Saroj Kumar Mazumdar Vs. The
Commissioner of Income-Tax, West Bengal, Calcutta [1959] INSC 55 (4 May 1959)
SINHA, BHUVNESHWAR P.
BHAGWATI, NATWARLAL H.
KAPUR, J.L.
CITATION: 1959 AIR 1252 1959 SCR Supl. (2)
846
ACT:
Income tax-Assessment-Single transaction of
Purchase and sale of land-If a venture in the nature of trade or capital
investment -Test-Dominant intention-Onus-Indian Income-tax Act, 1922 (XI Of
1922), SS. 2(4), 1O.
HEADNOTE:
The question for decision in this appeal was
whether a single transaction of sale of land measuring about three quarters of
an acre was an adventure in the nature of trade so as to make it liable to
income-tax. The assessee appellant, an Engineer by profession, was engaged in
various business activities including that of an engineering firm but,
admittedly, had no dealing, except the one in question, in respect of land. In
1946 be entered into an agreement with the Hindusthan Co-operative Insurance
Society Ltd. for the purchase of the land in question and paid a sum of Rs. 32,748
in two installments, being 25% of the estimated total price of the land. As his
construction activities declined and the Government, who had requisitioned the
land, were not immediately releasing it, the appellant sold his rights under
the agreement to a third party in 1947 and thereby received a sum of Rs. 74,000
odd in excess of the amount paid by him to the Society. The land, however, was
not released by the Government until 1949. The Income-tax Officer held that the
transaction was an adventure in the nature of trade and the said sum was a
profit there from, taxable under s. 10 of the Income tax Act, and included it
in the assessable income. The Appellate Assistant Commissioner, in appeal, held
that the assessee, a man of means, had intended to purchase the land for his
own use, and that the motive of profit was entirely absent when the purchase
was made and that as it was a case of appreciation of capital, he was liable to
pay Capital Gains tax. The Appellate Tribunal on appeal by the Department,
reversed the findings and the decision of the Appellate Assistant Commissioner
and affirmed that of the Income-tax Officer.
After the assessee had obtained from this
Court special leave to appeal, he made an application to the High Court under
s. 66(2) of the Income-tax Act, which that Court dismissed as being barred by
limitation.
Held, (per Bhagwati and Sinha, JJ., Kapur,
J., dissenting) that admittedly the transaction in question being a single
instance of its kind, and not in the line of the business of the assessee, it
was for the Department to prove that the dominant intention of the appellant,
when he entered into the agreement with the Society, was to embark on a venture
in the nature of 847 trade as distinguished from a capital investment, and they
having failed to do so, the appeal must succeed.
Commissioners of Inland Revenue v. Reinhold,
34 T. C. 389, applied.
There could be no doubt, as held by the
Court, that the question for decision involved in such cases was one of law or
a mixed question of fact and law.
G. Venkataswami Naidu and Co. v. The
Commissioner of I come-tax, A.I.R. 1959 S.C. 359, referred to and
distinguished.
The line of demarcation, however, between an
isolated transaction and a venture in the nature of trade was very thin and
each case had to be decided on the total impression all its facts and
circumstances made on the mind of the judge.
Case-law reviewed.
KAPUR, J.--Even though the powers of this
Court under Art.
I36 of the Constitution were very wide, they
had to be exercised within the limits imposed by its own decisions and one such
limitation was that this Court would not ordinarily interfere on questions of
fact. Since the question involved in the instant case was a mixed question of
law and fact, the facts should properly be found by the body whose exclusive
function under the Income-tax Act was to do so.
G. Venkataswami Naidu & Co. v. The
Commissioner of Income tax, A.I.R. 1959 S.C. 359 and Dhakeswari Cotton Mills v.
The Commissioner of Income-tax, [1955] i S.C.R. 94I, referred to.
Nor could an assessee be allowed to by-pass
the procedure prescribed by ss. 66(1), 66(2) of the Income-tax Act to have
question of law determined.
Since, however, the Appellate Tribunal had,
in the instant case, failed to consider certain essential facts, the case
should be remitted to it for a proper decision in the light of the observations
made by this Court.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 347 of 1955.
Appeal by special leave from the judgment and
order dated March 26, 1954, of the Income-tax Appellate Tribunal, Calcutta, in
Income-tax Appeal No. 5263 of 1953-54.
A. V. Viswanatha Sastri and Sukumar Chosh,
for the appellant.
G. K. Daphtary, Solicitor-General of India,
B. Ganapathy, R. H. Dhebar and D. Gupta, for the respondent.
1959. May 4. The Judgment of Bhagwati and
Sinha, JJ., was delivered by Sinha, J. Kapur, J. delivered a separate Judgment.
848 SINHA, J.-The only question for
determination in this appeal by special leave, is whether the solitary
transaction in respect of about three quarters of an acre of land in the
suburbs of Calcutta, was an adventure in the nature of trade and, therefore,
liable to income-tax. The assessee is the appellant. He challenges the
correctness of the order of the Income-tax Appellate Tribunal, Calcutta Bench,
Calcutta, dated March 26, 1954, passed in I.T.A. 5263 of 1953-54, in respect of
the Assessment year 1948-49, reversing that of the Appellate Assistant
Commissioner of Incometax, Range " C ", Calcutta, dated September 5,
1953.
