1. Pursuant to an order made by this court, the following two questions are referred to us for our determination :
'(1) Whether the transactions in question were on capital account or constituted an adventure in the nature of trade and,
(2) If the answer to the above question is against the applicants, whether the excess of the agreed price over the cost has properly been brought to tax for the assessment years 1949-50, 1950-51, and 1952-53 ?'
2. Estate Investment Company Ltd., the assessee, was incorporated on February 3, 1945, and the objects for which the company was established are enumerated in para. 3 of the statement of case. We will refer to some of the relevant objects in the course of our judgment, when necessary.
3. One of the main objects for which the company was incorporated was to enter into transactions relating to land and properties. The assessee purchased several villages, including lands at Chincholi and Dindoshi Villages, and before the taxing authorities and the Tribunal it was stated that the object for which the assessee-company was formed was to have a model dairy, a model settlement and a model engineering college established thereon for the convenience of the middle class people. A couple of letters were produced on behalf of the assessee with a view to support the contention that such were the objects with which these lands were purchased. From the Sindhi Estate Account and other statements filed on behalf of the assessee before the ITO, he came to the conclusion that in pursuance of the objects for which it was formed, the assessee-company purchased several lands, developed them and regularly sold them for profit and those purchases and sales constituted business transactions.
4. During the accounting years relevant for the assessment year 1949-50 (accounting year ending July 31, 1948), 1950-51 (accounting year ending July 31, 1949) and 1952-53 (accounting year ending July 31, 1951), the assessee effected the following sales and realised excess amounts as shown hereunder :
Assessment year 1949-50 (accountingyear ending 31-7-1948)Sales of land at Chincholi village and Rs.Sindhi Colony Sale price 2,89,228Cost price 68,899----------Excess Rs. 2,20,329------------------------Assessment year 1950-51 (accountingyear ending 31-7-1949)1. Sale of 17.04 acres of land atChincholi Village, Sindhi Colony toFamous Cine Laboratory Rs.Sale price 1,48,015Cost price 36,919---------Excess Rs. 1,11,096-----------------------2. Sale of 16 acres of land atDindhoshi to Famous Cine Rs.Laboratory. Sale price 38,720Cost price 17,244-------Excess Rs. 21,476-------------------Total excess realised (i.e., 1 & 2)Rs. 1,31,572 Assessment year1952-53 (accounting year ending31-7-1951)Sale of 7 acres of land of Chincholito Kaliashpuri Co-operative HousingSociety Ltd. as per agreement dated Rs.22-2-1951. Sale price 2,03,280Cost price 45,339---------Excess Rs. 1,57,941---------
5. On February 22, 1951, the assessee-company entered into four agreements, (1) with Silk ., (2) with Govind Nagar, owned by Govindram Brothers Ltd., (3) with Famous Cine Laboratory, owned by Govindram Brothers Ltd. and (4) with Kailashpuri Co-operative Housing Society Ltd., for sale of various pieces of land therein mentioned, respectively, at the prices therein stated.
6. For the above three assessment years, when initially the assessments were completed, the profits made in the above transactions were not taken into account. Later on, the ITO came to know that the assessee-company made sales of land and made profits. In order to bring to tax the profits made by the assessee on those sales of land, the ITO reopened the assessments under s. 34(1)(a) after obtaining the permission from the CIT, Bombay. In connection with the sales effected in the relevant accounting years, the board of directors of the assessee-company held a meeting on February 22, 1951, and inter alia, considered the question in relation to the sale transactions.
7. Before the ITO, it was sought to be urged on behalf of the assessee-company that, as no sale deed as required by s. 54 of the Transfer of Property Act were registered, during all the three accounting years, the sales were not complete and no profits were made. While dealing with this contention, the ITO took the view that in view of the close relationship that had existed between the directors of the assessee-company and those of Govindram Brothers Private Ltd., who had purchasers had constructed the sale deeds were not executed. However, the purchasers had constructed their buildings on the lands purchased by them from the assessee and claimed depreciation in their own assessments in respect of those lands. The assessee also treated those transactions as full sales and had transferred the profits arising therefrom to its reserve fund. The ITO observed that after having treated those transactions as sales by making corresponding entries in the account books, it did not lie in the mouth of the assessee to contend that the position as indicated by the account books did not really represent the correct position. In the balance-sheet of the assessee-company as at July 31, 1949, which was duly audited on January 28, 1954, the following entries relating to the transactions of sale of lands are shown :
'Land (at cost) Bhaindar, Rs. Rs.Mira and Ghodbunder :Balance as per last balance-sheet 2,41,387-8-0Chincholi, Dindhoshi and Sampavli :Balance as per last balance-sheet 4,55,842-1-0 (?)Add : Amount expended on SindhiColony Transferred 25,233-11-9---------------3,61,675-12-9Add : Excess realisation on sale of land(including Sindhi Colony transferredto reserve fund account) 3,51,900-13-7--------------7,32,976-10-4Less : Amount realised on sale of land(including Sindhi Colony)In previous years 2,89,228This year 1,85,735 4,74,963-0-0 2,58,013-10-4------------ ------------4,99,401-2-4'Due from Messrs. Govindram Brothers Ltd. :(a concern in which the directors of thecompany are interested as directors) forsale of land :Silk Manufacturers Co. 1,50,000-0-0Govind Nager 1,39,228-0-0Famous Cine Laboratory 1,95,735-0-0 (?) 4,74,963-0-0-------------- ------------RESERVE FUNDExcess realisation on sale of landincluding Sindhi Colony. 3,51,900-13-7'
8. Having regard to these entries, the ITO took the view that the assessee treated those as complete sales, even though in view of close relationship, deeds of conveyance were not executed between the directors of the vendor and the purchasers. The ITO accordingly included the profits arising from these transactions in the respective assessments for the three years.
