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Commissioner of Income-tax, Assam Vs. Jalannagar Tea Estate (Private) Ltd., Assam. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 2 of 1960
AppellantCommissioner of Income-tax, Assam
RespondentJalannagar Tea Estate (Private) Ltd., Assam.
Prior history
MEHROTRA J. - A Hindu undivided family of Narsingdas Surajmal floated a limited company under the style of "Barbari Tea Estate Ltd." The tea gardens of Barbari Tea Estate were purchased by this limited concern from Rajmai Tea Co. Ltd. in 1944. This estate comprised of an area of 5,308 bighas. Subsequently, in the year 1950, the name of the Barbari Tea Estate Ltd. was changed into Jalannagar Tea Estate (Private) Ltd. - the present assessee. The area of the tea estate lies in the outsk
Excerpt:
- - the purchase was to be completed within ten years from the date of the agreement and in case of the purchaser companys failure to keep the purchase within the time aforesaid, the time for completion may at the option of the vendor company be extended by one year, but in case of such extension the purchaser company will pay interest on the balance of the purchase money then outstanding at the rate of 5 per cent. when section 2, sub-section (4) refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. in other words, cases do often arisen 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..... mehrotra j. - a hindu undivided family of narsingdas surajmal floated a limited company under the style of "barbari tea estate ltd." the tea gardens of barbari tea estate were purchased by this limited concern from rajmai tea co. ltd. in 1944. this estate comprised of an area of 5,308 bighas. subsequently, in the year 1950, the name of the barbari tea estate ltd. was changed into jalannagar tea estate (private) ltd. - the present assessee. the area of the tea estate lies in the outskirts of the town of dibrugarh in close proximity to the assam medical college. a part of the area was given over to the military for the purpose of constructing hospitals during the war. on the 15th april, 1950, the members of the joint family who had a large interest in the assessee company floated.....
Judgment:

MEHROTRA J. - A Hindu undivided family of Narsingdas Surajmal floated a limited company under the style of "Barbari Tea Estate Ltd." The tea gardens of Barbari Tea Estate were purchased by this limited concern from Rajmai Tea Co. Ltd. in 1944. This estate comprised of an area of 5,308 bighas. Subsequently, in the year 1950, the name of the Barbari Tea Estate Ltd. was changed into Jalannagar Tea Estate (Private) Ltd. - the present assessee. The area of the tea estate lies in the outskirts of the town of Dibrugarh in close proximity to the Assam Medical College. A part of the area was given over to the military for the purpose of constructing hospitals during the war. On the 15th April, 1950, the members of the joint family who had a large interest in the assessee company floated another limited company called the Jalannagar Development Co. Ltd. (hereinafter referred to as the "development company") with a view to acquire a part of the land from the assessee company to be developed into a proper township and to name it as the Jalannagar. On the 22nd July, 1952, the assessee entered into an agreement with the development company to sell 1,669 bighas of land in one or more lots, at Rs. 3,000 per bigha, for the purpose of development of a residential colony. In pursuance of the said agreement, the assessee sold several plots of the land to the nominees of the said development company. The agreement of the 22nd July, 1952, forms part of the statement of the case and the terms of it will have to be referred later in detail. The relevant assessment year is 1955-56. The corresponding counting year is the calendar year ending 31st December, 1954. The company during the accounting year received Rs. 40,394 as the sale price of the plots of land sold to various purchasers nominated by the development company in pursuance of the agreement of 22nd July, 1952. The Income-tax Officer after adjusting the cost of the land at Rs. 2,667 as against the sale proceeds, assessed the balance of Rs. 38,327 as taxable profits of the year on the finding that the transactions were a venture in the nature of trade. On appeal, the Appellate Assistant Commissioner reduced the assessment to Rs. 16,927 only. The assessee and the department both filed appeals to the Appellate Tribunal. The Tribunal allowed the appeal of the assessee holding that when the assessee acquired a property in 1944 it had no intention to set on foot the scheme for establishment of a colony by development of the land. There was no motive of the assessee company when it acquired the land in 1944 to deal in the land and to dispose of the land in plots. The activity of the assessee according to the Tribunal in regard to the transaction of sale did not thus amount to a venture in the nature of trade. The appeal by the department was dismissed. An application for reference to this court for opinion of certain questions of law which arose out of the order of the Tribunal was ultimately granted by this court and the following question of law has been referred to this court for opinion :

"Whether, on the facts and in the circumstance of the case, the Tribunal was justified in holding that the profit of Rs. 38,327 represented a capital receipt not assessable to tax under the Indian Income-tax Act ?"

