KUMARAYYA J. - The two questions referred for decision, one under section 66(1) of the Indian Income-tax Act and the other under section 66(2), both arising out of I.T.A. No. 1310/1959-60 1310/1959-60 , are in the following terms :
'1. Whether, in the circumstances and on the facts of the case, the transaction of purchase and sale of lands in question was an adventure in the nature of trade ?
2. Whether, on the facts and in the circumstances of the case, the profits alleged to have been made by the assessee related to the assessment year 1949-50 or 1950-51; and if really they related to 1949-50, whether the Tribunal had jurisdiction to direct the Income-tax Officer to tax the gains for the assessment year 1949-50 ?'
The reference relates to the assessment year 1950-51 for which the relevant accounting period is the year ended on August 31, 1949. The assessment for that year was originally made on a total income of Rs. 18,125, being 1/3rd of the share of the assessee in the firm of Messrs. Udani Engineering Company, Madras. Subsequently, on information received by the Income-tax Officer that the assessee had purchased land at Sembium situated within the Madras City limits on November 6, 1946, in the names of his wife and his brothers wife for a sum of Rs. 30,000 and subsequently sold the same on March 18, 1949, at a huge profit for a sum of Rs. 3,17,000, proceedings under section 34(1)(a) of the Act were initiated. The assessee submitted a return dated December 9, 1953, disclosing the same income as was originally returned by him. The Income-tax Officer on March 24, 1954, completed the assessment by adding to his income two sums, namely, (1) Rs. 2,75,000 as profits on the sale of land; and (2) Rs. 12,000 as income from undisclosed sources. The assessee thereupon carried the matter to appeal before the Appellate Assistant Commissioner contending firstly, that the land belongs to his wife and his brothers wife and he has no concern with it; secondly, that it was a capital investment and at any rate the profit being of a casual and non-recurring nature arising from an adventure not in the nature of trade it is exempt from tax by reason of section 4(3)(vii). Lastly, it was contended that even if it was a taxable income, it should have been assessed for the year 1949-50 and not for 1950-51. As regards the second item which was added to his income, it was contended that the source of the amount of Rs. 12,000 had been properly explained and so it could not be brought to tax as income from undisclosed source.
The Appellate Assistant Commissioner agreed with the Income-tax Officer that the assessee himself had purchased and sold the land though in the names of his wife and his brothers wife and that she was the real owner. On other points, however, he differed from him. He found that the profits on the sale of land were of a casual and non-recurring nature not derived from business and that the transaction which gave rise to the same was not an adventure in the nature of trade and hence was exempt from tax by reason of section 4(3)(vii). He directed on that basis that the addition of Rs. 2,75,000, made in the income be deleted. He, further, opined that the profit in question, if at all taxable, should have been taxed for the accounting year 1948-49, which would fall in the assessment year 1949-50 and not in the year 1950-51 and that on that account also this amount should be deleted. As regards the item of Rs. 12,000, he held that the source of this amount was properly explained and, therefore, the said amount must also be deleted.
The department took the matter in appeal to the Appellate Tribunal. The tribunal took the view that the profit that the assessee got by resale of the property arose from an adventure in the nature of trade and hence it is a taxable income. As regards the amount of Rs. 12,000 also, it differed from the Appellate Assistant Commissioner and held that the assessee had failed to satisfactorily establish the source of that amount. It, however, agreed with the Appellate assistant Commissioner that since the sale of the land took place on March 18, 1949, the profits in question cannot come in for taxation for the assessment year 1950-51 and they fall within the previous year 1948-49 relevant to the assessment year 1949-50. Holding thus the Tribunal directed the Income-tax Officer to bring to tax the said sum for the assessment year 1949-50, in accordance with law.
The assessee then required the Appellate Tribunal to refer to this court questions of law arising from its order and which according to him were four in number; but the Tribunal referred only one question, which is the subject-matter of R. C. No. 9/196 : This court on the application of the assessee directed the Tribunal to state the case and refer for decision another question. That question forms the subject-matter of R. C. No. 24/1963. Thus, the above two questions are before us for decision.