9. In the appeals preferred by the assessee before the AAC, apart from challenging the validity of reopening of the assessments under s. 34(1)(a), the assessee-company raised the following two contentions :
'(i) As the sales were not effected in the course of carrying on of the business by the assessee-company, the profit made was a capital receipt not liable to assessment.'
10. It was urged that the sale was only forced upon the assessee due to the circumstances then existing and the declared policy of the Government to utilise the waste lands either for agricultural, industrial or residential purposes.
'(ii) The sales were not complete since the concerned sale deeds were not executed and registered as required by the Transfer of Property Act and, therefore, no profit was made.'
11. These contentions were rejected by the AAC and he upheld the inclusion of those amounts in the respective assessments.
12. In the further appeals before the Tribunal, the assessee did not raise any dispute either as regards the figure of profits in respect of each one of the transactions or in regard to the validity of the reopening of the assessments under s. 34. Only the following two contentions were urged before the Tribunal :
'(i) Although the agreements for sale of land were entered into during the accounting years, still the concerned sale deeds were not executed and registered during the accounting years and hence there were no sales as contemplated by s. 54 of the Transfer of Property Act, and hence no profits were made, and
(ii) even assuming that profit was made, it was a capital receipt not chargeable to tax because those lands were not purchased with the object of sale but the sales were forced on it on account of the policy of the Government to utilise waste lands either for agricultural or industrial purposes.'
13. Both the contentions were rejected by the Tribunal and in its order the Tribunal observed that the assessee was not concerned with the buyer and as to when the title to the land sold passed on to the buyer. The Tribunal was really concerned with the only question whether the assessee by sale of land made profits on the date of receipt of consideration from the buyer and on delivery of the property to the buyer or on the dates on which the concerned sale deeds were executed and registered. According to the Tribunal, the commercial profits were earned by the assessee on the date on which the lands were given into the possession of the buyers, either on actual receipt of consideration or on promise of consideration. This view was also supported by the entries made in the books of account of the assessee maintained in the ordinary course of business. In the account books the amounts were shown to have been received by the assessee-company.
14. So far as the other contention urged on behalf of the assessee was concerned, the Tribunal was satisfied that the business of the assessee was to acquire lands, develop them, construct buildings over them and to sell them for profit. According to the Tribunal, the sales of lands in question were effected by the assessee in the ordinary course of its business and the profits made thereon were not capital receipts but were revenue receipts
15. It is from this order of the Tribunal for the above three years that the above two questions were referred to this court for determination.
16. Initially, when this reference came up for hearing before this court, this court by its order dated October 21, 1975, directed the Tribunal to draw up and submit a supplementary statement of the case in respect of the following matters from facts and material already on record :
(1) The total area of land that has been purchased by the assessee-company and the total area of land from time to time sold by the assessee-company.
(2) The motive with which such lands were purchased and sold.
(3) Whether from and after the assessment year 1952-53, the assessee-company had effected purchase in respect of other pieces of land or effected sales in respect of any other piece of land.
(4) Whether the assessee-company did anything in relation to the land after it was purchased by it either with a view to develop or otherwise deal with it.
17. Pursuant to these directions of this court, in the supplementary statement of case it is pointed out that the aggregate area of land purchased by the assessee-company was 4,195 acres situated in several villages and all these purchases were effected in the year 1945. Particulars of these purchases are given in the annexures annexed to the supplementary statement of case. These annexures show that the aggregate area of 4,195 acres of land that was purchased was from six villages, viz., Chincholi, Dindoshi, Ghodbunder, Mira, Bhayander and Shimpoli. As stated in this annexure, the lands in Chincholi village admeasure 154 acres, out of which 92 acres were in the physical possession of the assessee. Lands in Dindoshi village admeasure 347 acres 32 1/2 gunthas and out of this, 140 acres were in the physical possession of the assessee-company. The total area of land purchased from Godbunder, Mira and Bhayander village admeasures 3,689 acres 33 1/2 gunthas, out of which 5 acres, 23 acres and 68 acres of land from each one of the said villages were, respectively, in the physical possession of the assessee-company. In Shimpoli village 3 acres 31 1/2 gunthas of land were purchased and the whole of it was in the physical possession of the assessee-company. By effecting these purchases only Khoti rights in the said villages were purchased by the assessee. In the annex. 'X' to the supplementary statement of case details are given in respect of the areas of land which were in physical possession of the occupants, who are merely liable to pay land revenue to the assessee-company as the owner thereof. The lands in Ghodbunder, Mira and Bhayander villages were purchased in March and April, 1945, while those in Chincholi, Dindoshi and Shimpoli were purchased in December, 1945. Out of the lands situate at Chincholi and Dindoshi villages under the various transactions with the parties an aggregate area of 74 acres 13 gunthas was sold. In respect of these pieces of land conveyances were executed on January 30, 1957, September 14, 1962, and September 26, 1963, respectively, while in respect of the lands sold to Famous Cine Laboratory, no conveyance was executed even at the date of reference to this court. Apart from the above sales, a small pieces of land was sold for Rs. 600 to Bai Basantibai G. Sekseria on July 31, 1953, and an area admeasuring 3, 730 sq. yds. was sold to Sarvodaya Education Society for Rs. 37,820 on July 31, 1958. Till the date of the filing of the supplementary statement of case no other sale was effected by the assessee-company. The assessee-company has also not effected purchase in respect of any other piece of land. It is also pointed out in the supplementary statement of case that, apart from writing a couple of letters to the Government authorities, the assessee-company has not done anything with a view to develop the lands. As regards the motive of the assessee, the contention of the assessee that the lands were purchased with a view to have a model dairy, a model settlement and a model engineering college for the convenience of middle class people, etc., has not been accepted by the Tribunal.