The facts found by the Appellate Tribunal are that the assessee acquired the estate in 1944 and cultivated tea till 1950. The idea of sale of a part of the land originated only in the year 1950. At the time when the land was purchased, the intention of the assessee company was to hold the estate for tea cultivation and manufacture. Due to the heavy mortgage subsisting on the property, the inability of the assessee to pay it off out of income became apparent to the assessee in the year 1950. The company thought it uneconomical to keep the mortgage alive and in these circumstances the company thought of disposing of a part of the property and thereby earn profit. The Tribunal further found that there was no motive apparent or proved from the materials on the record that at the time of the acquisition in 1944 the assessee had already the scheme in mind which it since adopted. On these findings, the Tribunal drew the inference that there was no venture in the nature of trade and the profit which resulted to the assessee from the sales is a capital receipt and not a revenue receipt. Reliance was placed by the Tribunal on certain observations of Satyanarayana Rao J. in the case of Sri Gajalakshmi Ginning Factory, to which I shall refer later.

The agreement of July 22, 1952, which forms part of the statement of the case provides that the consideration for the sale of land containing an area of 1,669 bigha 1 K. 5 L. was Rs. 5,07,750 calculated at the rate of Rs. 3,000 per bigha. The agreement was entered into between the assessee as the vendor and Jalannagar Development Co. Ltd. as the purchaser company. The purchase was to be completed within ten years from the date of the agreement and in case of the purchaser companys failure to keep the purchase within the time aforesaid, the time for completion may at the option of the vendor company be extended by one year, but in case of such extension the purchaser company will pay interest on the balance of the purchase money then outstanding at the rate of 5 per cent. per annum. Paragraph 5 of the agreement provides that the purchaser company is desirous to develop the area agreed to be purchased as aforesaid into a colony mainly for residential, industrial and commercial purpose and to sell out plots in the said area to different parties either with or without buildings and other erections constructed by the purchaser thereon and therefore at the request of the purchaser the vendor agrees to execute proper conveyance or conveyances in one or more lots in respect of one or more plots of land in favour of the purchaser company or its nominees as and when called upon by the purchaser company to do, and cause the same to be registered on receipt of the purchase money at the rate of Rs. 3,000 per bigha. The excess amount that may be payable by the purchasers such nominees as consideration for the purchase of such plot its or under the terms of agreement between the purchaser and its such nominee or nominees shall be revivable by the purchaser and if paid by the said nominees shall be revivable by the paid by the said nominees of the purchaser to the vendor, the same will be made over by the vendor to the purchaser. Under paragraph 10, the purchaser was to obtain the permission of the local Government or any other authority, if necessary, for developing the said area into such a colony for residential purpose as aforesaid and shall at all times hereinafter keep the vendor indemnified against all losses and damages for so developing the said area without such permission, if necessary, of the local Government or any other authority. As worked out in the order of the Appellate Assistant Commissioner, the effective area was 766.02 acres. The total acreage purchased in 1944 was 1,709.93. Out of this 741 acres were eroded by river, 71.74 acres were gifted to medical college, 1.98 acres were donated, 100 acres were low and unsaleable lands 29.19 acres of land were further eroded land requisitioned for dyke purposes. Thus the effective area available was 766.02 acres.

"Business" has been defined under section 2(4) of the Indian Income-tax Act (hereinafter called "the Act") as including any trade, commerce or manufacture or any adventure or concern in the nature of trade of, commerce or manufacture. The question whether the amount is taxable or not will depend upon the nature transaction. If the sale to various purchasers by the assessee company constitutes a venture in the nature of trade, then any receipt of sale, consideration will be a revenue receipt. If the transaction of sale, however, does not constitute a venture in the nature of trade, the sale consideration obviously will be a capital gain. The question whether a particular receipt is a revenue or a capital receipt is always a mixed question of law and fact. The inference drawn from the proved facts is a question of law. No hard and fast rule can be laid down and no exhaustive list of criteria can be given which will conclusively establish that the activity of the assessee constitutes a venture in the nature of trade. The authorities have only laid down various criteria which may go to show that the particular activity of an assessee constitutes a venture in the nature of trade. Before examining the facts and the circumstances of the present case, it will be relevant to refer to some of the authorities which are relevant to the point at issue.

