1. The question that has been referred to us by the Tribunal under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, Bombay City - I, Bombay, runs as follows :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 75,870 being the difference between the price of acquisition of the dry dock and the price for which it was ultimately sold to the Kandla Port authorities is assessable to tax as profit arising from a venture in the nature of trade for the assessment year 1953-54 ?'
2. The question arises out of the assessment of an entity (Messrs. Asian Dry Dock Co.) treated as an unregistered firm and relates to the assessment year 1953-54, the corresponding accounting period being the year ending 31st March, 1953.
3. A few facts giving rise to the question may be stated : One Bretagne, a marine engineer, initially purchases a concrete floating dry dock which was then lying at the Cocanada Port in Andhra Pradesh for Rs. 1,18,000, some times in 1948, from one Mr. Parledis, who in turn had bought it from the Admiralty from Trincomalee. He made attempts either at disposing it of or working it but these attempts proved futile. He found it costly to maintain this dry dock and later, some time in November, 1950, he contacted one Mr. Swadi who was also working with him for some time in Ford Motor Company of India and held discussion with him of forming a partnership or a company with a view to work the concrete floating dry dock for carrying out repairs of small ships at Kandla. It appears that one more person by name Dara Cama also joined them and certain discussions between the three took place in a meeting held on 26th November, 1950. The discussions and the decisions that were taken during this meeting were recorded in a minute bearing that date. From the record of the proceedings of that meeting as reduced to writing in the said minute it appears that the three persons agreed to form themselves into a partnership 'for the purpose of running and operating the concrete floating dry dock belonging to Mr. Bretagne for the inspection, repair and overhaul of ships', that the place of such business was agreed to be in the port of Kandla where, it was decided, a shore workshop will be erected for the purpose. Mr. Swadi was authorised to obtain permission for an anchorage at Kandla and the necessary land for the workshop there and he was authorised to incur the necessary expenditure in that behalf. It was further agreed that the firm should be called 'M/s. Asian Dry Dock Co.' and that as soon as the partnerships deed was signed, the concrete floating dry dock should be taken over by the aforesaid firm at a valuation to be mutually agreed upon after the dock had been certified and valued. It was further agreed that Mr. Bretagne should instruct one Mr. Chablani to undertake the work of inspecting and valuing the dock and all the equipment of it at his cost and upon receipt of Mr. Chablani's report the three partners were to meet and mutually agree upon the value at which the dock should be taken over by the firm. Several other terms including the share of the three persons in the profit and loss of the firm were also mutually agreed upon between the three persons and it was decided that Mr. Swadi should draw a draft agreement of partnership after consulting legal opinion, if necessary. The record of proceeding at which the aforesaid decisions were taken has been an annexure to the statement of the case and appears at page 42 of the record. It appears that pursuant to this arrangement Mr. Swadi contacted one Capt. Simpson who was the Deputy Surveyor of Kandla Port and had discussion with Capt. Simpson and succeeded in having Mr. Simpson's approval of the idea 'of our setting up the concrete floating dry dock at Kandla of repairs of crafts in the Gulf of Cutch'. In a letter written by Mr. Swadi on December 11, 1950, he recorded what transpired at the interview which he had with Mr. Simpson. Mr. Swadi also wrote to the effect that 'We shall apply for permission officially for a berth at Kandla and for land space for a workshop after I receive this data and after due consultation with Mr. Chablani'. Swadi again wrote to Simpson on December 23, 1950, and conveyed to him Chablani's advice that it would not be difficult to operate the dock at Kandla but that some care would have to be taken in lowering the dock into the water and in the end he stated that he hoped to make a formal application for the berth and for land space for a temporary workshop in the beginning of the New Year. Again by his letter dated January 3, 1951, Swadi informed Simpson that he had addressed a letter to the Development Commissioner, Kandla, for allotment of a mooring berth and land for a workshop on shore and requested Simpson to use his good offices 'and have the decision taken quickly so that we can start at Kandla as early as possible, perhaps about July-August this year'. As already stated, Swadi had by his letter dated January 3, 1951, requested the Development Commissioner, Kandla, for allotment of mooring berth and the land for workshop on shore an he expressed the hope that upon allotment of a suitable berth for setting up a repair organisation and some land for the shore workshop his firm would be in a position to effect ship repairs much more cheaply than at Bombay and that his firm would arrange for expert staff and effect the repairs expeditiously. It appears that Simpson informed Swadi that the