The first question to be answered is whether the transaction of purchase and sale in question is an adventure in the nature of trade. Admittedly the land was purchased from K. A. Thanikachalam and K. A. Olaganayaki Ammal for a sum of Rs. 30,000 in the year 1946, and was sold thereafter on March 18, 1949, for a sum of Rs. 3,17,000 to Messrs. Addison & Co. That the assessee was the real owner is not now open to dispute. It may be seen that, shortly before the purchase, the assessee was the branch manager of the Baluchistan Construction Syndicate drawing a salary of Rs. 400 to Rs. 500 a month. He was also a partner in the Udani Engineering Company. He was a civil engineer by profession. As such, a transaction of this nature, namely, purchase and sale of land, was clearly outside his ordinary line of business. Indeed, so far as he was concerned, it was an isolated transaction in the sense that there is nothing in evidence to show that he had embarked on an adventure of the kind at any time before or even afterwards. Of course, the Udani Engineering Company in which he was a partner had purchased some land at a considerable distance away from the land in question but that has not been sold so far. It is the gain of this isolated speculation consisting in the difference between the price for which the land was sold and that at which it was bought that is being brought now to tax as a taxable income, of course, making allowance for certain expenses incurred, amounting to roughly Rs. 12,000. If that gain realised in 1949 is a mere accretion of capital value, it may not be brought to tax at all. Even if it comes within the exception of section 4(3)(vii), it would be exempt from taxation. To attract the latter provision, it is necessary that it should not be a receipt arising from business and further it should be a receipt of a casual nature. A receipt, however casual, but from business, would not be exempt from taxation as income or profit. For the purposes of this reference, we are concerned only with this limited question, namely, whether the isolated speculation in question was an adventure in the nature of trade.
It is well settled that even a single transaction of purchase and sale, though outside the assessees line of business, may constitute an adventure in the nature of trade, provided the transaction bears the essential indicia or elements of trade. Lord President Clyde observed in the case of Commissioners of Inland Revenue v. Livingston thus :
'I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, in the nature of trade, is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made.'
So then, unless there be indicia of trade or of trading activity, evidently commercial in nature, gains and profits ar more likely to be an accretion of capital and not an yield of income which may be brought to tax. The question whether a certain speculation is an adventure in the nature of trade has to be determined on a consideration of a variety of circumstances, regard being had to the nature of organising the speculation; nurturing the property; disposing it off and also the circumstances leading to its sale; whether the article purchased in kind and in quantity is capable only of commercial disposal and not of retention as an investment or of use by the purchaser; what was the nature of occupation and profession of the assessee; whether the transaction is in the line of business or trade carried on by the purchaser; what was the dominant intention of the purchaser at the time of purchase; whether the purchaser before resale has caused expenses to be incurred in making the commodity more readily saleable; and whether the transaction is exactly of the kind that takes place in ordinary trade in which resale requires a number of separate disposals or a series of operations. These and various other considerations which the facts of the particular case may warrant have to be kept in view in coming to the conclusion.
Their Lordships of the Supreme Court in Saroj Kumar Mazumdar v. Commissioner of Income-tax have observed that the judicial opinion is unanimous that no general principles or universal tests could be laid down which could govern the decision of all cases in which such a question falls for determination. Each case must be determined on the total impression created on the mind of the court by all the facts and circumstances disclosed in that particular case. Of course, the decisions can be used by way of illustrations of the different viewpoints, which may have a bearing on the decision of that case. While such is the position, it is also well settled that where a certain transaction is not in the line of business of the assessee and is an isolated or a single instance of transaction of that nature, the onus is on the department to establish that the transaction was an adventure in the nature of trade. This principle as laid down in Commissioner of Inland Revenue v. Reinhold by Lord Carmont has been approved of by the Supreme Court in the above-mentioned case.
Bearing the above principles in mind, we shall now proceed to examine the salient features of the transactions in question.