18. Mr. Dastoor on behalf of the assessee has urged that simply because some of the objects with which the assessee-company was incorporated permitted dealings in sale of land, it cannot be said that the transactions of sale in favour of Silk . are adventures in the nature of trade. His contention is that, apart from relying upon the several objects contained in the memorandum of association, no material is produced with a view to show that the sales in favour of the parties were adventures in the nature of trade. He urged that, having regard to the various objects with which the assessee-company was incorporated, it was authorised to invest its capital in the purchase of land and simply because by reason of a particular policy of the Government the assessee-company had to effect sales of waste lands to concerns which wanted them for industrial or housing purposes, it cannot be said that any profit made in these transactions or any one of them can be regarded as revenue receipts. In short, his submission was that the profits that have been received by the assessee by reason of these transactions are in the nature of capital receipts in the hands of the assessee. Secondly, he submitted that the profits did not accrue to the assessee-company in the three assessment years in which the same are taxed by the taxing authorities and the Tribunal. He submitted that in respect of the sale of a piece of land profit would only accrue when a conveyance is executed and that in none of the relevant accounting years for the assessment years 1949-50, 1950-51 and 1952-53 was a conveyance executed by the assessee-company, but the taxing authorities and the Tribunal were not justified in treating the surplus amount received by the assessee as a result of these transactions as income in the relevant accounting years.
19. On behalf of the revenue, Mr. Joshi, on the other hand, contended that whether a particular receipt by an assessee, as a result of the sale of a piece of land, should be regarded as a capital receipt or revenue receipt would depend upon the facts and circumstances of the case. He urged that one of the primary objects for which the assessee-company was incorporated was to take over, acquire by sale or otherwise the lands and assets at Ghodbunder, Mira and Bhayander and to purchase and deal in lands. He emphasised that in the very year of incorporation the lands in the various villages, above referred to, were purchased by the assessee and it is within a short time of its incorporation that the transactions of sales have been effected by the assessee and the taxing authorities and the Tribunal were right in treating these transactions as adventures in the nature of trade and regarding the profits made as revenue receipts in each of the relevant assessment years. He pointed out that if regard be had to the balance-sheet and the profit and loss account of the assessee-company for the period ending July 31, 1949, which is on record, it is quite clear that during the relevant year the assessee-company did not enter into any other business activity worth mentioning apart from the sales of land. In short, his submission was that the taxing authorities and the Tribunal were right in regarding the profits made in these transactions as revenue receipts and subjecting to tax in the relevant assessment years concerned.
20. So for as the other contention of Mr. Dastoor was concerned, he submitted that having regard to the relationship between the assessee-company and the purchasers, the assessee-company has in its accounts for each of the relevant years treated the price as revenue receipts and made the appropriate adjustment entries in the balance-sheet and so far as the purchasers were concerned, once the possession was parted with and the price was paid, except for the execution of conveyance whenever called upon by the purchasers nothing else remained to be done. In short, his submission was that having regard to the entries in the books of account of the assessee-company for each of the relevant accounting years, the amounts of profit were properly brought to tax in the year in which such entry was made.
21. The question whether profits made on sale of land by the company, which is authorised by its memorandum of association to deal in land, is a revenue or capital receipt is a mixed question of law and fact. The distinction between capital accretion and income has been explained by Rowlatt J. in the case of Thew v. South West Africa Company Ltd.  9 TC 141. The learned judge said that for the purpose of ascertaining whether profits made upon a sale of an article are taxable profits, the question to be asked is : 'Is the article acquired for the purpose of trade ?' If it is, the profit arising from its sale must be brought into revenue account and that the profit is chargeable as capital gains if the sale is of a capital asset, and as a business profit if the sale is in the course of business or the transaction constitutes an adventure in the nature of trade :
'It is quite a well settled principle in dealing with questions of assessment of income-tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit...... assessable to income-tax. But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business......
What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts.....' (See Californian Copper Syndicate (Limited and Reduced) v. Harris  5 TC 159, 165, 166).
22. If a transaction is in the assessee's ordinary line of business, there can be no difficulty that it is in the nature of trade, but a difficulty would arise where the transaction is outside the assessee's line of business. In such a case it must depend upon the facts and circumstances of each case whether the transaction is in the nature of trade. It is equally well-settled that it is not necessary to constitute trade that there should be a series of transactions, both of purchase and sale, outside the assessee's line of business which may constitute an adventure in the nature of trade. Neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade. If there is repetition and continuity, the assessee would be carrying on a business and the question whether the activity is an adventure in the nature of trade can hardly arise. The character of a transaction cannot be determined solely upon the application of any abstract rule, principle or test but must depend the upon all the facts and circumstances of the case. Ultimately, it is a matter of first impression with the court whether a particular transaction is in the nature of trade or not.
23. The word 'business' as defined in s. 2(4) of the Indian I.T. Act, 1922, 'includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture'. When s. 2(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.