decision in the matter was to be taken by Mr. Mitter, Conservator of Kandla Port, and since Mr. Mitter was shortly proceedings to Europe, Swadi should see Mr. Mitter to have quick decision in the matter. Accordingly, Swadi saw Mitter at Bombay as is clear from letter dated January 15, 1951, written by Swadi to Mitter. It appears that Mitter, as the Development Commissioner of Kandla Port, wrote to Swadi on January 24, 1951, that it was not possible for him to take a decision in the matter and that it will have to await his return from Europe, but Mitter told Swadi to go ahead with his own arrangements. It appears that, while these attempts were being made by Swadi on behalf of the firm to obtain a mooring berth and land space for the workshop on the shore at Kandla, Bretagne was carrying on correspondents with Simpson and with Chablani, to the letter of whom he had entrusted the work of finding out a customer for the dry dock. Reading of a letter dated December 19, 1950, from Bretagne to Simpson clearly shows that efforts were made to sell the dock, for in this letter Bretagne has written out the visit of Simpson to whom certain required particulars were furnished and in para. 12 of this letter it was stated that, 'We would suggest an early decision in the matter of purchase as if the dock cannot be towed early in 1951 it will have to be deferred till early 1952.' It appears that Chablani was at Cocanada at the time when Simpson visited during the inspection of the dry dock. It appears that Bretagne had offered the dry dock for sale to various parties amongst whom Kandla Port authorities, was one but this offer of sale was turned down by Kandla Port authorities, by its letter dated January 31, 1951, as the amount of Rs. 8 lakhs demanded by Bretagne as the price of the dock was considered too high. It further appears that in the meanwhile Bretagne had enlisted the help of Swadi and Chablani by offering to pay commission at various rates ranging from 3% to 12 1/2% to Swadi and at various rates ranging from 5% to 20% to Chablani if they could get the dock sold for at least Rs. 8 lakhs. But, when the offer of sale at Rs. 8 lakhs was turned down by the Kandla Port authorities, Bretagne and Swadi decided to form a partnership. Ultimately, a firm was constituted consisting of Bretagne, Swadi, Chablani and Cama under a deed excited on June 6, 1951, a copy whereof has been annexed as annexure 'C' to the statement of the case. This deed of partnership recites that Bretagne was the sole and absolute owner of a reinforced concrete dock lying in a basin off the Barge Canal at Cocanada, that Bretagne was desirous of running and operating the said dock for doing the work of inspection repair and overhaul of ships with the help of necessary workshops to be erected on the shore at any major port in India, Pakistan, Burma, Ceylon and Malaya, that Bretagne proposed to the other three parties to join him in partnerships for furthering his object of establishing the said dock along with suitable workshops on land as a business for inspection, repair an overhaul of ships at a suitable port in India, Pakistan, Burma, Ceylon and Malaya, and then it proceeds to record the terms and conditions on which the parties agreed to operate the aforesaid business in partnership with one another. Clause 3 of the deed indicates what the business of the partnership was going to be and it states, the business shall be to (a) acquire, own, construct, buy, sell and otherwise dispose of floating dry docks and workshops on land, workshops and other machinery and river and sea craft, (b) to inspect, repair and overhaul ships and other floating craft, machinery, electrical lines and installations and generally to do such business as is normally done by ship repairing and other large workshops, and (c) also to do such other business as the aforesaid four parties may, from time to time, agree to do. Clause 5 of the deed provided that Bretagne shall have a half interest in the capital and in the profit and loss of that firm while the other three partner shall hold the remaining half interest in the capital and in the profit and loss of the firm, each one having 1/3 interest. Clause 6 provides that from the date of signing of this document the dock shall be deemed to be the property of the partnerships, the same having been acquired by the firm from Bretagne under clause 4 at a valuation of Rs. 2,25,000 in accordance with the terms and conditions contained in Bretagne's letter dated May 26, 1951, addressed to Chablani. Under clause 6 it was further agreed that Chablani, Swadi and Cama shall pay to Bretagne the sum of Rs. 50,000 in cash certain instalments and shall further contribute on behalf of Bretagne a sum of Rs. 5,000 to the funds of the aforesaid firm for its general expenses leaving the balance of Rs. 1,70,000 out of the valuation of the dock mentioned in clause 4 as the first constitution of Bretagne in the share capital of the company. Clause 14 of the deed is material and the same runs as follows :
'14. That, in the event of the company being forced to, or having to sell the aforesaid Dock and its assets, for any reason whatsoever, the monies realised from such SALES shall be disposed of in the following order and manner :
(a) Firstly, in the payment of all expenditure inclusive of taxes, debts and outstanding, whatever their nature, which may have to be paid or may have been incurred by the company.