The assessee purchased on November 6, 1946, the land in question situate in No. 67, Sembiam, Madras, within the Registration Sub-District of Sembiam and Registration District of Chingleput, bearing S. Nos. 168, 169, 171/1, 171/2, 173 and 174/1, measuring Acs. 34.94 cents, together with palmyra trees and other trees, three brick built big wells, two brick built small wells, a tank in S. No. 173 and a superstructure in S. No. 174/1, for a sum of Rs. 30,000. Till some time prior to this transaction, he was in active service of Baluchistan Construction Syndicate drawing a salary of Rs. 400 or Rs. 500 with all other facilities such as bonus, etc., the bonus amount itself that was actually paid being Rs. 10,000 per year. He was also a partner in P. J. Udani Engineering Firm. He was a civil engineer by profession. Though the purchase of the land in question was made in the names of his wife and his brothers wife, it is well established by evidence that he was the real vendee having paid the purchase amount under two crossed cheques drawn by him. The case of the department is that the said amounts were paid from out of his unauthorised withdrawals from the Baluchistan Construction Syndicate, which he could not lawfully appropriate for his own purpose. But that has been denied by the assessee, who contended that, though at one stage he had drawn Rs. 50,000 by cheque, in order to enforce his legitimate demand, which was threatened to be left unfulfilled on the eve of his retirement from that service, which took place in October, 1946, he did not, however, misappropriate the said amount. His bonus of Rs. 10,000 being settled and paid, the balance of Rs. 40,000 was brought to account. In fact this matter was enquired into on a pervious occasion by the income-tax authorities at the time of the assessment for the relevant year and the order of the Appellate assistant Commissioner dated July 16, 1958, which has become final and which, by consent, had been made part of the record, sheds ample light on the matter. That apart, there is no evidence in support of this theory of the department except the hearsay information of Rangaswamy Iyer, a broker, who, not satisfied with the payment made in connection with the transaction, brought a suit against the assessee and gave the statement before the Income-tax Officer when that suit was pending. No officer of the Baluchistan Construction Syndicate has been examined. If the alleged misappropriation was true, it is unimaginable that the said company would not have taken steps to bring the offender to book. In fact, the accounts of the company, as would appear from the order of the Assistant Commissioner referred to above, do not show any misappropriation. Thus, the contention that the land was purchased with money over which the assessee had no control and which he was not free to make use of is unacceptable. It is manifest that the assessee had at least the requisite amount which he did invest in this enterprise. Then again as to the purpose for which the land was purchased the explicit case of the assessee is that the land was purchased for garden and agricultural purposes. The sale deed itself shows that there were as many as three big brick built wells, besides a small tank in the land. It can, therefore, be safely assumed that the land was suitable for being put to garden and agricultural use. In fact, it is common ground that immediately after purchase on November 18, 1946, an application was made to the Chief Electrical Inspector for giving electric connection for running a water pump for supply of water from a well for purposes of agriculture. It was stated therein that, as and when the full scheme will be started, three pumps on three big wells will be installed. The next step taken was that the unrequired and waste trees were cut down and the Deputy Commissioner, Civil Supplies, was requested under an application dated March 20, 1947, to grant a transport permit for 5 tons of firewood cut down from the waste trees in the land. It is worthy of mention that in this application it was clearly stated that the trees were cut down for fertilising the land for the next season. Then again, after the spade work was dome and after levelling and clearing the land, on November 5, 1948, the Director of Agriculture was requested to supply three or four inches diameter pump for irrigating the said land. It was specifically pointed out therein that half the area of the land was already brought under cultivation and about 4,500 plaintain trees were planted. On the same day, the Collector was requested to grant a permit for bringing the seeds, stressing on the urgency of an early grant of the said permit. Requisition was also made to the Joint Director of Agriculture for the agricultural implements; and quotations for the charges of tractors and bulldozers were sought for, as would appear from the letter of the Joint Director of Agriculture dated January 19, 1949. No doubt, prior to that, the land was given on lease for one year from June 1, 1947, on a rental of Rs. 320 to Rangaswamy Iyer, as would appear from the lease deed dated June 1, 1947, with a stipulation that the said amount would be paid in two equal instalments on November 30, 1947, and May 30, 1958. But the case of the assessee is that, though the said lease was given at the request of Rangaswamy Iyer and in faith of his much vaunted claim that he had vast experience in agriculture and that as he was unemployed, he could bestow his whole time