The facts of this case leading upto this
appeal are as follows: The appellant is engaged in various types of business
activities, being a share-holder and Director or Managing Director of several
limited liability concerns, and is also a partner in the firm known as "
Pioneer Engineering Works ". In respect of his income during the previous
two assessment years, the appellant was assessed to income-tax on the sums of
Rs. 53,000/-(1946-47) and Rs. 59,000/(194748). The appellant holds investments
in shares of the value of Rs. 2,45,000/-, out of which, according to the
assessee, shares of the value of Rs. 1,95,000/-, though standing in his name,
belong to other members of his family, including his father and his wife.
The Hindusthan Co-operative Insurance Society
Limited, of Calcutta, (hereinafter referred to as " the Society "),
acquired a block of about 578 bighas of land lying between Diamond Harbour Road
and Tolly's Nullah, within the Municipal limits of the Corporation of Calcutta,
between the years 1940 and 1942. The Society decided to level the land thus
acquired and to open out roads and after developing the same, it subdivided it
into small plots and sites in different blocks suitable for residential
purposes under its scheme called " The New Alipore Land Development Scheme
No.
XV ". The Society offered such plots for
sale. One -such plot, being plot No. 77 in block " E " of the said
Scheme, was agreed, by an agreement dated January 10, 1946, to be sold to the assessee
at the rate of Rs. 2,550/per katha.
In pursuance of the said agreement, the
assessee paid to the Society, a sum of 849 Rs. 13,099/being 10% of the
estimated price of the plot with an approximate area of 51 kathas, which
subsequently, on exact measurement, was found to be 45-56 kathas.
Subsequently, on the acceptance of his offer,
the appellant paid another SUM of Rs. 19,649 (omitting annas), being 15% of the
estimated price. Thus, in all, a sum of Rs. 32,748/being 25% of the estimated
total price of the land, was paid by the assessee to the Society. All this area
which the Society had undertaken to develop and sell to different purchasers in
small plots, was in occupation of the Government, which had requisitioned it
for purposes connected with the prosecution of the Second World War.
Hence, one of the terms of the transaction
between the assesee and the Society, was that the transaction of purchase would
be completed within six months of the lands being released from Government
occupation. It was further stipulated that the assessee would be entitled to
apply, within three months of the receipt of the notice of derequisition, for
extension of time not exceeding one year, for the completion of the transaction
on the condition that he paid interest at the rate of 7% per annum on the
outstanding amount, during the extended period. If the assessee, as purchaser,
paid to the Society another sum which, together with Rs. 32,748/-, already
paid, would amount to 50% of the total price of the plot in question (within
six months of the notice of de-requisition), he could get a conveyance of the
property on his executing an English Mortgage for the remaining 50% of the
price carrying interest at the rate of 7%, on the expiry of these aforesaid six
months. As there was an apprehension that the Government might acquire the
whole property for its own purpose, it was further stipulated that in the event
of such an acquisition by Government, the agreement for sale would stand
rescinded, and the assessee, in that event, would be entitled to re-payment of
the amounts paid by him to the Society by way of advance for the completion of
the transaction. The assessee's case is that as the terms of the payment of
purchase-price in several instalments, as aforesaid, were convenient to him,
107 850 he agreed to take the plot on the conditions aforesaid, with a view to
building a residential house for himself and constructing a workshop in
connection with his business activity. At the end of the Second World War, the
assesee's construction activities began to decline, and there was no immediate
prospect of the land in question being de-requisitioned by Government. In those
circumstances, the assessee negotiated for the assignment of his rights under
the agreement with the Society, to Rani Yuddha Rajya Devi of Nepal. The Rani
appeared to have taken a fancy to the plot and to have made an attractive offer
to the appellant. Hence, after exchange of letters between the parties, it was
agreed between them that a sum of Rs. 1,07,000 odd would be deposited by the
Rani with the assessee on suspense account until the transaction of sale
between the Society as the vendor and the Rani or her nominee, as the vendee,
would be executed and the transaction of purchase finalised upon her undertaking
to pay the sum of Rs. 98,000 odd to the Society, which was the outstanding
amount of the sale-price in respect of the plot agreed by the assessee to be
purchased by him from the Society. After a good deal of correspondence, on
December 27, 1950, the Society executed a deed of conveyance in respect of the
said plot, to the daughter of the said Rani as the vendee. The aforesaid vendee
executed a deed of mortgage in favour of the Society for the outstanding amount
of Rs. 50,900/-, after payment of Rs. 32,700 odd to the Society. In the result,
the assessee received, on April 3, 1947, a sum of Rs. 1,07,000 odd from the
Rani, in pursuance of the agreement between her and the assessee. Until the
execution of the sale-deed between the Society and the Rani's nominee, as
aforesaid, the assessee continued to be liable to the Society in respect of the
agreement of January 10, 1946. The assessee, thus, received from the Rani a sum
of Rs. 74,000 odd in excess of the amount paid by him to the Society. The property,
including the plot in question, was not de-requisitioned until sometime in
1949.