(b) Secondly, in the payment of commissions due to the SECOND and THIRD PARTIES in accordance with letters dated the 20th December, 1950, and 26th May, 1951, addressed by the FIRST PARTY to the SECOND PARTY, and to such other persons as may be entitled to the payment of commission.
(C) Thirdly, in the payment in full -
(i) to the FIRST PARTY of the balance of the valuation of the Dock shows in clause 6 of these presents and simultaneously.
(ii) to the SECOND, THIRD AND FOURTH PARTIES of the sum of Rs. 60,000 (rupees sixty thousand only), in addition to all other monies paid by them in terms of the foregoing clauses Nos. 7 and 8 and such monies as may have been paid by the FIRST PARTY in terms of clause 8 above.
or in such proportions as may be admissible under provisions of the foregoing clause No. 5.
(d) Fourthly, the balance left over, shall be divided equally between the FIRST PARTY on the one hand and the SECOND, THIRD AND FOURTH parties, or in accordance with the provisions of the foregoing clause No. 5.' Under clause 16 it has been provided that all the preliminary work of promotion of the objects of the company as delineated in clause 3(a) of the deed shall be handled by the partners, Chablani and Swadi, in consultation with each other and their decision shall be binding on all the four partners provided that in all important matters of policy Chablani and Swadi shall consult Bretagne and Cama and on such occasions the decision of the majority shall prevail.
4. It appears that the efforts to get a mooring berth and land space for the workshop on the shore near Kandla did not materialise. On Mitter's return from Europe some time in May, 1951, Swadi saw him at the former's request which is clear from the letter dated May 11, 1951, written by Swadi to Mitter where he was stated thus :
'As desired by you I have consulted my partner and we feel that we would rather utilise the Dock for setting up craft facilities at Kandla than sell it.'
5. By that letter Swadi has further reiterated the request for allotment of a berth and land so that the firm may be in a position to start work early. On July 4, 1951, Mitter, the Development Commissioner, categorically stated that on a re-consideration he had decided that the port of Kandla should acquire the dock from the firm and that the firm would not be granted permission to bring the dock to Kandla and to work it for ship repairs and that an official letter offering to buy the dock from the firm would be issued in due course from his office. Mr. Mitter again on July 10, 1951, offered Rs. 5 lakhs for this floating dock, delivery being made at the deep water anchorage at the Cocanada port and the expenditure on dredging and towing from the basin in which the dock then rested to the anchorage to be borne by the firm. On July 24, 1951, Swadi wrote by way of reply expressing surprise at Mitter's offer of purchase of the dock at a price of Rs. 5 lakhs only. After stating that Indonesia and Pakistan had offered higher prices, Swadi stated, 'We feel that you are using undue Government pressure on us, firstly, by refusing us a berth to work of Kandla and, secondly, by stopping the sale the export of the dock from India. Enquiries at Kakinada show that we shall not be allowed to take out the dock from the basin. You realise that it is an expensive thing to maintain. We cannot also go to law against Government.' Swadi went on to add further as follows :
'May I once more request you to be so good as to permit us to bring the dock to Kandla and to work it there as a ship repairing establishment. We are prepared to agree to reasonable conditions as far as the repair of the Kandla craft is concerned. Should you still feel that you should acquire it, may I request you to pay us a fair price and to take your decision at an early date so that we can utilise our money otherwise and avoid the costs of its maintenance which is considerable. We are still anxious to work it and would urge you to permit us to do so.'
6. Ultimately, it appears that the Kandla port authorities turned down the request of the assessee to set up a dry dock and workshop at Kandla and they decided to acquire this dry dock and finally in January, 1953, the port authorities acquired the same for a sum of Rs. 3,80,000.