24. Before us, on either side a large number of cases were cited with a view to support the rival contentions. The question whether a particular receipt is a capital or revenue receipt is to be determined having regard to all the facts and circumstances of the case. The object clause of the assessee-company is very comprehensive and it empowers the company to engage in a variety of business and undertakings. What we have to consider in the present case is whether purchasing and dealing in land is one of the primary objects with which the company was incorporated. It is unnecessary for the present case to set out extensively all the relevant objects; reference to a few of them would suffice. Amongst the objects for which the company was established are :
(a) To take over and acquire by sale or otherwise the lands and estates at Ghodbunder, Mira and Bhayander held by the Estate Investment Company, a private registered firm with its head office in the town of Bombay.
(b) To build, purchase, reclaim, charter, take on lease or sub-lease or exchange, hire or otherwise acquire, equip, maintain, improve and repair, lands, plantations, buildings, electric plants, machinery, workshops, factories, warehouses, apparatus, steamers, launches, cargo boats, barges, floating godowns, airships, aeroplanes, pliers, jetties, wharfs, landing places, bridges, roads, ways, tramways, railways, branches or sidings, gas works, telegraph, telephones, docks, ponds, tanks, reservoirs, waterworks, canals, mines, and other buildings and works, such as salt works, dairy farms, cattle-breeding farms, and rights of way, easements, immovable and movable properties and any rights and privileges calculated indirectly or directly to advance the interest of the company and to contribute to the expense of constructing, maintaining and improving any such work....
(d) To acquire by purchase, lease or exchange or otherwise any lands, buildings, forest right, mineral right, water rights, easements or heritages of any tenure, estates and plantations and buildings, machinery and appurtenances thereto or other real or personal property leases suitable or convenient for the business of the company.
(e) To carry on the business of constructing and selling buildings, to advance or lend money to builders for the purpose of construction, to purchase, take on lease or in exchange or otherwise acquire and deal in lands, buildings and hereditaments of any tenure or description, and any estate or interest therein of whatsoever kind to develop the same for the purpose of residential houses, offices, schools, colleges, shops, cinema studios, cinema houses, cinema laboratories, etc......
(m) To exchange, sell, convey, assign or let on lease or lease the whole or any part of the company's immovable properties and to accept as consideration or in lieu thereof other land or cash or Government securities or securities guaranteed by Government, shares in joint stock companies or partly the one and partly the other or such other property or securities as may be determined by the company and to take back or re-acquire any property so disposed of by purchasing or leasing the same for such price or prices and on such terms and conditions as may be agreed on.......
(aa) To purchase, take on lease or otherwise acquire for the purposes of the company any estate, lands, buildings, easements of other interests in immovable property and to sell, let on lease or otherwise dispose of or grant right over any immovable property belonging to the company....'
25. In view of these objects, it is not controverted before us that even if the objects for which the company was incorporated are very extensive, purchase or sale of lands or dealing in land was at least one of its primary objects for which it was incorporated.
'It is quite a well settled principle in dealing with questions of assessment of income-tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of Schedule D of the I.T. Act, 1842, assessable to income-tax. But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business. The simplest case is that of a person or association of persons buying and selling lands or securities speculatively, in order to make gain, dealing in such investment as a business, and thereby seeking to make profits. There are many companies which in their very inception are formed for such a purpose, and in these cases it is not doubtful that, where they make a gain by a realisation, the gain they make is liable to be assessed for income-tax.' (See Californian Copper Syndicate (Ltd. and Reduced) v. Harris  5 TC 159 at pp. 165, 166).
26. In Balgownie Land Trust Ltd. v. IRC  14 TC 684, 691, the Lord President (Clyde) observed :
'A single plunge may be enough provided it is shown to the satisfaction of the court that the plunge is made in the waters of trade; but the sale of a piece of property - if that is all that is involved in the plunge - may easily fall short of anything in the nature of trade. Transactions of sale are characteristic of trade, but they are not necessarily distinctive of it; much depends on the circumstances.'
27. The Lord President pointed out thus (p. 692) :
'The objects and powers are to acquire, to let, to improve, and to sell land. One is not, however, entitled to infer from the circumstance that a company is professedly formed with trading purposes in view and for trading objects that the transactions in which it engages necessarily constitute a trade or business; because it does not follow from the fact that it has objects and powers such as I have indicated that it actually uses them for the purpose of conducting the usual business of a company trading in real estate. But the professed objects of the company are not, for that reason, to be left out of account; on the contrary, they must be kept in view when considering the transactions in which the company is proved to have been engaged.'
28. The Lord President thereafter proceeded to consider that the company actually did and came to the conclusion (p. 692) :
'I cannot say that there is left in my mind any doubt that the company is doing precisely what it was formed to do, namely, carrying on the business of a company dealing in real estate. As such it is assessable to income tax on its profits estimated as these should be in the case of such a company.'
29. Such a conclusion was arrived at by the Lord President when the owner of a landed estate at his death left the estate to trustees with a direction to realise. The trustees, being unsuccessful in their efforts to sell the estate in the market, formed a company with general powers to deal in real property and transferred the estate to this company in exchange for shares which, with few exceptions, were allotted to the beneficiaries under the trust and were, at the date of the appeal, still mainly held by those beneficiaries or their representatives.
30. Shortly, after its incorporation the company made a substantial purchase of other property with funds acquired by borrowing on the security of the original estate. The company received rents and paid a regular dividend on its capital. The company sold no property until 1921. In 1921, 1924, 1926 and 1927 parts of the original estate were sole and in 1925 the whole of the additional property. The company was assessed for the year 1926-27 in Case I, Schedule D, in respect of profits from sales of lands. In an appeal preferred by the company, the General Commissioners held that the profits from the sales were the profits of a trade or business and that the company was liable to assessment. In an appeal by the company, their Lordships held that the company was carrying on a trade and was assessable under Case I, Schedule D.