In respect of the assessment year 1948-49,
the assessee filed a return of his income to the Income-tax 851 Department,
showing a loss of Rs. 2,000 odd for the financial year 1947-48. In pursuance of
the notice under s. 23(2) of the Income-tax Act, the assessee appeared before
the Income-tax Officer, Calcutta, and produced all his books of account,
including his bank accounts. The Income-tax Officer, on an examination of the
accounts, and after questioning the assessee, came to the conclusion that the
assessee had made a profit of Rs. 74,000 odd from the transaction in -question,
which, according to him, was an adventure in the nature of trade. Hence, on an
examination of the assessee's accounts, the Income-tax Officer included the sum
of Rs. 74,485/as profit from an " adventure in the nature of trade
"-taxable under s. 10 of the Income-tax Actas one of the items of income
accrued to the assessee during the assessment year 1948-49.
The assessee went up in appeal to the
Appellate Assistant Commissioner of Income-tax, and challenged the conclusion
of the Income-tax Officer that the sum of Rs. 74,000 odd was profit from an
adventure in the nature of trade. It was also taken as one of the grounds of
appeal by him that in any event, the receipt accrued to the assessee only in
1950, after the transaction of sale had been completed as between the Rani's
nominee and the Society. The Appellate Assistant Commissioner did not agree with
the Income-tax Officer that the assessee was not in a position either to
complete the transaction of purchase by paying the full amount of
consideration, or to erect a building thereon, or to use the land in any other
way. He pointed out that under the Scheme, the Society had offered terms of
purchase on instalments and on execution of a mortgage in respect of the vended
property to the extent of 50% of the consideration money. He also pointed out
that the assessee bad considerable investments to the extent of Rs. 2,45,000/in
shares of different limited concerns. He, therefore, came to the conclusion
that the assessee was a man of means, and that it could not be said that he had
not intended to purchase the plot for his own use. He further hold that the
motive of making a profit at the time of the purchase, had not been established
by the Department, 852 and that it was a " solitary transaction ". On
these findings, he found himself unable to confirm the finding of the
Income-tax Officer that the profit was from an adventure in the nature of
trade. He took the view that the appellant had made an investment which had
appreciated considerably in value, and that it was undoubtedly a case of
appreciation of capital. Treating it as a " Capital Gain ", he came
to the conclusion that as the payment bad been made in 1947, the gain accrued
in that year and not in the year 1950, as contended on behalf of the assessee.
In the result, he made him liable to pay Capital Gains tax.
The Department went up in appeal to the
Incometax Appellate Tribunal, which, by its judgment dated March 26, 1954,
allowed the appeal. The Tribunal pointed out that the assessee was not a man of
such large means as to think of acquiring the plot for his own residential or
business purposes. The admitted shares worth Rs. 2,45,000/standing in his name,
the Tribunal pointed out, were held by the assessee, in respect of the major
portion, on behalf of other members of his family. The Tribunal also observed
that Rs. 32,748/paid by the assessee to the Society had been paid out of
borrowed money. This conclusion does not appear to have been well-founded in
fact. The accounts do show credits in favour of the assessee of a larger
amount.
The Tribunal also pointed out that
undoubtedly the " assessee is a keen businessman and has a number of
varied business interests. Admittedly, he is a director of about a dozen
concerns and managing director of two or three. Her is -/8/annas partner in an
Engineering concern which is carrying out a number of construction and other
contract works. He is an Engineer by profession and a resident of
Calcutta." The Tribunal based its conclusion that the sale was an
adventure in the nature of trade, and that the profits, thus made, were
assessable to income-tax, on the following grounds:--That the payment by the
assessee to the Co. operative Society, of Rs. 32,748/-, came out of a loan
taken for the purpose from a company (which conclusion, as already pointed out,
is not borne out by the entries in the books of account of that company);
2. That the assessee could not have paid the
balance of Rs. 98,000 odd, the outstanding amount of the purchasemoney, to the
Insurance Company ;
3. That the assessee had no means to
construct a house on the land, and lastly,
4. That the site itself fetched no income,
thus, showing that it could not be an investment but only an excursion into the
realm of trade.
Against this decision of the Appellate
Tribunal, the assessee moved this Court and obtained special leave to appeal.
Before we deal with the main question in
controversy in this appeal, we would like to make some general remarks on the
nature of the questions involved in this case. It is not disputed on behalf of
the respondent that the question now before us, is a question of law, or a
mixed question of fact and law, as has been recently laid down by this Court in
the case of G. Venkataswami Naidu and Co. v. The Commissioner of Income-tax
(1). Speaking for the Court, Gajendragadkar, J., after a detailed discussion of
the decisions of this Court Meenakshi Mills, Madurai v. Commis. sioner of
Income-tax, Madras (2) and The Oriental Investment Co.,, Ltd. v. Commissioner
of Income-tax, Bombay (3), and of the House of Lords, in Edwards v. Bairstow
(4), came to the conclusion that the question arising in the case, is a mixed
question of law and fact, and, therefore, open to examination by this Court. In
G. Venkataswami Naidu and Co. v. The Commissioner of Income-tax (supra), the
question raised, was exactly similar to the question now before us, though in a
different setting of facts. His conclusion may be stated in his own words as
follows:" In other words, in reaching the conclusion that the transaction
is an adventure in the nature of trade, the tribunal has to find primary
evidentiary facts and then apply the legal principles involved in the
expression " adventure in the nature of trade " used by s. 2, sub-s.