7. As a result of the aforesaid sale of the dry dock in the balance-sheet of the firm a sum of Rs. 75,870 was shown as profit in the purchase and sale of this dock after taking into account the expenditure of Rs. 45,139 which the firm had incurred for maintaining this dock in the meantime. This sum of Rs. 75,870 was divided in the profit sharing proportion indicated in the deed of partnership. Mr. Cama, one of the partners, disclosed his share of profit in his assessment. Subsequently, the firm itself filed a return on November 5, 1957, and the delay in filing the return was explained by stating that the partners considered that this sum was a capital accretion and as such would not be taxable. The Income-tax Officer examined the transaction and after hearing the parties and recording the several statements of Bretagne and others and taking them into account he took the view that the partnership was formed only with the intention of selling the dry dock at a profit and there was at on time any intention of running this dry dock and, therefore, the surplus of the sale price over the purchase price less expenditure would be profit arising out of a business or, at any rate, out of a venture in the nature of trade. Disallowing Rs. 10,000 from Rs. 45,139, which was the expenses claimed, the Income-tax Officer brought to tax this profit arising out of this transaction. In the appeal that was preferred by the assessee-firm the Appellate Assistant Commissioner remanded the matter back to the Income-tax Officer on two occasions : first, on December 19, 1959, with a view 'to find out the real intention of the partnership with reference to the statements quoted above from the proceedings of the meeting and to submit a report within a month from the receipt thereof' and on the second occasion, on November 24, 1960, as he felt that the grievance made by the assessee-firm that some of the partners had not been given sufficient opportunity to cross-examine Bretagne on his several conflicting statements was genuine. After considering the remand reports that were submitted by the Income-tax Officer and after considering the correspondence that was produced on record and the several clauses of the partnerships deed executed on June 6, 1951, the Appellate Assistant Commissioner came to the conclusion that the transaction amounted to an adventure in the nature of trade and as such the surplus of sale proceeds over purchase price and expenses was rightly charged as business profit. When the matter was carried further by way of second appeal by the assessee-firm to the Appellate Tribunal, the Tribunal on a reappraisal of the entire material on record has taken the view that one total effect of all relevant factors, circumstances and evidence on record was that the transaction could not be said to have been entered into as a venture in the nature of trade but the surplus realised was only a capital accretion and, therefore, not assessable in the manner done by the lower authorities. At the instance of the Commissioner of Income-tax, Bombay City-I, Bombay, the question set out at the commencement of this judgment has been referred to us for our determination by the Tribunal.
8. Mr. Joshi, appearing for the revenue, has contended before us that it was a settled position in law that even a single transaction of purchase and sale would amount to an adventure in the nature of trade and he further urged that the question whether such a single transaction amounted to an adventure in the nature of trade has always been regarded as a mixed question of law and fact. He urged that if the entire conduct of Bretagne and his colleagues, particularly Swadi and Chablani, from the commencement till end as well as the correspondence that was exchanged between some of these a partners and the authorities of Kandla Port were carefully scrutinised, it will appear clear that the real intention of these partners from the very commencement was not to work or run the dock for the purpose of carrying on the business of repairing ships in Kandla Port but was to dispose of the said dock which they had acquired from Bretagne at a profit and as such the profit that was realised represented by surplus of the sale proceeds over the purchase price minus the expenses could not be regarded as a capital accretion and the same ought to have been regarded as business profit earned by the four partners. He referred us to a decision of the Supreme Court in the case of G. Venkataswami Naidu & Co. v. Commissioner of Income-tax : 35ITR594(SC) , where, according to him, after a review of all the English case law on the subject, the Supreme Court had laid down certain principles which could be applied when the question of the type arises for consideration before any court. In G. Venkataswami Naidu & Co.'s case : 35ITR594(SC) the appellant-firm, which acted as managing agents, purchased, for a total consideration of Rs.8,713, four contiguous plots of land adjacent to the place where the mills of the company managed by it were situated. The first purchase was made in October, 1941, in the name of a benamidar covering land measuring about 28 cents and the second and subsequent purchases were made in November, 1941, June, 1942, and November, 1942, the plots of land measuring about 2 acres 79 cents, 28 cents and 1 acre an 90 cents, respectively. As long as the appellant was in possession of the lands it made no effort to cultivate them or erect any superstructure on them but allowed them to remain unutilised except for the rent received from the house which existed on one of the plots. The appellant sold these lands to the company managed by it in two lots in September and November, 1947, for a total consideration of Rs.52,600. The question was whether the sum of Rs.43,887 being the excess realised by the appellant by the two sales over its purchase price was assessable to income-tax. The Tribunal rejected the contentions of the appellant that the properties were brought as an investment and that the plots were acquired for building tenements for the labourers of the mills as well as the alternative contention that the managed company desired to purchase the plots on account of an award of an industrial tribunal recommending that the company should provide tenements for its labourers, and held that since the appellant was in a position