31. In Raja J. Rameshwar Rao v. CIT : 42ITR179(SC) , the Supreme Court held that even a single venture may be regarded as in the nature of trade or business. When a person acquired land 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 lands 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.
32. In IRC v. Toll Property Co. Ltd. (In Liquidation)  34 TC 13, the company was formed in 1942 and soon after its formation bought one property consisting of shops and tenements. The purchase and the sale of property were within the objects of the company, as set out in its memorandum of association.
33. In 1946, a part of this property was sold at a profit, which was assessed to income-tax. In 1949, the remainder of the property was sold at a profit, and in 1950, the company went into liquidation, having owned only the one property. Whilst it held the property the company derived an income from it. On appeal, a majority of the General Commissioners considered that the profit in 1949 was an appreciation of a capital asset, and decided that the purchase and sale were not 'in the nature of trade.' In further appeal, the first Division of the Court of Sessions held that the purchase and sale of the property was an adventure in the nature of trade, the profit on which was assessable to income-tax. The Lord President (Cooper) observed (p. 18) :
'Keeping in view the nature of the transaction, the purpose with which the company was floated and the objects which were prescribed in the memorandum of association, and the whole of the other circumstances which I have briefly summarised, it seems to me that the majority of the Commissioners were not entitled to reach the conclusion which they did, that they must have misdirected themselves in law, and that the true and only reasonable conclusion on the facts found is the conclusion reached by the dissenting Commissioner. I would, therefore, answer the question of law in the negative.'
34. But on the proved facts the Lord President held that the dissenting Commissioner was right in that he had taken the view that the transaction in question was an adventure in the nature of trade, and that the profit realised from it was assessable.
35. Lord Carmont pointed out that on the facts stated the only reasonable conclusion was that the purchase was made with the intention of a resale at a profit when a suitable opportunity arose. Notwithstanding that it was only a single transaction, having regard to the purpose of the formation of the company, it was the inevitable conclusion that the transaction was an adventure in the nature of trade.
36. In Mayfair Estates P. Ltd. v. CIT  48 ITR 217, the Calcutta High Court pointed out that if May Fair Estates Company sells a portion of its properties to make a profit in a rising market it cannot be said that these profits were not part of their trading, when they are justified by their memorandum of association, simply because they had made no corresponding purchases of properties also at the same time or contemporaneously. The Calcutta High Court in this case followed the guiding principle laid down by the Supreme Court it the case of G. Venkataswami Naidu & Co. v. CIT : 35ITR594(SC) as under :
'.... 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.'
37. The second principle which the Supreme Court laid down in the case at page 609 is :
'The presence of all the relevant circumstances 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.'
38. It is settled position in law that it is for the revenue to establish that the profit earned in a transaction is within the taxing provision and is, on that account, liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the income-tax authorities. It has consistently been held by this court that the question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact. (See Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) ).
39. When sufficient evidence, either direct or circumstantial, in respect of its contention was disclosed by the revenue, an adverse inference could be drawn against the assessee if he failed to put before the department material which was in his exclusive possession. This process is described in the law of evidence as shifting of onus in the course of proceeding from one part to the other. There is no reason why the said doctrine is not applicable to income-tax proceedings. (See CIT v. Best and Co. (P.) Ltd. : 60ITR11(SC) ).
40. However, it should not be overlooked that, so far as the question of onus is concerned, the law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case. In some cases, the onus may be heavy whereas, in others, it may be nominal. There is nothing rigid about it. (See CIT v. Durga Prasad More : 82ITR540(SC) ).
41. In considering the question whether a particular transaction is an adventure in the nature of trade, a mere existence of power in the memorandum of association of a company to sell or turn into account, dispose of or deal with the properties and rights of all kinds has no decisive bearing on the question whether the profits arising therefrom were capital accretion or revenue. The question whether in purchasing and selling land the taxpayer enters upon a business activity has to be determined in the light of the facts and circumstances. The purpose or the object for which it is incorporated where the taxpayer is a company may have some bearing, but is not decisive, nor is the circumstance that a single plot of land was acquired and was thereafter sold as a whole or in plots, decisive. Profit motive in entering into a transaction is also not decisive. The incidental sale or uneconomical or inconvenient plots of land could not convert what was essentially an investment into a business transaction in real estate. (See CIT v. P.K.N. Co. Ltd. : 60ITR65(SC) ). In that case the primary object of the company was to take over the assets of the firm, to carry on the business of planters and to earn profits by the sale of rubber; the acquisition of the estates was not for the purpose of carrying on business in real estate.