(4).
It is patent that the clause 'in the nature
of trade' postulates the existence of certain elements in (1) A.I.R. 1959 S.C.
359.
(2) [1956] S.C.R. 691 (3) [1958] S.C.R. 49.
(4) 36 T.C. 207.
854 the adventure which in law would invest
it with the character of a trade or business;. and that would make the question
and its decision one of mixed law and fact." "In that view of the
matter, this Court further pointed out that the more proper form of the
question is " whether, on the facts and circumstances proved in the case,
the inference that the transaction in question is an adventure in the nature of
trade is in law justified." The recent decision of this Court has examined
almost all the relevant cases decided in Indian as also English and Scotch
Courts, and thus, our task in the present case, has been very much simplified.
It has further been observed in that case, more than once, that judicial
opinion was unanimous that no general principles or universal tests could be
laid down, which could govern the decision of all cases in which the question
for determination is similar to the one now before us. Each case must be
determined on the total impression created on the mind of the Court by all the
facts and circumstances disclosed in that particular case. Hence, no decided
case can, strictly speaking, be a precedent which could govern the decision of
a later case, involving a similar question. Those decisions can be used only by
way of illustrations of the different view-points which have a bearing on the
decision of the case in hand. It has also not been disputed that in a case
where a transaction under examination, is not in the line of the business of
the assessee, and is ail isolated or a single instance of a transaction like
that, the burden lies on the Revenue to bring the case within the words of the
statute, .namely, that it was an adventure in the nature of trade. That the
onus is on the Department, has been clearly laid down by Lord Garmount in the
case of Commissioners of Inland Revenue v. Reinhold (1). That was a case in
which the respondent, the assessee, was a director of a company carrying on the
business of Ware houseme D, and had bought four houses in January, 1945, and
sold them at a profit in December, 1947.
He admitted that he had bought the property
with a (1) 34 T. C. 389, 393.
855 view to resale, and had instructed his
agents to sell the same whenever a suitable purchaser was forthcoming. The
assessee was made liable for tax in respect of the profit made by him on the
resale. On an appeal by the assessee before the General Commis7 sioners, it was
contended on his behalf that the profit on the resale was not taxable.
On behalf of the Crown, it was contended that
the transaction of purchase and sale in question, constituted an adventure in
the nature of trade, and that, therefore, the profits arising out of the
transaction, were chargeable to income-tax. The General Commissioners, being
eqally divided, allowed the appeal. It was held by the Court of Session (First
Division) that the fact that the property was purchased with a view to resale,
did not, of itself, establish that the transaction was an adventure in the
nature of trade, and that, therefore, the determination by the Commissioners
was justifiable in law. The Court, in coming to that conclusion, took into
account the considerations that the respondent was not a property agent, and
that his business was not, in any way, associated with the purchase and sale of
estates. It was an isolated transaction, even though the assessee had purchased
a hotel and sold it again ten years previously. The Court made a reference to
the following observations of Lord Buck master in the case of Lemming v. Jones
(1):"............ an accretion to capital does not become income merely
because the original capital was invested in the hope and expectation that it
would rise in value; if it does so rise, its realization does not make it
income." Placing that decision along-side of the present case, let us see
what its salient features are. Though the appellant is engaged in various types
of business as a share-holder or a director in limited liability concerns, as
also in building contracts, dealing in landed estates is not in the line of his
business. If such a transaction were in the line of his business, it would not
matter much whether, in the assessment year, he had several such transactions
or only one. Even a single (1) (1930) A. C. 4I5, 420.
856 transaction of dealing in landed estates,
being a part of his business, would be liable to income-tax, if a profit is
made in that transaction. But., admittedly, the transaction in question is the
only one of its kind, ,rout of which the appellant has made a considerable
profit which appears to have been in the nature of a windfall. When he entered
into the agreement with the Society for the purchase of the plot, in January,
1946, he had expected that at the end of the World War, the Government would
release the property from its requisition, and that the Society will develop
the land by laying the necessary roads and providing other amenities to the
plot-holders. But as the Government did not release the property, and as the
appellant was a businessman, who was interested in return from his capital, and
as he had already paid Rs. 32,000 odd by way of advance towards the purchase
price, and as in 1947, at the end of the Second World War, his business in
contracts for building constructions, began to decline, he, naturally, thought
of making the best of the bargain. If he did not get out of the transaction,
his financial difficulties in meeting his further liabilities under the
agreement, as a result of slump in his main line of business, might lead to the
forfeiture of the advance of Rs. 32,000 odd, he would naturally be on the
lookout for a good purchaser. He was lucky to find a lady with a lot of money
to spare, who had, as he alleged, taken a fancy to the plot in question. Thus,
he could assign to her the benefit of his agreement with the Society on terms
which were highly profitable to him. There is no clear evidence in support of
the inference of the Appellate Tribunal that the land was purchased with the
sole intention of selling it later at a profit. The Tribunal considered two
alternatives in relation to this transaction one, that the land was purchased
in order to build a residential house, and the second, that it was purchased in
hope of selling it later for a profit. The first alternative, the Tribunal
rejected on the ground that " be does not seem to have very much of means
at his disposal." That itself is a statement which does not bear close
scrutiny.