Mr. Choudhuri, counsel for the department, has referred to the case of Mody K. H., In re. In the year 1930, the assessee purchased an inam village comprising 1,330 acres for about Rs. 60,000 borrowing the whole of that amount at 71/2 per cent. interest. Out of the area, 266 acres were set apart for building sites and divided into 1,000 plots; 208 plots were sold in the year 1936-37 and 111 plots were again sold during the next year. He had spent some money over the development of the property. The income-tax authorities included in the assessees total income for the assessment year 1936-37 the profits earned by the assessee by the sale of these plots. It was held that there was evidence to support the finding of the income-tax authorities that the assessee was carrying on the business of purchasing and selling land. The question which was referred to the High Court for opinion was whether there was any evidence to support the finding of the Assistant Commissioner that the profits if any made on the sale and purchase of the village or any part thereof, is a profit earned by the assessee in the business of purchasing, developing and selling land carried on by him. The case, therefore, is not of much assistance to the department. It does not lay down any principle which will enable the courts to find out if the activity of an assessee constitutes a venture in the nature of trade or not. Moreover in that case the assessee from the very inception had a scheme to develop the land and then to sell it. The entire purchase initially was made under a scheme of developing and then selling the land on profit.

The next case referred to is Indra Singh and Sons Ltd. v. Commissioner of Income-tax. In this case the assessee, a private limited company, was empowered under its memorandum of association to carry on or undertake the business of banker, capitalists, promoters, financiers and concessionaires. The assessee took over the managing agency of a company and it had large holdings in various companies. The assessee also carried on a business of financing companies. The question which arose for consideration was whether the profit realised by the assessee from the sale of certain shares was assessable to income-tax. The Appellate Tribunal came to the conclusion that the assessee had been financing and promoting the business of other companies and for this purpose it had to vary its holdings from time to time, and that the assessee carried on the business of financiers which was one of the objects mentioned in the memorandum of association. On these findings, the Tribunal held that the profits realised by the assessee on the sale of the shares were taxable. As observed in this case :

"Profits realised on a change of investment simpliciter are not taxable. But if the change of investment was necessary and was in fact made for the purpose of and was an act done in normally carrying on the business of the company, then what is done is not merely a realisation or change of investment but an act done in what is truly the carrying on, carrying out, of a business."

The next case referred to is Fringford Estates Ltd. v. Commissioner of Income-tax. The facts of this case also are distinguishable. The assessee company was formed with the object of purchasing, clearing and improving of estates and cultivation and sale of tea, coffee, etc., in such estates. With that object in view, the company purchased a tract of land which had a large area of jungle and capable of being cleared up. The company began clearing up the jungle of trees and stocked the timber. Thereafter the company entered into an agreement with a timber merchant for clearing the rest of the jungle of all trees and for sale of the timber in the market. It was held that the profits by sale of timber were trade profits and were liable to tax. As observed in this case : "Where a company or a partnership is formed for the purchase of large estates and for clearing and developing an area and raising a plantation, there is a trade or business because you have that from which you would infer continuity. The company is formed for that purpose and for nothing else."

In the case of Sardar Indra Singh and Sons Ltd. v. Commissioner of Income-tax, cited by the counsel for the department, it was held that :

"In order to determine whether the surplus arising out of sale of investments is capital receipt or a trading profit, the test is whether the sales which produced the surplus were so connected with the carrying on of the assessees business that it could fairly be said that the surplus is the profits and gains of such business. It is not necessary that the surplus should have resulted from such a course of dealing in securities as by itself would amount to the carrying on of a business of buying and selling securities. It would be enough if such sales were effected in usual course of carrying on the business or........ if the realisation of securities is a normal step in carrying on the assessees business."