42. The question whether a solitary transaction of purchase and sale of land can be regarded as adventure in the nature of trade came up for consideration in the case of Saroj Kumar Mazumdar v. CIT : 37ITR242(SC) . In that case the appellant, who was engaged in various types of business activities, was a shareholder and director or managing director of several companies and was also a partner in a firm of engineering works. He also held shares of the value of Rs. 2,45,000, a major portion of which belonged to other members of his family. For the assessment years 1946-47 and 1947-48, he was assessed to income-tax on the sum of Rs. 53,000 and Rs. 59,000, whereas for the assessment year 1948-49 he submitted a return showing a loss of about Rs. 2,000. With a view to acquiring a plot of land for the purpose of building a residential house for himself and constructing a workshop in connection with his business activities, the appellant had paid, in pursuance of an agreement entered into on January 10, 1946, a sum of Rs. 32,748, in all, to an insurance society, being 25% of the estimated price of a plot of land comprised in a land development scheme undertaken by the society. As the area which the society had undertaken to develop was in the occupation of the Government, being requisitioned for purposes connected with the prosecution of the second world war, one of the terms of the agreement was that the transaction of purchase would be completed within six months of the lands being released from Government occupation. Later, the appellant found one Y to whom he agreed to assign his rights under the agreement with the society for a consideration of Rs. 1,07,000, the amount to be held by him on suspense account until the transaction of purchase of the plot of land was finalised. Y undertook to pay the balance of the sale price of the plot of land, Rs. 96,000, to the society. The appellant received the sum of Rs. 1,07,000 on April 3, 1947, from Y and ultimately on December 27, 1950, the society executed a deed of conveyance of the plot of land to the daughter of Y. The question was whether the transactions of the assessee amounted to an 'adventure in the nature of trade' and the sum of Rs. 74,485 received by the appellant in excess of the amount paid by him to the society was profit taxable under s. 10 of the Indian I.T. Act. The Appellate Tribunal came to the conclusion that the sale was an adventure in the nature of trade and that the excess was profit assessable to tax, on the following grounds : (i) that the payment of Rs. 32,748 came out of a loan from a company (which finding was not borne out by the books of that company); (ii) that the appellant could not have paid the balance of the purchase price of the plot and had no means to construct a house; (iii) that the site itself fetched no income, thus showing that the appellant's venture could not be an investment but only an excursion into the realm of trade. On special appeal to the Supreme Court, the Supreme Court by majority took the view that where a transaction was not in the line of the business of the assessee but was an isolated or single instance of a transaction, the onus was on the department to prove that the transaction was an adventure in the nature of trade; that there was 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; that as at the time he entered into the agreement with the society the appellant was doing good business, as was shown by the large amounts on which he was assessed to 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 to raise sufficient funds to build his own residential house or to construct a workshop for his own engineering business; and, therefore, the probability that the site might appreciate in value did not necessarily lend itself to the inference that the transaction was a venture in the nature of trade, as distinguished from a capital investment. By majority, the Supreme Court took the view that the transaction was not an adventure in the nature of trade and the amount was not assessable to tax under s. 10 of the Indian I.T. Act. Upon appreciation of the material that was brought to the notice of the Supreme Court, it took the view that in all the circumstances of the case, the total impression created on their 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. Thus, it is quite clear that this case is decided on its own facts and does not lay down any general principle for applicability to cases where a company as one of its principal objects of incorporation, ventures in purchase and sale of lands.
43. It was urged by Mr. Dastoor that before any transaction can be regarded as an adventure in the nature of trade regard must be had to the intention to make profits at the time when the purchase was effected and reliance was placed by him upon the decision of this court in the case of Bhogilal H. Patel v. CIT : 74ITR692(Bom) . In this case, the Division Bench of this court held that in order that it may be held that a person is undertaking a trade or business, or entering into an adventure in the nature of trade, it is essential that the particular transactions under scrutiny should have been entered into with the intention of earning a profit. Though that is not a conclusive test it is certainly an essential test before such a conclusion could be drawn; but such a case is quite different from the case of person purchasing property with the dominant intention of using it himself or enjoying it himself but at the same time expecting that at some future date, if it goes up in value, he may take advantage of the rise in the price. If a person invests money in land intending to hold it, enjoy its income for some time, and then sells it at a profit, it would be a 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 outside the domain of adventure in the nature of trade.
44. Though intention subsequently formed may be taken into account, it is the intention at the inception that is crucial. One of the essential elements in an adventure in the nature of trade is the intention to trade; that intention must be present at the time of the purchase; the mere circumstance that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show an intention to trade at the inception.
45. On the facts of the case, the Division Bench of this court held that the purchase of two plots of land by the assessee was only an investment of capital and the profits earned on resale was an accretion to capital and not profit from business or from an adventure in the nature of trade.
46. Relying on this case, the argument of Mr. Dastoor was that there is nothing to indicate that at the time when several lands in several villages were purchased by the assessee-company there was an intention to sell the same or any part thereof at a profit.
47. When we deal with the facts of the case before us, we will find out that not only the objects clause authorised the assessee-company to purchase and deal in land but one of the primary objects with which the lands were purchased was to dispose them of at a profit.
48. Strong reliance was placed by Mr. Dastoor upon the decision of the Madras High Court in the case of CIT v. Kasturi Estates (P.) Ltd. : 62ITR578(Mad) . The Madras High Court has taken the view that the decision of the question whether profits from business or merely capital gains will depend on the effect of all the facts and circumstances found by the Tribunal. The findings of fact arrived at by the Tribunal are conclusive and are not open to review under the limited jurisdiction of the High Court on a reference, except on a misdirection in law in the process of arriving at them or on the ground that there was no evidence on which they could be reached. The conclusion drawn on proved facts or facts found on evidence is, however, a different matter and that may raise a question of law or a mixed question of law and fact. To the latter category belongs the question whether a certain receipt is realisation of capital assets, or revenue from trade or business, or from a transaction viewed as an adventure in the nature of trade.
49. It is further held in this case that where the assessee is a company while no conclusion can properly be based solely on the objects or powers of the company as found in its memorandum and articles, they are relevant matters which should be taken into account and kept in view in determining the character of the transaction in which the company was engaged. The objects and powers may be to carry on a trade or business but their existence does not ipso facto mean that they have been used. What is necessary is to examine the intrinsic nature and character of the transaction itself in the light of the objects and powers of the company and the surrounding circumstances and facts.