During the two years previous to the year
under assessment, the appellant had 857 been assessed to income-tax on Rs.
53,000/and Rs. 59,000/, as already indicated. That does not lend countenance to
the surmise that the appellant was not a man of means.
Admittedly, he held marketable shares of the
value of about 2 1/2 lacs of rupees, though all those shares standing in his
name, were not claimed by him as his omn. Apparently, he was carrying on a
lucrative business during the immediately preceding years. It is true that in
the year of assessment, on his own showing in his income-tax return, he had
suffered a loss, but that may have been a turning point in his fortunes, and
that would not necessarily lead to the inference that he was not in a sound
financial position on the date of the agreement with the Society. It may be
that his hopes of flourishing in his business in the years to come, were not
realized after the conclusion of the Second World War. But even assuming that
the Tribunal was right in its conclusion as to the second alternative, namely,
that the purchase was made in the hope of making a profit after re-sale, the
matter is not concluded. In this connection, a reference may be made again to
the decision in Commissioners of Inland Revenue v. Reinhold (supra), at p. 392,
where it was argued on behalf of the Revenue that a profit made in a
transaction which was in the nature of an investment in the hope and
expectation of a rise in price, may be an accretion of capital, but that if at
the time of the purchase, the purchaser had resolved to sell the property in
the event of a profit being made, and instructions had been issued to his
agents accordingly, the transaction could not have been treated as an
investment, but was truly an adventure in the nature of trade, and the profit
thus made, must be treated as income. This argument was not accepted as valid.
In that connection, reference was made to the following observations of Lord
Dunedin, in the case of Jones v. Leeming (1) :"............ The fact that
a man does not mean to hold an investment may be an item of evidence tending to
show whether he is carrying on a trade or (1) (1930) A. C. 415, P. 423.
108 858 concern in the nature of trade in
respect of his investments, but per se it leads to no conclusion
whatever." The decision of the House of Lords in the case afore. said,
which is also reported in 15 T. C. 333, is rather instructive. In that case,
the appellant was a member of a syndicate of four persons, formed to acquire an
option over a rubber estate, with a view to selling at a profit. The option was
secured, but the estate was considered to be too small for re-sale. An option
over another joint estate was accordingly secured, and it was decided to resell
the two estates to a public company to be formed for the purpose.
Another member of the syndicate undertook to
arrange for promotion of the company. The syndicate's rights were transferred
to a company. This company floated another company to which the properties were
sold. The syndicate's profits were divided between the members, and the appellant,
as one of the members of the syndicate, was assessed to income-tax in respect
of his shares of the profits. The General Commissioners, on appeal, were of the
opinion that the interest in the property in question had been acquired with
the sole object of making a profit, and that there was no intention of holding
it as an investment. Hence, the assessment to income-tax was affirmed. The
King's Bench Division, at the first hearing, remitted the case to the General
Commissioners for a finding as to whether there was a concern in the nature of
trade, and the Commissioners found that the transaction was not such a concern.
It was held by the House of Lords that the profits were not liable to tax on
the basis that they were income from an adventure in the nature of trade.
Viscount Dunedin, in the course of his opinion, referred, with apparent
approval, to the dictum in Ryall v. Noare (1), to the following effect:
" A casual profit made on an isolated
purchase and sale, unless merged with similar transactions in the carrying on
of a trade or business is not liable to tax." He also approved of the
following dictum of Lawrence, L. J., in the case of Leeming v. Jones (2) :_ (1)
(1923) 2 K. B. 447, 454.
(2) (1930) 1 K.B. 270, 302, 859 " It
seems to me in the case of an isolated transaction of purchase and re-sale of
property there is really no middle course open. It is either an adventure in
the nature of trade, or else it is simply a case of sale and re-sale of
property." Lord Warrington of Clyffe, in the course of his opinion in the
case of Jones v. Leeming (1), made the following observations, which apply with
full force to the facts and circumstances of the present case:' " Here we
have a case of the acquisition of an item of property and a profit made by the
transfer thereof to another. In this I can find nothing but a profit arising
from an accretion in value of the item of property in question and the
realization of such enhanced value. There is in this nothing in the nature of
revenue or income. The fact that the parties intended from the first to make a
profit if they could does not in my opinion affect the question we have to
determine." As already indicated, the line of demarcation between cases of
isolated transactions of purchase and sale being ventures in the nature of
trade, and those which are not such ventures, if any, is very thin. The cases
in which single transactions have been held not to belong to the class of
ventures in the nature of trade, have been noticed above, and the
considerations which led those courts to hold that such ventures were not
liable to income-tax, apply to the case in hand. On the other side of the line,
there is a series of cases in which single transactions have been held to have
been ventures in the nature of trade, for reasons which do not apply to the
present case. We may notice some of the typical cases which illustrate the
reasons for which a single transaction was brought within the ambit of a
venture in the nature of trade. The case of Californian Copper Syndicate (Limited
and Reduced) v. Harris (Surveyor of Taxes) (2), related to the purchase and
sale of a mining property. In that case, a company had been formed for the
purpose, inter alia, of acquiring and re-selling a mining property. That
company acquired some mining property (1) (1930) A.C. 415, 425.