If certain investment is changed in the course of carrying on the normal business of the assessee and is connected with the carrying on of the assessees business, the profit earned by such a change will constitute a trading receipt and it is not necessary that the assessee should particularly carry on the business of purchasing and selling securities. But normally the receipt by change of capital assets will not constitute a trading receipt.

At this stage it will be convenient to deal with some of the English cases referred to by the counsel for the department. The first case is Martin v. Lowry. In this case, a wholesale agricultural machinery merchant who had never had any connection with the linen trade purchased from the Government the whole of its surplus stock of aeroplane linen. The contract provided that he should take delivery of the whole stored at the depots where stored, within six months. As the purchaser could not succeed in selling the whole of the linen he embarked on an extensive advertising campaign. All account books normally used by a trader were kept except purchase books which were unnecessary. All receipts and payments in connection with the linen were passed through a separate banking account. Thus the assessee succeeded in disposing of the entire quantity of linen purchased by him. It was held in these circumstances that the assessee carried on a venture in the nature of a trade. This decision was affirmed by the House of Lords and the decision of the House of Lords was reported in the same volume.

The next case in the same volume is Commissioner of Inland Revenue v. Livingston. As observed by Lord President (Clyde) in this case, "the profits of an isolated venture, such as that in which the respondents engaged, may be taxable under Schedule D provided the venture is in the nature of trade." It was further observed as follows :

"I say may be because in my view regard must be had to the character the circumstances of the particular venture. If the venture 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 single transaction falls as far short of constituting a dealers 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. But this principle is difficult to apply to ventures of a more complex character such as that with which the present case is concerned. I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, in the nature of trade, is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made."

After having observed thus the Lord President on the facts of that case held that it constituted a venture in the nature of trade.

Mr. Lahiri who has appeared for the assessee has referred to the case of Hudsons Bay Co. Ltd. v. Stevens. The appellant in this case was a company established by charter, who prior to 1869 was the owner of large territories in North America. In 1869, they surrendered to the Crown their territory and rights of Government in exchange for a money payment and for a right to claim within fifty years, a twentieth share in certain lands in the territory as from time to time the lands were settled. The lands granted to the company from time to time, and the proceeds applied partly in payment of dividends and partly in reduction of capital. It was held the proceeds of the sales of the lands so granted were not profits or gains derived by the company from carrying on a trade of dealing in land, and were not assessable to income-tax. Another case of Tebrau (Johore) Rubber Syndicate Ltd. v. Farmer of the same volume is at page 658. In this case, the company was formed with the object of acquiring estates in the Malay Peninsula and developing them by planting and cultivating rubber trees. Power was taken in the memorandum of association to sell the property and such a sale was contemplated in the prospectus issued at the inception of the company. Two estates were purchased, but the original capital being insufficient to develop them, the whole of the undertaking was sold to a second company for a consideration (mainly in shares of the second company) in excess of the capital expended. At the date of the sale a considerable acreage had been planted, but no rubber had yet been produced or sold. It was held that the profit on the sale was not a profit assessable to income-tax, but was an appreciation of capital.

The next case cited by Mr. Lahiri is C. H. Rand v. Alberni Land Company Ltd. In this case the assessee company was incorporated in 1904 with the primary object of acquiring, managing and developing with a view to ultimate sale, certain lands in British Columbia which were held in trust for various persons who were interested therein either as owners, joint owners or as trustees. Subject to an extraordinary resolution, the company had power to deal in other lands, but it had not at any time exercised that power. The company sold certain land. It was held that the surplus arising from the sale by the company of portions of the lands was not the profits of a trade or business, and that the function of the company was merely to realise the capital value of the respective interests in the land under the trust.

The next case cited is Leeming v. Jones. It was held in this case that the venture was not in the nature of a trade.

So far as we are concerned, the law has been exhaustively dealt with in the case of Venkataswami Naidu & Co. v. Commissioner of Income-tax. As observed at page 607 of the report :

"This question has been the subject-matter of several judicial decisions; and dealing with it all the judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. When section 2, sub-section (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 characterised by some of the essential features that make up 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."

At page 610, it was again observed as follows :

"In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade..... 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 arisen 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."