50. On the facts, the Madras High Court took the view that the transaction of the sale in plots was one which any prudent owner of land would engage in and which was, therefore, no more than realisation of a capital investment or conversion of land into money, and not a venture in the nature of trade. Having regard to the nature of the property, length of its ownership and holding, actual conduct of the assessee in respect of it all along and all together facts including absence of evidence of any trading activity or speculative venture, the Tribunal was right in its conclusion that the surplus from sale of the land did not result from any trade or business in land carried on by the assessee or from any transaction which may properly be described as an adventure in the nature of trade and the profit of Rs. 27,568 was not assessable as 'profits and gains of business'.
51. Coming to the facts of the case, we have already pointed out some of the primary objects which are relevant for the purpose of determination of the questions in issue. The company was incorporated on February 3, 1945 and, apart from taking the lands at Ghodbunder, Mira and Bhayander, which was one of the specific objects mentioned in the objects clause of the memorandum, within a few months of its incorporation it purchased khoti rights in villages, Chincholi, Dindhoshi and also purchased some lands at Simpoli. The lands at Chincholi admeasure 154 acres, out of which 92 acres were in the physical possession of the assessee, while the lands at Dindoshi admeasure a little more than 347 acres, out of which 140 acres were in the physical possession of the assessee. It is not as if small and tiny pieces of lands were the subject-matter of sales, but fairly large areas admeasuring several acres were the subject-matter of these transactions. Strong reliance was placed by Mr. Dastoor upon the two letters, one dated November 8, 1946, and the other dated January 7, 1947, addressed by the manager of the assessee-company to the Minister in-charge of the Reconstruction Department, Secretariat, Fort, Bombay, and the other written by him to the Housing Commissioner, Military Barracks, Nicol Road, Ballard Estate, Bombay. The subject-matter of the first letter is the scheme for the development of Greater Bombay and the adjoining territory, in which it is, inter alia, stated that the assessee-company has managed to start a milk dairy and dry farm at Dindoshi and has constructed a kachhamurum road from Dindoshi up to Bombay-Ghodbunder Road. It is also stated that the assessee-company had in view a scheme for the development of the villages of Chincholi and Dindoshi. The housing schome, it is stated, was meant specially for middle class people and they had also a desire to have a model industrial school established at Chincholi and Dindoshi. In the other letter, it is stated that the purchase of lands at Dindoshi and Chincholi was effected with a view to have to have a model dairy, a model cattlement and a model engineering college for the convenience of middle class people and the housing scheme, when ready, was going to be entrusted to a co-operative society.
52. Strong reliance is placed by Mr. Dastoor upon these letters with a view to contend that at this stage the assessee-company, though it had one of its primary objects to deal in lands, had no immediate intention of entering upon such venture. So far as these letters are concerned, they merely express a pious desire on the part of the assessee and except for the work in connection with the starting of a dairy no other evidence is produced on record which would justify a contention that the primary objects for which the lands at Chincholi and Dindoshi were to be utilised were those which were stated in these letters. The assessment orders in this case were passed in January, 1958, but apart from the production of these letters there is no evidence produced by the assessee before the ITO or the other taxing authorities to show that any tangible or effective steps were intended to be taken by the assessee either for a housing scheme or for the industrial school scheme. Actually, when the board of directors of the assessee-company held a meeting on February 21, 1951, they passed a resolution, inter alia, stating :
'In view of the declared policy of the Government to utilise the waste lands either for agricultural or industrial or residential purpose, the directors decided to dispose of the waste lands and hence they had portioned out certain lands from these two villages (Chincholi and Dindoshi) to be disposed of the the concern who wanted them for industrial and housing purposes. In this way on 15th July, 1948, the company had parted with 28, 344 1/2 sq. yards of land in survey Nos. 7 and 17 of Chincholi for Silk ., - for the sum of Rs. 1,50,000, free of future assessments, with all the premises and chawls standing on the land. Similarly, on the same day the company had parted with 69,614 square yards for Rs. 1,39,228 at the rate Rs. 2 per square yard to Govind Nagar Colony, Proprietors Govindram Brothers Ltd.'