(2) 5 T.C. 159.
860 and sold the same to a second company,
consideration for the sale being paid-up shares of the latter company. It was
held by the Court of Exbhequer (Scotland) Second Division, that the difference
between the purchase price and the value of shares for which the property was
exchanged was a profit assessable to income tax. It was pointed out by the
Court that the case involved a deal which was a "proper trading
transaction, one within the Company's power under their Articles, and
contemplated as well as authorised by their Articles ". The ratio of the
decision in that case appears to have been that though it was a single
transaction in which profit was made, it was an adventure in the nature of trade,
being in the line of the business adopted by the company. The next case of
Martin v. Lowry (1) is another instance of a single transaction of purchase of
property being treated as a venture in the nature of trade, on account of the
very nature and magnitude of the commodity dealt in by a person whose usual
line of business was wholly outside the scope of the new venture. That was a
case in which a wholesale agricultural machinery merchant, who never had any
dealings in linen trade, purchased from the Government its surplus stock of
aeroplane linen (some 44 million yards). In order to dispose of this huge stock
of linen purchased by him, the assessee embarked upon an extensive advertising
campaign, rented offices and engaged expert staff to organize the sales. The
number of transactions of sale of that huge stock of linen, ran into thousands.
The House of Lords affirmed the determination of the courts below, holding that
the transaction amounted to the carrying on of a trade of which the profits
were chargeable to income-tax and Excess Profits Duty. Another case in the same
volume, is The Commissioners of Inland Revenue v. Livingston and others (2). In
that case, the persons sought to be taxed were, a ship repairer, a blacksmith
and a fish salesman's employee, who joined in the venture of purchasing a cargo
vessel with a view to converting it into a steam-drifter, and selling it. That
was a new line of business for them.
(1) 11 T.C. 297.
(2) 11 T.C. 538.
861 Extensive repairs and alterations to the
ship were carried out, and the result was a sale of the converted vessel at a
profit. It was held that the transaction, though an isolated one, was a venture
in the nature of trade, and thus, liable to income-tax. The ratio of the
decision was stated in the following words of the Lord President:" If the
venture was one consisting simply in an isolated purchase of some article
against an expected rise in price and a subsequent sale it might be impossible
to say that the venture was 'in the nature of trade' ; because the only trade
in the nature of which it could participate would be the trade of a dealer in
such articles, and a single transaction falls as far short of constituting a
dealer's trade, as the appearance of a single swallow does. of making a summer.
The trade of a dealer necessarily consists of a course of dealing, either
actually engaged in or at any rate contemplated and intended to continue."
The case of Rutledge v. The Commissioners of Inland Revenue (1), is another
illustration of a case in which a single transaction of purchase and sale, was
held to be an adventure in the nature of trade for the reason that the
commodity purchased was of such a nature and of such a vast magnitude that it
could not have possibly been intended for the consumption of the purchaser
himself or his family. In that case, the assessee was a money-lender who was
also interested in a cinema company. In the interest of his cinema business, he
happened to be in Berlin, and there took the opportunity of purchasing, for a
very cheap price, a very large quantity (one million rolls) of toilet paper for
pound 1,000-and realised pound ,12,000 by sale of that commodity. He was taxed
on the net profit of pound 10,895.
It was held by the Court of Session, Scotland
(First Division), that it was certainly an adventure, because the assessee made
himself liable for the purchase of that vast quantity of toilet paper,
obviously for no other conceivable purpose than that of re-selling it for a
large profit. As regards the question whether the adventure was in the nature
of trade, it was contended (1) 14 T.C. 490.
862 on behalf of the assessee that it was
essential to the idea of trade that there should be a continuous series of
trading operations. The Court rightly pointed out that the question was not
whether it was a trade but ` Whether it was a venture in the nature of trade.
Hence, though the single transaction of purchase and sale, may not have
amounted to what is ordinarily understood by trade in the sense of a series of
transactions, it was certainly a venture in the nature of trade, because from
the very beginning, the intention was manifest that the purchase was made not
with a view to utilizing the commodity for the personal use of the purchaser,
but with a view to making profit by a resale, which was apparent from the very
nature and magnitude of the commodity purchased. Another illustration of the
same rule is to be found in the case of The Balgownie Land Trust, Ltd.
v. The Commissioners of Inland Revenue (1).