on the cultivation and raising of crops in the garden, etc., the lease agreement in fact was not acted upon and Rangaswami Iyer did not do anything, nor did he pay even the first instalment of rent. The assessee himself, therefore, in right earnest carried on all the above agricultural operations. But, Rangaswamy Iyer in his statement has not admitted this position. He claimed that he had done everything to improve the garden. None of the applications referred to above would show that Rangaswamy Iyer had taken any part in the agricultural operations referred to above. There is no other evidence, except the testimony of Rangaswamy Iyer himself, which was recorded at a time when he had already started his litigation against the assessee. Thus, it would appear that during the period from the date of the purchase to the date of sale of the property which took place on March 18, 1949, the operations were being carried on for exploitation of the land as an agricultural asset. This again supports the theory of the assessee that the land was purchased with the sole and dominant intention of using it as a garden and agricultural land for his own use and for the use of the ladies. The theory of the department mainly based upon the statement of Rangaswamy Iyer, on the other hand, is that the purchase was motivated by commercial considerations and was made with the set purpose of re-selling the land, after improving, at a huge profit. In proof of this, Rangaswamy Iyer has pointed out in his statement that in 1947, Udani applied to the Corporation of Madras for permission to treat it as a colony fit for house construction under the Town Planning Scheme, with a sketch of it indicating therein playground, cinema house, buildings, schools, tank, etc., to make a veritable small colony which he intended to name as Udani Nagar. It is said that this must bear out the contention that the land was purchased for being divided into various plots and sold after improvement, as soon as the Corporation of Madras approves of the scheme and accords permission to treat this colony fit for house construction. But curiously enough, from the very outset, right from November 18, 1946, the operations were started not with a view to exploit its potentialities of being put to use as house sites, but only as agricultural land. The statement made, therefore, is wholly inconsistent with the conduct of the purchaser after the purchase. That apart, the Chairman, Corporation of Madras, on the enquiry made, stated that neither the assessee nor anybody else had ever applied for a layout for the site. He further stated that to the knowledge of the Corporation, even the City Improvement Trust has no scheme for the area comprising the properties in questions. Of course, he stated the Government had, however, notified the area under section 12 of the Town Planning Act for preparation and submission of the Town Planning Scheme by the Corporation of Madras, This information, it may be noted, was given under a letter dated December 22, 1953, that is, four years and nine months after the land in question was sold. The letter is silent as to the date when the notification was made. In this state of evidence, it cannot be assumed at all that the Government has issued the notification before the said date of sale. Be that what it may, it is clear that Rangaswamy Iyers statement that the assessee had applied to the Corporation for permission to treat it as a colony fit for house site is palpably false. He had also stated that for one year, due to lack of finance, the land was not improved and by that time they received a reply from the Madras Corporation that they will not permit it for Town Planning, since Addison & Co. had started an industry in that area. This statement also cannot be true. No such reply has ever been produced. Further, it is only on April 14, 1948, and not before, the Messrs. Addison & Co. has purchased a land of the extent of Acs. 42, adjacent to the land in question. Rangaswamy Iyer has further stated that it is in April or May, 1948, when under the Grow More Food Campaign, it was notified that any vacant or uncultivable land will be taken over by the Government to give to people who could cultivate it, that the assessee sensed a danger to the scheme of resale at profit and, to aver this, started cultivating the land and a nominal lease deed was prepared showing Rangaswamy Iyer as a lessee. This too does not appear to be true, in view of the fact that the agricultural operations had started much earlier. Besides, the lands in question were given on lease on June 1, 1947, itself with a definite stipulation of payment of rental in two instalments, the first instalment falling due November 30, 1947. This again gives lie to the assertion. Thus, the circumstance shown above are consistent with the theory that the land was not purchased with an idea of using as house site and selling it at a profit after the Corporation approves the scheme of treating it as a colony under the Town Planning Scheme. It was purchased with the idea of making use of it as garden and agricultural land. In fact, admittedly, as many as 9,000 plantains were raised, in two acres ragi, 1 1/2 acres cholam, 1 1/2 acres brinjal, ladies finger and onion and paddy in 3 acres were also raised, and as would appear from the application referred to above, more than half the land was already brought under cultivation and steps were being taken for cultivating the remaining portion of the land also.