on influence the decision of the managed company to purchase the properties, the plots were purchased by the appellant wholly and solely with the idea of selling them at a profit to the company. The Tribunal, therefore, came to the conclusion that the amount was not a capital accretion but was a gain made in an adventure in the nature of business and was, therefore, taxable. On a reference, the High Court held that the transaction was an adventure in the nature of trade the that the department was justified in taxing the amount. On further appeal to the Supreme Court, it was held that on the facts the Tribunal was right in inferring that the appellant knew that it would be able to sell the lands to the managed company whenever it though it profitable so to do; that the appellant purchased the four plots of land with the sole intention of selling them to the mills at a profit which intention raised a strong presumption in favour of the view taken by the Tribunal and that High Court was right in holding that the transaction in question was an adventure in the nature of trade. The Supreme Court has observed that the expression 'in the nature of trade' appearing in the definition of 'business' in section 2(4) of the Income-tax Act postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business and that would make the question whether a transaction is in the nature of a trade and its decision one of mixed and fact. Mr. Joshi appearing for the revenue has relied upon the last portion of the head-note, which, according to him, summarises the principle which the Supreme Court which the Supreme Court has enunciated in determining the question at issue. The relevant portion of the head-note runs thus :
'If a person invests money in land intending to hold it, enjoys its income for some time, 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 re-sale, though profitable, are clearly outside the domain of adventures in the nature of trade. 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 re-sale were allied to his usual trade or business or incidental to it; the nature an quantity of the commodity purchased and re-sold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable; any at prior to the purchase showing a design or purpose; the incidents associated with the purchase and re-sale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received 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 transaction being in the nature of trade. The presence of all these relevant factors may help the court to draw an inference that a transaction is in the nature of trade; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is there distinctive character. In each case, it is the total effect of all the relevant factors and circumstances that determines the character of the transaction.'
9. It would thus appear clear that the total effect of all the relevant factors and circumstances will have to be considered in a given case, for it is such total effect that determines the character of the transaction. Applying this principle to the facts and circumstances of the present case we will have to consider as to what relevant factors have emerged on record and what is the total effect of all the relevant factors on the transaction in question. We have already summarised the facts as they transpired in a chronological order in the earlier part of our judgment and from recitation of those facts, in our view, some relevant factors have emerged on record. In the first place, it cannot be disputed that the concrete floating dry dock had been initially purchased by Bretagne, a marine engineer, in the year 1948 for a sum of Rs.1,18,000. It also cannot be disputed that he made efforts both at disposing it of as well as working it in some port but form the correspondence it could be said that the predominant intention with which he had purchased the dry dock was to sell it if possible. On that basis he had issued letters to various person like Chablani and others to see if a purchaser could be found out for the dry dock and it could also be said that his attempt in disposing of the dry dock continued even after he had asked Swadi and Cama to join him as partners for working the said dry dock in Kandla Port for doing business of inspection and repairs to the ships. In other words, the initial purchase of the dry dock by Bretagne could be said to have been made with both the purpose in view. It is clear that November, 1950, a meeting took place between Bretagne, Swadi and Cama at which these three persons decided to form themselves into a partnerships firm for the purpose of running and operating the concrete floating dry dock; for the purpose of doing business of inspection and repairs and overhaul of ships the said business was agreed to be done in Kandla Port and for that purpose it was decided to make efforts to obtain a mooring berth named land space on the shore for constructing or erecting a workshop. The record of the proceeding pertaining to the discussion and decisions that were taken at this meeting has been made in a minute in which all the decisions that were taken by these three persons have been recorded and, as stated earlier, it cannot be disputed that at this time a partnerships to run the business of inspection and repairs and overhaul of ships with the help of dry dock was contemplated by these three persons and it was also decided that as soon as the partnership deed was executed the concrete floating dry dock should be taken over by the aforesaid partnership at a valuation to be mutually agreed upon after the dock a been surveyed and valued by Chablani. Swadi was authorised to make efforts in the direction of securing a mooring berth and land space for erecting a workshop on the shore near Kandla Port. Mr. Joshi for the revenue has urged before us that even after this decision had been taken by these three persons in November, 1950, the material on record shows that the attempts of disposing of the dry dock were persisted and continued by Bretagne and for that purpose he had issued letter to Chablani and others and he had also agreed to pay commission to both Swadi and Chablani at certain rates in case they were able to effect sale of the dry dock for a sum of Rs.8 lakhs and in that behalf strong reliance was placed by Mr. Joshi upon two letters; one dated December 