That was the case of a landed estate which was left by the owner to.
trustees with a direction to sell it. The
trustees, being unsuccessful in their efforts to sell the estate, formed a
company with general powers to deal in real property, and transferred the
estate to this company. The company made certain other purchases of property by
way of accretions to the original estate. The property was sold in parts during
the years 1921, 1924, 1926 and 1927. The company was assessed to income-tax for
the profits from the sales of those lands. The Court, confirming the assessment
of the company to income-tax on the profits made on those sales, held that the
company was doing precisely what it meant to do, namely, carrying on business
of a company dealing in a real estate. The case of Commissioners of Inland
Revenue v. Fraser (2), is another illustration of the rule that if a person
enters into a single transaction outside his ordinary avocation of life, with
the sole object of making a profit by re-sale, it may amount to an adventure in
the nature of trade. In -that case, a wood-cutter bought, for re-sale, whisky
in large quantities, and without taking delivery of the whisky, sold it at a
profit. It was the assessee's sole (1) 14 T.C. 684.
(2) 24 T.C. 498.
863 dealing in whisky, but all the same, it
was held to be liable to income-tax on the ground that the nature of the
transaction, with reference to the commodity dealt in in large quantities,
which would not ordinarily be meant for personal or family consumption, may
indicate that it was an adventure in the nature of trade.
We have set out the illustrative cases on the
two sides of the thin line of demarcation that may possibly be said to
distinguish one class of case from the other. The question still remains, on
which side of the line, the present case should be placed ? The learned
Solicitor-General placed strong reliance on the recent decision of this Court
in G. Venkataswami Naidu & Co. v. The Commissioner of Income-tax (supra).
The question, therefore, is whether the present case falls on the same side of
the line as the recent decision of this Court, which had to deal with a similar
question, as already indicated. In that case, the assessee had purchased four
plots under four different deeds. During the time that the assessee was in
possession of those plots, he made no efforts to put up any structures, or to
utilize them in other ways. The assessee was in a fiduciary position with the
Mills contiguous to which the plots purchased, were; and it was also found that
the assessee was in a position to influence the Mills to purchase those plots
at a price favourable to him. It was in that setting of the facts, that this
Court made the following observations "When s. 2, sub-s. (4) refers to an
adventure in the nature of trade it clearly suggests that the transaction
cannot properly be regarded as trade or business. It is allied to transactions
that constitute trade or business but may not be trade or business itself It is
characterized by some pB`= of the essential features that makeup trade or
business but not by all of them; and so, even an isolated transaction can
satisfy the description of an adventure in the nature of trade." Can it be
said, in the setting of the facts and circumstances of the present case, set
out above, that the transaction in question has such characteristics-as 864 to
point to the conclusion that it was a venture in the nature of trade ? It was
suggested that the area of the land in question, namely, three quarters of an
acre in the suburbs of Calcutta, was large enough to indicate that the assessee
would not have intended to take it for his own use and occupation. In the first
place, the area is not so large as to lead necessarily to the inference that it
could not have been meant to be used by him in -the way of his business or for
his own residence. Certainly, the Society, having acquired more than 500 big has
of land in a lot, could not claim that the land was meant for its own use. On
the other side, it was meant to be developed into small building sites, as they
actually did. But the Society had, without developing the area, sub-divided it
into building sites, one of which was sought to be acquired by the appellant.
He was carrying on an engineering concern, and it is not, therefore, unlikely
that he may have intended, as he alleged, to put up a small workshop on a
portion of the land to be acquired, and to build his own residential house on
the other portion. It was not suggested that the appellant had his own house in
Calcutta, and was, therefore, not in need of a building site. At the time he
entered into the agreement of purchase with the Society, he was doing good
business, as is shown by the large amounts on which he was assessed to
income-tax. It was not unnatural for him to look forward to continue his
business in as prosperous a way as he had been doing in the recent past, and
thus, to raise sufficient funds to build his own residential house, or to
construct a workshop for his own engineering business.
Hence, the possibility or the probability
that the site may appreciate in value, would not necessarily lend itself to the
inference that the transaction was a venture in the nature of trade, as
distinguished from a capital investment.
In all the circumstances of this case, the
total impression created on our mind, is that it has not been made out by the
Department that the dominant intention of the appellant was to embark on a
venture in the nature of trade, when he entered into the agreement which
resulted in the profits sought to be taxed.
865 For the aforesaid reasons, we would allow
this appeal, and set aside the orders of the Tribunal below with costs.
KAPUR, J.-I regret I am unable to agree. that
the appeal in the present -case should be allowed and my reasons are these: On
the facts which were proved the Income-tax Appellate Tribunal came to the
conclusion that the purchase of land by the appellant was an adventure in the
nature of trade and profit arising there from was assessable to income tax. In
coming to this conclusion the Appellate Tribunal took into consideration
certain facts; (1) that the only payment the appellant made for the purchase of
the land was of a sum of Rs. 32,748 which he borrowed from his company and he
was not in a position to pay the balance of Rs. 98,246; (2) the appellant had
no money available at all, to pay the part of the purchase price of Rs.