The further case of the assessee is that, even though the land was not purchased with any idea, however vague, of resale, the circumstances eventually so coalesced that a resale became inevitable. He never thought that he would have to sell it nor did he ever have an idea that he will get such a huge profit. The sale was a mere coincidence and it was occasioned by circumstances which the assessee never foresaw. It was accidental and resulted in a windfall for the assessee. As already noticed, Messrs. Addison & Co. purchased on April 14, 1948, a land, acs. 42 in area, quite adjacent to the Inland in question for purposes of factory. They had no easy accessible approach to the Madhavaram High Road from their land in question lay in between the high road and the Addison & Cos. land. There was no doubt some other way from their land to the high road but it was through the cremation ground and it was inconvenient and difficult for them to take their lorries along the same. They asked the assessee, therefore, for permission to pass through his land. The assessee was, however, agreeable to allow them for a temporary period but at the same time insisted on a writing to that effect, so that trouble may not arise later on. But Messrs. Addison & Co. were not prepared for the same. They wanted a way through the land. They started to trespass into the land and assaulted the watchman in the land. As a result, litigation began which tended to develop both on the criminal and civil side. A complaint was lodged under sections 324, 340 and 352 Indian Penal Code against the assessee with V. Muthuswamy, Secretary, Messrs. Addison & Co. as the complainant. The assessee also filed a complaint against the Secretary of Messrs. Addison & Co. and others for offences under section 147, 426, 448 and 323, Indian Penal Code. The civil litigation was started by Addison & Co. on the original side of the High Court for a declaration and permanent injunction restraining the assessee and his wife and his brothers wife from interfering with the enjoyment of their right of way through the land. Before long, both the parties found themselves deeply involved in civil and criminal litigation which meant to them considerable waste of time and energy. There was another landowner in the vincinty, Venugopal, by name, who claimed certain rights and brought a suit for declaration and for injunction against the assessee restraining him from cutting the trees. Messrs. Addison & Co. who had failed to obtain an early injunction, thought that delay in the proceedings meant considerable loss to their business. They eventually made up their mind to purchase the whole land and made an attractive offer calculated to tempt the assessee to part with the land. The assessee too found himself in grave and serious position on account of his fight on various fronts and was easily tempted to part with the same, as the price offered was indeed a fancy price. That is how the resale was effected. The above circumstances leading to the sale get ample support from the documentary evidence on record and in fact that position is not at all disputed. Thus it would appear from the above circumstances that the assessee had purchased the land for garden and agricultural purposes. In fact, all his efforts were directed to exploit the land only for that purpose. He had not purchased the land with the idea of resale, but the resale was occasioned under circumstances which he could not foresee. The sale became inevitable for him in order to steer clear of all the troubles that had arisen on account of the dispute as to the pathway through the land raised by Messrs. Addison & Co. and also another land owner in vicinity. Messrs. Addison & Co., in the situation in which they were placed, thought it expedient and had offered a very attractive price for the lands in order to avoid waste of time, energy and expense. Any reasonable person in the position of the assessee could not but accept this offer. The profit realised thus was but casual. Nevertheless, the Appellate Tribunal was inclined to the view on the basis of the statement of Rangaswamy Iyer that the assessee was motivated by a desire to make profit when be made the purchase. Rangaswamy Iyer no doubt stated in his deposition that the assessee at the time of the purchase had agreed to pay 25% of the profits realised by the resale that may be effected later on after making improvements in the land. But curiously enough such an agreement which involved huge amounts was not evidenced by any writing; nor is there any other independent evidence in support thereof. Rangaswamy Iyer was a broker and in fact was paid brokerage. But he claims himself a partner in the transaction of purchase and also says that he did all he could for improving the land as a partner and took part in the proceedings civil and criminal, whether in defending or prosecuting. Except for his ipse dixit there is no evidence to support any of these contentions. As regards the purchase, his name does not find any place in the deed; nor his agricultural operations do bear any reference in any of the documents filed. Further, he was in no sense a party to the proceedings which took place whether in civil or criminal courts; nor does his name bear mention in the transaction of resale. Of course, Rangaswamy Iyer was connected with several other transactions as broker. When he found that the assessee had realised huge profits by the sale of the land by a happy coincidence, he thought it was a golden opportunity of taking undue advantage of his position and started litigation. He filed O. S. No. 162 of 1950 on the Original Side of the High Court claiming a sum of Rs. 50,000, as his share in the profits under the terms of the alleged aforesaid agreement. This suit was resisted by the assessee who denied all about Rangaswamy Iyers partnership and stated that he was only a broker and was paid his brokerage. The assessee eventually thought it expedient to compromise the matter as Rangaswamy Iyer was concerned with several transactions and it was necessary, therefore, that he should purchase peace with him. Under the terms of the comprise, which was effected consequently Rs. 6,000 were to be paid Rangaswamy Iyer by the assessee. This compromise was entered into on January 9, 1952. The order on this compromise however was passed as late as November 17, 1954. The compromise does not, however, appear to have served the desired end; for though the civil suit ultimately came to an end, there was no real change in the heart of Rangaswamy Iyer. The passion for dispute was not on the wane. Rangaswamy Iyers tendencies to do harm did not subside; evidently the vast profits which came as a windfall to the assessee was a source of concern for him. Even before the final order was passed in the civil suit, he made his statement before the income-tax authority bringing to its notice not only the transaction in question, but also various other transactions which the assessee is alleged to have entered into. When the final order was being passed, he raised a dispute with regard to the payments already made as to whether they were in relation to one account or the other. Further, in spite of the final order, his contention quite against the terms and tenor of the compromise seems to be that he was promised some land in addition at Vysarpadi by the assessee and the same was not given. It is manifest from the above that Rangaswamy Iyer was evidently bent upon some mischief. His statement, therefore, ought not to merit any credence unless otherwise supported. But the Appellate Tribunal seems to have acted upon his statement without considering at all that the other material actually on record is against it. It did not take into account that the known facts were in conflict with that statement and give a lie to it. It was inclined to act upon his statement mainly because the assessee in spite of opportunity did not choose to cross-examine him. Of course, this was not the sole ground for reaching the conclusion. There were other circumstances also which had moved the Appellate Tribunal to come to the conclusion that the assessee while making necessary improvements and, hence, the transaction is an adventure in the nature of trade. Those circumstances are as below :