19, 1950, which Bretagne had written to Simpson and the other dated December 20, 1950 which Bretagne had written to Chablani. The first letter undoubtedly suggested that Bretagne had informed Simpson on that an early decision in the matter of purchase of the dry dock should be taken as, if the dock could not be towed early in 1951, it would have to be deferred till early 1952. It also appears that prior to writing of this letter Simpson had inspected the dock which was lying at Cocanada and at this inspection done by Simpson, Chablani was also present. The other letter dated December 20, 1950, indicates that payment of commission for sale of the dock outright was within the contemplation of Bretagne and the firm. Reliance was also placed by Mr. Joshi upon letter dated January 31, 1951, which Simpson had written to Bretagne where the breakdown of negotiation the purchase of floating dry dock at a price of Rs.8 lakhs was indicated by Simpson. But what Mr. Joshi emphasised was that after referring to such breakdown of negotiation Mr. Simpson went on to say that Mr. Mitter had instructed him to state that, though the Kandla Port organisation was not interested in the floating dry dock at the price quoted by Bretagne, the Kandla Port authorities were inclined to consider the purchase of that dry dock at a price near about the price which Bretagne was supposed to have quoted to M/s. Anglo-Saxon Petroleum Co. Ltd. In other words, Mr. Joshi emphasised that, though negotiation for the sale of dry dock at a price of Rs.8 lakhs had broken down, Bretagne still hoped to complete the sale of the dry dock if a lesser price was demanded, particularly the price which he had quoted for the purpose to M/s. Anglo-Saxon Petroleum Co. Ltd. Mr. Joshi, therefore, urged that the this correspondence clearly shows that notwithstanding the desiccation and the decisions that had been taken by the three persons in November, 1950, Bretagne and his colleagues were really intending to dispose of the dry dock at a profit and, according to him, that was the sole intention with which Bretagne and his colleagues had joined together to form a partnership. He contended that though in the minutes in which the discussion and the decisions arrived at between the three persons have been recorded on May 26, 1950, as well as in the regular partnership deed which executed on June 6, 1951, one of the objects of the partnership was mentioned as running of business of inspection, repairs and overhaul of ships at Kandla Port with the help of the dry dock which the partnership firm had taken over, the real or dominant intention with which these persons had come together to form a partnership was to sell the dry dock or dispose of the dry dock at a profit. In this behalf he also placed reliance upon yet another letter dated May 26, 1951, which was addressed by Bretagne to Chablani a few days before the regular deed of partnership was typed out and executed. It is a letter which confirms the conversation which Bretagne had with Chablani and certain things which had been agreed to by Bretagne. He particularly invited our attention to item No. 6 of this letter where Bretagne had written to the effect that he shall write to all persons with whom he had had direct correspondence or negotiations for sale of the dock, informing them that the dock has now been sold to the Asian Dry Dock Company and that all further correspondence relating thereto should be addressed to the company direct and he shall also hand over copies of such letters to Chablani. According to Mr. Joshi, a few days before the regular deed of partnership was executed Bretagne had categorically informed Chablani that he would write to all persons with whom he had direct correspondence or negotiations for the sale the dock informing those parties that the dock had now been sold to the Asian Dry Dock Company and all further correspondence relating thereto should be addressed to the company direct and, according to Mr. Joshi, this is a clear indication of the fact that the partnership had been formed with the object of disposing of the dry dock at a profit. He, therefore, urged that out of the two types of business mentioned in clause 3 of the deed for which the partnerships was said to a have been formed, the business mentioned in sub-clause (a) of clause 3 must be regarded as the principle business for which the partnership had been formed, namely, to acquire, own, buy, sell and otherwise dispose of the floating dry dock. Strong reliance was also placed by Mr. Joshi upon the statement of Bretagne which was recorded by the Income-tax Officer on March 25, 1958, where he has categorically stated that though they all the three had decided to form a partnership to run the dock, subsequently 'I learnt that the other three partners had no intention whatsoever to work the said dry dock or to carry on the working of the dry dock by putting in their share of capital. I also learnt that the other partners entered into partnership only with the intention of getting the dry dock sold at a profit.' Relying on the aforesaid correspondence and the several letters as well as the statement of Bretagne recorded on March 25, 1958, Mr. Joshi urged that though the record of the proceeding of the meeting held on November 26, 1950, shows that Bretagne and his colleagues joined the partnerships for the purpose of running the business of inspection repairs and overhauling of ships at Kandla Port with the help of dry dock and though in the regular deed of partnership that was executed on June 6, 1951, it had been stated that one of the businesses of the firm was to inspect, repair and overhaul ships and other floating craft, machinery, electrical lines an installations and generally to do such business as was normally done by ship repairing and other large workshops, the real business of the firm was to take over the dry dock from the original owner, Bretagne, and to sell or dispose of the same at a profit and if this was clear from the material on record, he urged that the taxing authorities were right in coming to the conclusion that the transaction of purchase and sale of the dry dock in question was an adventure in the nature of trade or business and the profit that was realised in such a transaction was assessable to tax and could not be regarded as a capital accretion.