1,30,994 and be had no means to construct the house ; (3) that his financial
resources were such as not to justify the purchase of the plot of land for the
construction of a house; (4) the site itself fetched no income but it was a
kind of investment with the hope of making a profit out of it and the land was
purchased only for the purpose of sale; (5) that the appellant being a keen
businessman had intimate knowledge of the trend of the rise in prices of land
and therefore the purpose for which he made the purchase was in order to make
profit and not merely an investment.
As against these circumstances various facts
were brought to our notice which it has argued militate against the findings of
the Tribunal : (1) that the appellant was carrying on an engineering concern
and therefore it was not unlikely that he intended, as he alleged, to put up a
small workshop on that portion of land; (2) that the appellant did not have his
own house in Calcutta and therefore he could have been in need of a piece of
land on which he could build a house and (3) that at the time -he entered into
an agreement of purchase he had a prosperous business which is ,shown by the
amount of income-tax which he paid for 109 866 two years and he could
legitimately expect that his business would continue to remain prosperous; (4)
that these facts could not lead to the necessary consequence that the
transaction was a venture in the nature of trade and that it was not the
dominant intention of the appellant at the time when he entered into the
transaction to embark upon a venture in the nature of trade.
Under the Income-tax law it is the exclusive
function of the Appellate Tribunal to find facts. Even though the powers of
this Court under Art. 136 are very wide yet they have to be exercised within
the limits imposed by the decisions of this Court and one such limitation is
that this Court will not ordinarily interfere with findings of fact. It has
been held by this Court that the question whether an adventure is in the nature
of a trade or not is a mixed question of law and fact. The facts have to be
found by the fact-finding authority and to those facts the law has to be
applied and whenever it is necessary to get a correct finding on a question of
fact it is the fact finding authority which is called upon to consider the
evidence and give its finding.
(See G. Venkataswami Naidu & Co. v. The
Commissioner of Income-tax (1)). Therefore if there arose a question of law out
of the order of the Appellate Tribunal then the appellant could have had the
case stated to the High Court under s. 66(1) and if the Appellate Tribunal
refused to state the case it was open to the appellant to have the case stated
under s. 66(2) of the Indian Income-tax Act. No doubt he did make an
application to the Appellate Tribunal to state the case under s. 66(1) but he
did not make any application to the High Court till 1957, after he had obtained
special leave in this Court and the High Court dismissed the petition on the
ground that it was barred by time. The position comes to this that the tribunal
refused to state the case under s. 66(1) of the Income-tax Act and the
appellant did not apply to the High Court under s. 66(2) till long after the
period of limitation had expired. In the circumstances the courses open to this
(1) A.I.R. (1959) S.C. 359.
867 Court would be (1) to set aside the order
of the Appellate Tribunal and remit the case to the Tribunal for decision in
accordance with the observations made by this Court as was done in the case of
Omar Saly Mohammed Sait v. The Commissioner of Income-tax (1) or it may be open
to this Court to direct a reference as was done in Jagta Coal Company v. The
Commissioner of Income-tax (2). Then in Dhakeswari Cotton Mills v. The
Commissioner of Income-tax (3) this Court only remitted the case to the
Appellate Tribunal to proceed in accordance with law on the ground that certain
principles of natural justice had been violated and the assessee was not given
an opportunity to rebut the evidence against him.
The Income-tax law has prescribed a procedure
to have questions of law determined and an assessee cannot byepass the various
steps prescribed under that law. The position therefore comes to this that if
there is no evidence to support the finding the question is one of law which
would fall under ss. 66(1) and 66(2) of the Income-tax Act; (2) if in giving
its finding the Appellate Tribunal disregards certain pieces of evidence or
proceeds in a manner which is violative of natural justice the finding will be
vitiated but if there is evidence to support the finding of fact and these
findings are properly arrived at then it will be a pure question of fact which
this Court will not ordinarily interfere with ; (3) if there is an error of law
arising as above or because of misinterpretation of the Income-tax law then the
case has to be stated to the High Court in the manner provided in the
Income-tax Act and if the assessee does not choose to follow the procedure
prescribed then he cannot come to this Court disregarding the remedy provided
by the Income-tax law and (4) the legal effect of facts found where the point
for determination is a mixed question of law and fact would fall under s. 66(1)
& (2) of the Income-tax Act. (See G. Venkataswami Naidu & Co. v. The
Commissioner of Income-tax (4) ).
This is a case in which certain essential
facts have (1) C.A. No. 15 Of 1958 (2) C. A. NO. 337 Of 1956.
(3) [1955] 1 S.C.R. 941.
(4) A.I.R. (1959) S.C. 359.
868 not been considered by the Appellate
Tribunal and therefore it is a case which should be remitted to the Income-tax
Appellate Tribunal to determine the facts in accordance with the observations
made by this ,,Court and in the light of those findings to determine whether
the transaction was an adventure in the nature of a trade or not.
I would order accordingly.
ORDER OF THE COURT In view of the opinion of
the majority, the appeal is allowed with costs.
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