At page 609, it was observed as follows :

"As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for sometime, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold If the commodity purchased is generally the subject matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby make it more readily resaleable What were the incidents associated with the purchase and resale Were they similar to the operations usually associated with trade or business Are the transactions of purchase and sale repeated In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstance mentioned in any of them may help the court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us."

At page 622, the facts of the case are set out in the following terms :

"What then are the relevant facts in the present case The property purchased and resold is land and it must be conceded in favour of the appellant that land is generally the subject matter of investment. It is contended by Mr. Viswanatha Sastri that the four purchases made by the appellant represent nothing more than an investment and if by resale some profit was realised that cannot impress the transaction with the character of an adventure in the nature of trade. The appellant, however, is a firm and it was not a part of its ordinary business to make investment in lands. Besides, when the first purchase was made it was difficult to treat it as a matter of investment. The property was a small piece of 28 1/4 cents and it could yield no return whatever to purchaser. It is clear that this purchase was the first step taken by the appellant in execution of a well considered plan to acquire open plots near the mills and the whole basis for the plan was to sell the said lands to the mills at a profit. Just as the conduct of the purchaser subsequent to the purchase of a commodity in improving or converting it so as to make it more readily resaleable is a relevant factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose. As and when plots adjoining the mills were available for sale, the appellant carried out his plan and consolidated his holding of the said plots. The appellant is the managing agent of the Janardana Mills and probably it was first thought that purchasing the plots in its own name and selling them to the mills may invite criticism and so the first purchase was made by the appellant in the name of its benamidar V. G. Raja. Apparently, the appellant changed its mind and took the subsequent sale deeds in its own name. The conduct of the appellant in regard to these plots subsequent to their purchase clearly shows that it was not interested in obtaining any return from them."

On these facts it was held that the profit received was taxable.

In the case of Saroj Kumar Mazumdar v. Commissioner of Income-tax, it was held by their Lordships of the Supreme Court that in a case where a transaction under examination is not in the line of the business of the assessee, and is an 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 and on the facts of that case it was held that it was not a venture in the nature of trade.

The case relied upon by the Tribunal is Gajalakshmi Ginning Factory Ltd. v. Commissioner of Income-tax. The assessee company in this case purchased a ginning factory with extensive lands appurtenant to the factory and also a plot which was somewhat removed from the factory. On this plot there were some fruit stalls. Out of the vacant site some land was parcelled out into small plots in accordance with the requirements of the town planning scheme of the municipality and the plots were sold thereafter in public auction. During the accounting year by sale of some plots the assessee realised a sum of Rs. 9,397 and it was contended by the department that the receipt was a revenue receipt liable to tax. The High Court repelled this contention and held that there was no element of any business in the whole transaction. The existence of an intention to dispose of the property at the time of its purchase was emphasised by the Madras High Court in determining the nature of the adventure. The following passage, with which I am in complete agreement, sums up the whole position :

"But if a person buys land with no intention of selling it and after a long interval finds it convenient to sell the land by parcelling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of a trade. He was merely selling and did not at the time of buying start with the intention of buying and selling with a view to make profit. The intention must be that even at the time when the property was acquired it was so acquired for the purpose of sale with a view of make profit. In other words, the object of the acquirer was to deal in that commodity, if one may use that expression, as he deals with the goods in the course of an ordinary trade. In the absence of any such intention gatherable from the circumstances of the case, it is difficult, if not impossible, to hold that the activity he carried on was something analogous to a trade and, therefore, the profit he made was not a capital receipt but a revenue receipt."

The above view was accepted in the case of Raja Rameshwara Rao v. Commissioner of Income-tax. The intention of the assessee when the land is purchased was emphasised in this case as a test for determining the nature of the transaction. On the facts of that case, however, the High Court held that the transaction was in the nature of an adventure in trade and the profit was taxable. This decision was affirmed by their Lordships of the Supreme Court in the case of Raja J. Rameshwar Rao v. Commissioner of Income-tax. The main point urged in that case was that a single transaction cannot constitute a venture in the nature of a trade. This contention cannot constitute a venture in the nature of a trade. This contention was repelled. It was observed as follows by their Lordships of the Supreme Court :

"Even a single venture may be regarded as in the nature of trade or business. When a person acquires lad with a view to selling it later after developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it, but in parcels, he is dealing with land as his stock-in-trade; he is carrying on business and making a profit."