10. It is not possible to accept this submission of Mr. Joshi for more than one reason. In the first place, if regard be had to the nature of the asset that was acquired by the firm from its original owner, Mr. Bretagne, it would appear clear that the asset being a floating dry dock that has been acquired by the firm, any business of inspection, repairs or overhaul of ships with the help of such an asset was not possible unless a mooring berth and land space on shore for a workshop was secured or available to the firm and, therefore, that fact of sale that was ultimately put through by the firm will have to be considered in the light of this position which obtains very clear on record, for, the position is very clear on record that in spite of efforts made by Bretagne, Swadi and others to obtain a mooring berth and land space for a workshop, they did not succeed and in fact the Kandla Port authorities categorically informed these partners that they shall not be permitted to have the facility of any mooring berth or land space for their workshop, and it was in that situation that the sale of the dry dock ultimately took place in June, 1953, to Kandla Port authorities. Secondly, though it may be possible to argue that when this dry dock was initially purchased by Bretagne in 1948, his idea may be solely to dispose it of at a profit, we are really concerned with the intention with which this asset was purchased or acquired or taken over by the partnership firm of Bretagne and his colleagues and so far as that aspect of the matter is concerned, there a can be no doubt from the record of the proceedings of a meeting that took place on November 26, 1950, that Bretagne has requested Swadi and Cama to join him in partnership and the latter had agreed to join him in partnership 'for the purpose of running an operating the concrete floating dry dock belonging to Mr. Bretagne for the inspection, repair and overhaul of ships'. The record of the proceedings also shows that the said business was agreed to be carried on at Kandla where a workshop was agree to be erected and Swadi was authorised to make efforts to obtain requisite mooring berth and land space for workshop at Kandla. The record of the proceedings also shows that it was decided that, as soon as the partnership deed was signed, the concrete floating dry dock shall be taken over by the firm at a valuation to be mutually agreed upon after the dock had been surveyed and valued by Chablani and ultimately the deed of partnership was executed on June 6, 1951, which clearly sets out two types of business that were contemplated to be done by the partners; one was to acquire, buy, sell and otherwise dispose of floating dry docks and the other was to inspect, repair and overhaul ships and generally to do such business as was normally done by ship repairing and other large workshops. It is true that in between November, 1950, when for the first time Bretagne and his colleagues agreed to form a partnerships and the execution of the partnership deed on 6th June, 1951, efforts were undoubtedly made by Bretagne to dispose of the dry dock and the of that purpose he had even offered commission at certain rates to Swadi and Chablani, but that by itself would not go to show that the partnerships had been formed solely with that intention. In fact, it is not possible to accept Mr. Joshi's contention that the real business of partnership was to acquire and sell dry dock an not to under-take the business of inspection, repairs and overhaul of ships as indicated in clause 3(b) of the partnership deed. In our view, there are indications in the partnership deed itself which show in what circumstances the dry dock could be sold by the firm. Clause 14, which we have quoted in extenso above, clearly shows that only in the event of the company being forced to or having to sell the aforesaid dock and its assets, for any reason whatsoever, that the monies realised from such sale shall be disposed of in the manner indicated in that clause. If anything, clause 14 clearly suggests that the business as indicated in clause 3(a) of the deed was really secondary and the one indicated in clause 3(b) of the deed was the true business contemplated to be undertaken by the partners. It is true that even in this partnership deed while indicating the manner in which the sale proceeds were to be disposed of, a provision has been made for payment of commission to Chablani and Swadi and to such other person as may be entitled to the payment of commission if ultimately the dry dock is required to be sold. But that again is a provision made for meeting the contingency when it arises as contemplated by clause 15 read with clause 3(a) of the document. There is one aspect which clearly runs counter to the submission of Mr. Joshi that the real business of the partnership-firm was to acquire and sell the dry dock an that circumstances, in our view, is, if that was the real intention of Bretagne, who was the initial owner of the dry dock, he would not have entered into an agreement of partnership with these three persons, viz., Swadi, Chablani and Cama under which the net surplus profit that might be realised by sale of the dock would be shared by him along with his three other partners. Bretagne had initially purchased the dry dock in 1948 for Rs.1,18,000 and he had made efforts for disposal of the dry dock and he had failed. He, thereafter, made efforts to effect the sale of the dry dock by using the services of Swadi and Chablani and even then these efforts did not materialise and while taking the services of either Swadi or Chablani he had agreed to pay commission to them in case a particulars price was realised by either of them by the sale of the dry dock. If, therefore, the ideal of Bretagne and his colleagues and merely to effect sale of the dry dock for the purpose of making profit, there was no necessity for Bretagne to enter into a partnership with these three person under the terms whereof he should have agreed to share the net profit that might be realised by the sale of the dry dock. He could have arranged for payment of commission to such person whose services were requisitioned by him and by reason of whom the sale was brought about and he could have retained for himself the entire profit arising out of such sale after paying such commission to those persons. The circumstances that Bretagne agreed to take three other persons with him in partnership and further agreed to share the profit of the business - whatever undertaken by the firm - along with his other there partners clearly militates against the argument made by Mr. Joshi that the sole business contemplated to be under-taken by the partnerships firm was to sell dry dock.
