. He emphasised that late Shri F. E. Dinshaw was not a dealer or a builder, but a solicitor and the land had been purchased only as an investment. 18. The learned counsel continued that up to assessment year 1985-86, there was always a deficit and, therefore, disposal of land became n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions were nothing but capital gains and his order should be confirmed. 22. We have considered the rival submissions carefully. It has rightly been observed by the Bombay High Court in V. A. Trivedi's case that it is not possible to evolve a single test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade. Various guidelines are available in the decisions of the Supreme Court and High Courts, which have been discussed above. If the character of the venture is to be treated as trading, then there has to be an intention to trade at the time of purchase and the onus of establishing it is on the revenue - V.A. Trivedi's case. The presence of such a factor would raise a strong presumption that the transaction is an adventure in the nature of trade, but the presumption is not conclusive - G. Venkataswami Naidu Co.'s case. In the present case, there is nothing to indicate that late Shri F. E. Dinshaw had any intention to trade at the time of purchase. In fact, he died in 1936 without selling any part of it, and there were no sales for nearly 35 years thereafter. It has been held that if a transaction is related to the business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y at Ahmedabad after the formation of the State of Gujarat and the High Court took judicial notice of this fact and held that land had ceased to a commodity of investment and had become a commodity of trade and commerce. To some extent, it can be said that there was a spurt in building activity in Bombay also after 1947, but the change was not so sudden and in any case, the assessee did not start selling immediately after 1947. Further, in that case, when land was purchased, there was risk of clearing disputed and defective title and there was no safety of the capital invested or regular return. The factors of risk, uncertainty, foresightedness to visualize imponderables and capacity to overcome unforeseen hurdles were held to be essential requisites for business activity. In the present case, there were no such risks at the time when land was purchased and difficulties arose and the difficulties of encroachment were forced upon the assessee without being foreseen. We are, therefore, of the opinion that the facts are materially distinguishable and the ratio of the judgment of the High Court will not apply to the facts of the present case. 24. In view of the above and taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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