1. That Rangaswamy Iyer spoke to that effect and he was not cross-examined in that behalf.
2. That the assessee, after all, was an employee earning a few hundred rupees at the time when these lands were purchased and he had not sufficient means to embark on this enterprise and he for this purpose unauthorisedly withdrew certain amounts from Baluchistan Construction Syndicate where he was employed and utilised the same for purchasing the land in question.
3. That there was another plot of land purchased in the near-about locality, viz., Vyasarpadi, by Udani Engineering Company, in which the assessee also was a partner and that company had applied to the Corporation with a layout plan, etc. That too would suggest what was working in the mind of the assessee at the time when he purchased the lands in question earlier.
4. That in an expanding city, where there was scope for lands in the outskirts of the city rising in value, the purchase of the land by the engineer doing business in engineering must be held to have been made only with a motive to resell it in plots at profit later on.
5. That the assessee himself had admitted in his statement before the Income-tax Officer that Udani Engineering Company had applied not only for these lands, but also for the other land in the locality connected with these lands to make a square for getting some business for construction. But it may be noted that the Tribunal did not base its finding on this fact as well, because it was represented to behalf of the assessee that while making the statement the assessee had in mind the application of the engineering company to the Corporation with reference to the land in Vysarpadi.
On the above circumstances, the Tribunal concluded that, having regard to the financial position of the assessee at the the time of acquisition, his qualifications and his business as an engineer connected with a firm which was doing building contracts, and also taking into consideration the fact that the assessee having acquired the other lands on which attempts were made to plot out the lands by selling the same in plots, the conclusion must be reached that the sole object was of making profits, and so any profit which the assessee got by the resale of the property is profit realised by him in an adventure in the nature of trade, even though it might have been but one and the only transaction.
We do not think that the circumstances relied on are decisive of the fact that the speculation is an adventure in the nature of trade. We have set out in detail how Rangaswamy Iyers statement stands rebutted by all the known facts revealed by the statement of the Chairman of the Madras Corporation and other records. So, merely because Udani had not cross-examined the witness, his whole testimony cannot be accepted as true. In judging his testimony, the other material on record must have been taken into consideration by the Appellate Tribunal and failure to do so must necessarily vitiate the finding reached.
As to the second circumstance, we have already discussed that the assessee had means to pay and did pay by two crossed-cheques the purchase amount at the time of purchase. The fact that the assessee had withdrawn a sum of Rs. 50,000 about a month prior to the actual sale transaction does not, in the absence of any positive evidence, raise a presumption that such amount must have been utilised for the purchase of the land, specially so when it is clear that, even prior to the purchase, the said amount was brought to account in the account books of the Baluchistan Construction Syndicate.
On the third point, it is no doubt true that certain land in Vyasarpadi was obtained by Udani Engineering Company in which the assessee is a partner and it is also a fact that a layout plan was submitted in connection therewith. But that land is situate at a distance of two miles away from the land in question and altogether in a different locality. It was further purchased not by the assessee in his individual capacity, but by the partnership firm, which is a business concern, and it must further be noted that the said land is still in the possession of the firm, even though several years have elapsed after the said application. Certainly the purchase of that land by the firm can in no way give an indication of the motive for the purchase of the land in question by the assessee alone as an individual.
As to the fourth circumstance relied on by the Tribunal, there can be no presumption that if a civil engineer purchases land possessing agricultural conveniences situated in the outskirts of the city, the purchase must be deemed to be with a motive to resell it at a profit as house sites. The Tribunal has rested this conclusion on a mere surmise.