11. It is true that simultaneously efforts were also being made to dispose of the dry dock an Bretagne has written letters to Chablani and others in that behalf and he had also offered to pay commission to these persons. But that, as were have said above, would not be sufficient to come to the conclusion that the sale of the dry dock which ultimately took place in January, 1953, was by way of an adventure in the nature of trade. The correspondence on which reliance was placed by Mr. Joshi if appreciated in the context of two other documents, viz., the record of the proceeding dated November 26, 1950, and the clauses of the deed of partnership dated June 6, 1951, and the other circumstances on record would clearly show that the partnership had been formed principally for the purpose of running the business of inspection, repairs and overhaul of ships at Kandla port with the help of the dry dock which had been taken over by the partnership and for that purpose the evidence on record shows that positive attempts and efforts were made to obtain the necessary mooring berth and land space for the workshop at Kandla port and it was only when these attempts failed that the sale of the dry dock was effected resulting in profit to the tune of Rs.75,000 odd.
12. As regards the statement of Bretagne which was recorded on March 25, 1958, on which strong reliance was placed by Mr. Joshi, a couple of facts will have to be stated. In the first place, it must be observed that this was not a statement made by Bretagne before the Income-tax Officer in pursuance of any notice or letter issued by the Income-tax Officer. Bretagne had voluntarily gone to the Income-tax Officer and had made this statement before him. Secondly, it does appear from the record that prior to making of the statement by Bretagne before the Income-tax Officer on the aforesaid date, relations between Bretagne and Chablani had become strained and a lot of misunderstanding had arisen between the four partners of the firm. Further, a civil suit had been filed by Bretagne against his erstwhile colleagues and it was during the pendency of such civil litigation that was pending that Bretagne went to the Income-tax Officer on the advice of his legal adviser and volunteered to a make the aforesaid statement before the Income-tax Officer in which he stated that subsequently he learnt that the other three partners had no intention whatsoever to work the said dry dock or to carry on the working of the dry dock by putting in their share of capital and that he had also learnt that the other partners had entered into partnership only with the intention of getting the dry dock sold at a profit. In the first place, this statement of Bretagne on which reliance has been placed by Mr. Joshi runs counter to the facts which obtain in the matter as evidenced by the other material, namely, the record of the proceedings of the meeting held on November 26, 1950, the partnership deed dated June 6, 1951, an the correspondence, particularly letter which were written by Swadi to Simpson, the Development Commissioner, in the matter of obtaining or securing a mooring berth or land space for the workshop. Several steps on the part of Swadi were inexplicable on the basis of the statement made by Bretagne on March 25, 1958. Secondly, the circumstances in which Bretagne voluntarily made the statement before the Income-tax Officer also clearly suggest that not much weight could be attached to that statement and the Tribunal, in our view, was right in not attaching much importance to this part of the statement of Bretagne.
13. Having regard to the several relevant material facts and aspects, which we have discussed above, it seems to us clear that the Tribunal was right in taking the view that the total effect of all the relevant factors and circumstances on record is clearly indicative of the fact that the transaction in question was not entered into as an adventure in the nature of trade and that, therefore, the surplus realised as a result of the sale of the dry dock was only a capital accretion.
14. In this view of the matter, the question that is referred to us is answered in the negative and in favour of the assessee. Revenue will pay the costs of the reference to the assessee.