53. It is further stated in this resolution that 'on February 10, 1949, the company had parted to Famous Cine Laboratory, Proprietors Messrs. Govindram Brothers Ltd., lands at Chincholi admeasuring 3 acres and 15 gunthas or 16,355 square yards in survey No. 47 and lands admeasuring 2 acres and 22 gunthas or 12,342 square yards in survey No. 48 and lands admeasuring 7 acres and 7 gunthas or 54,084 sq. yds. in survey No. 48C, lands at Dindoshi admeasuring 16 acres or 77,440 square yards for the total price of Rs. 1,85,735.' It is also stated in this resolution that the company had been negotiating since the middle of June, 1949, with Kailashpuri Housing Co-operative Society Ltd. to sell to them certain lands at Chincholi for their housing and other schemes. Actually, on February 20, 1951, the assessee-company agreed to sell to Kaiashpuri Housing Co-operative Society Ltd., 21 acres of land for the total value of Rs. 2,03,280. It is quite evident from this resolution that all these ventures were entered into by the assessee-company in pursuance of its objects clause, viz., to deal in lands. We have got on record the balance-sheet and the profit and loss account of the assessee-company for the year ended July 31, 1949. A mere look at the profit and loss account will indicate that the profits made as a result of the sale of the land are not shown therein, but are merely shown in the balance-sheet. Apart from that, the assessee-company was not undertaking any substantial activity worth mentioning. Petty amounts are realised by way of sale of paddy, the rest of the amounts are negligible and they indicate income received by the assessee-company in its capacity as a khot of the various villages in respect of which the khoti rights were purchased. Thus, it is not possible for us to accept the contention of Mr. Dastoor that the purchase of these lands was merely by way of investment and simply because one of the primary objects of the company permitted it to deal in lands, these transactions in respect of sale of lands cannot be regarded as adventures in the nature of trade. Actually, as we have indicated earlier, to deal in lands was not only one of the primary objects mentioned in the objects clause of the memorandum but that was the principal activity that was engaged in by the assessee-company during the relevant years with which we are concerned and, apart from that, hardly there was any substantial activity which was worth mentioning. The balance-sheet shows that for the earlier years there was a loss of Rs. 1840-3-2, while for the year in question, viz., the year ended July 31, 1949, there was a loss of about Rs. 28,000 to Rs. 29,000. In this balance-sheet, with a view to escape liability for income-tax, profits made in respect of sale of land was not treated as a business profit and by making direct entries it was sought to be taken away to the reserve fund. In our opinion, the taxing authorities and the Tribunal were, therefore, right in taking the view that the profits made as a result of the sale of these pieces of lands in the three accounting years, with which we are concerned, were not capital receipts but were revenue receipts and were liable and subject to tax.
54. That takes us to the other contention of Mr. Dastoor as regards the year in which the profits can be said to have arisen and accrued. He submitted that as these transactions are in respect of sale of lands, the profits can only be said to have accrued to the assessee-company when the conveyances were executed. There is evidence of conveyances in respect of lands sold to Silk . it was executed on September 26, 1963, and in respect of sale of land to Famous Cine Laboratory, it appears that no conveyance was executed till the matter was disposed of by the taxing authorities and the Tribunal.
55. Relying upon the decision of the Supreme Court in the case CIT v. Bhurangya Coal Co. : 34ITR802(SC) , it was sought to be urged by Mr. Dastoor that the title to the immovable properties covered by the sale deed passed to the transferee on the date it was executed and, therefore, it was only when the sale deed was executed that the assessee could be held liable for tax in respect of the profits made with reference to the immovable properties covered by the said sale deed. This case related to levy of capital gains under s. 12B of the Indian I.T. Act, 1922. For such a purpose regard is to be had to the language of the section. However, so far as the present case is concerned, relating to the assessee-company, it had done everything within its power to carry out its obligations with the purchasers. It is mentioned in the agreements that in respect of the various pieces of lands possession was given and the price was received. Actually, even in the balance-sheet the price is stated to have been received and carried to the reserve fund. Thus, so far as the assessee is concerned, which is a vendor company, it did everything within its power to carry out such obligations and had received price which it had fully credited in its balance-sheet. In the mercantile system of account, as the price is regarded as having been duly received in their relevant accounting years for the three years of assessment, actual profits accrued to the assessee in the year in which as per the entries in the books of account the price is presumed to have been received. Mr. Dastoor, however, drew out attention to the agreement in respect of sale of land in favour of Kailashpuri Housing Society Ltd. and submitted that in the agreement there is no reference to the receipt of price. No such contention was urged before the taxing authorities or the Tribunal and in none of the orders passed by the taxing authorities or the Tribunal any inquiry appears to have been made as regards the date on which the price in respect of sale of land in favour of Kailashpuri Housing Society Ltd. was received. It would not be permissible to Mr. Dastoor, at the stage of reference, to urge such a factual aspect, when both before the taxing authorities and the Tribunal the question of non-receipt of price was never raised.
56. It was, however, sought to be urged by Mr. Dastoor, relying upon a decision of this court in the case of CIT v. Zorostrian Building Society Ltd. : 102ITR499(Bom) , that until a conveyance is executed by a vendor in favour of the purchaser, the purchaser cannot be regarded as the owner of the property and the vendor can be subjected to tax under the relevant provisions of the I.T. Act. This view was taken by this court having regard to the provisions of s. 9 of the Indian I.T. Act, 1922, which deals with tax in respect of income from property. It was held that though the purchaser was put into possession with all the other rights incidental thereto, yet in the absence of a registered sale deed as the value of the property exceeded Rs. 100, the transferee could not be regarded as 'owner' and for asserting such a right s. 53A of the Transfer of Property Act was not available. The assessee, who was a vendor, was held to be liable to be assessed on the income from the property for the assessment years in question.
57. We are not concerned in this case with the question which arose for determination in that case. What we have to consider in the present case is, if having regard to the manner in which the accounts were maintained by the assessee-company, the price is received or regarded as having been received by the assessee-company in respect of sale of several pieces of land in the different accounting years, whether the price so received can be considered for calculation of the profit of the assessee. This was regarded as the profit of the assessee is quite evident from the balance-sheet of the assessee-company because the price is treated by the assessee as its own profits and actually for one of the years for which the balance-sheet is produced it has taken over the said receipt to the reserve fund. It that was so, then as soon as the price is regarded by the assessee as its own profit, then the year in which the profit accrued, it should be regarded as having accrued to the assessee. Thus, it is not possible for us to accept the contention of Mr. Dastoor that the profit can be regarded as having accrued to the assessee only when the conveyance was executed.
58. Accordingly, our answer to the questions referred are as under :
(1) The transactions in question constituted adventures in the nature of trade.
(2) In the affirmative.
59. The assessee shall pay the costs of the revenue.