The principle which emerges out of the consideration of all the authorities referred to above is that it is impossible to evolve any one particular formula which can be made applicable to all the transactions which come up before courts for examination. Each case will depend upon its own relevant facts and no abstract rule can be relied upon as a sure guide for determining the nature of the transactions. The facts found by the Tribunal are already set out by me in the earlier part of may judgment. There is a definite finding by the Tribunal that when the estate was purchased by the assessee, the assessee had no intention to dispose of the land with a view to earn profit. It was acquired with a view to retain possession. There was no scheme at the time of the purchase of the land, to parcel it out and develop it and then to sell it on profit. The selling of land was not in line with the business of the assessee. It was in the nature of a capital asset and the assessee by selling the plot of land only changed its capital asset from land to money. So far as the assessee was concerned it was one complete agreement to sell and land to the development company. In order to facilitate the disposal of the land by the development company the period for the purchase of the land by the development company or its nominee was fixed at ten years. The advertisement and other activities with a view to secure good purchasers were carried on by the development company. The development company was a separate entity for the purposes of taxation, even though the shares in that company were held by members of the joint family. As found by the Tribunal the land was sold with a view to liquidate the bank overdraft.

The counsel for the department has very strongly relied upon clause (f) of the memorandum of association of Barbari Tea Estate Ltd., which gives power to the company to acquire by purchase, lease, exchange or otherwise any buildings and hereditaments of any tenure or description situate in British India, Indian States, foreign countries or elsewhere and any estate or interest therein, any rights over or connected with the land so situate and to turn the same to account as may seem expedient and in particular by preparing building sites and by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining offices, flats, houses, factories, warehouses, shops, wharves, buildings, works and conveniences of all kinds and by consolidating or connecting or sub-dividing properties and by leasing, letting, hiring and disposing of the same. The memorandum of association does not form part of the statement of the case. There is no reference to it in the statement of the case drawn up by the Tribunal. But apart from that this clause only gives power to the Barbari Tea Estate to acquire and dispose of land. It does not show any intention of the assessee company at the time of the purchase of the tea estate to sell it in future with a view to earn profit. In our opinion from the findings of fact arrived at by the Tribunal it cannot be inferred that the assessee indulged in any adventure in the nature of trade when entering into the transactions of sale in pursuance of the agreement with the development company and the sale proceeds are not trade receipt but capital receipt but capital receipt and not liable to tax.

Mr. Choudhury for the department further contended that even if at the time when the tea estate was purchased by the assessee company it may have had no intention of carrying on business, but, when in the year 1950 the assessee entered into an agreement with the development company, the assessee conceived of a scheme under which the assessee intended to carry an adventure in the nature of a trade and the sale receipt were thus business profits. At the time when the statement of the case was called for from the Tribunal, this court had specifically rejected the plea of the department to ask for a statement of the case on this point. Even if the argument of the department is accepted that the question referred to us is wide enough to cover the case as to whether subsequently the assessee carried on business, from the circumstances found by the Tribunal no such inference can be drawn. We accordingly answer the question referred to us in the affirmative. The assessee will be entitled to its cost, which we assessee at Rs. 200.

DEKA C.J. - I substantially agree with may learned brother and the point under reference may be answered as suggested. I think the correct answer is found in the judgment of the Supreme Court, in the case of Raja J. Rameshwar Rao v. Commissioner of Income-tax. The facts in each case have to be assessed for the purpose of finding as to whether they constitute a venture in the nature of trade or business and the original intention at the time of acquisition of the property by itself cannot be conclusive. What is a finding binding on the High Court is dealt with in the case of Raja Rameshwara Rao v. Commissioner of Income-tax, a judgment of Subba Rao C.J., as he then was. In this case, the situation is correctly assessed, in our opinion, by the Income-tax Tribunal and we see no necessity to go behind it. Mr. Choudhury for the department contended that at the time the contract of sale was entered into by the assessee company, the property was converted into stock-in-trade as held by the Assistant Commissioner of Income-tax. Read with the circumstances, we cannot say that this assessment was correct. I have nothing more to add.

Question answered in the affirmative.


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