Thus, in our opinion, the circumstances as relied on in support of the departments case that the speculation was an adventure in the nature of trade cannot justify that conclusion.
The question whether certain speculation is an adventure in the nature of trade is a question of law. To be more exact, being mixed with facts, it is mixed question of law and fact. That is also the view taken by the Supreme Court in G. Venkataswami Naidu & Co. v. Commissioner of Income-tax. In either case the finding reached by the Tribunal is certainly open to examination or review by this court. In the above cited case, their Lordships observed thus :
'In dealing with findings on questions of mixed law and fact, the High Court would no doubt have to accept the findings of the Tribunal on the primary questions of fact; bust it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure points of law'.
It is also necessary to quote the observations of their lordships as to the question of fact as well which are to the following effect :
'Where the point sought to be raised on a reference is a pure question of fact, the finding of fact recorded by the Tribunal must be regarded as conclusive in proceedings under section 66(1). If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in the case, its correctness or validity is open to challenge in reference proceedings within narrow limits. The assessee or the revenue can contend that the inference has been drawn on considering inadmissible evidence or after excluding admissible and relevant evidence; and, if the High Court is satisfied that the inference is the result of improper admission or exclusion of evidence, it would be justified in examining the correctness of the conclusion. It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence; or that the impugned conclusion drawn from the relevant facts is not rationally possible; and if such a plea is established, the court may consider whether the conclusion is not preserve and should not, therefore be set aside. It is within these narrow limits that the conclusions of fact recorded by the Tribunal can be challenged under section 66(1).'
This view was reiterated by the Supreme Court in Commissioner of Income-tax v. Daulat Ram Rawatmull, where it was held that the finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse. In the instant case the Tribunal has not considered the entire material on record while reaching the findings on primary evidential facts. As already noticed, while coming to its conclusion on primary evidential facts. As already noticed, while coming to its conclusion on primary questions of fact, it failed to take into account certain important and material pieces of evidence which go to support the theory of the assessee. It was indeed the duty of the Tribunal to consider every material fact for and against the assessee fairly and with due care and weigh the evidence pro and con in reaching the conclusion. When the Tribunal has failed to do so or reached its conclusion on irrelevant considerations or on mere surmises, it is open to this court to review the finding, especially when on such premises the conclusion on the question of law has to be reached. That is the reason why we had to consider the entire material on record. The result of our review is that the assessee purchased the land with his own money which he had to his credit in the bank. He had purchased the same with the sole intention for using it as a garden and agricultural land. With that purpose he undertook agricultural operations. Though he wanted to retain the land for himself and did not intend to sell it to any, he was forced by circumstances to part with the land when he found that not only the offer was very attractive, but also by selling it, he would be rid of the trouble and expense of continued litigation and also of perennial source of harassment by the owners of the land in the vicinity. The sale was thus a mere accident and the huge profit that he made was a windfall. This transaction, besides, so far as he was concerned, is an isolated transaction and out of his usual line of business. In such cases the transaction would be either an adventure in the nature of trade or transaction of purchase and resale and there is no middle course. Lord Lawrence in Jones v. Leeming observed in this behalf thus :
'It seems to me that in the case of an isolated transaction of purchase and resale of property there is really no middle course open. It is either an adventure in the nature of trade, or else it is simply a case of sale and resale of property'.
It is further clear that in such cases of an isolated transaction, the onus is on the department to prove that it was an adventure in the nature of trade and for this purpose there should be clear evidence in support of the inference that the land was purchased with the sole and dominant intention of selling it at a profit. In the absence of any such proof, it would simply be a case of resale of the property resulting in a mere accretion of capital value. As observed by Lord Buckmaster in the case of Jones v. Leeming :
'... an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise, its realisation does not made it income.'
Whether the dominant intention at the time of purchase was to sell the property at profit or to hold it as an investment has further to be determined on a number of circumstances including the nature of the article, its extent and how it has been dealt with. Further, as observed by Lord Dunedin in the same case :
'The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments, but per se it leads to no conclusion whatever.'
This passage shows merely the evidentiary value of a mans intention not to hold an investment which may justify the inference that the individual in question is engaged in a venture in the nature of trade. But this may be offset by the way the individual makes his livings and the part which the transaction plays in his activities as whole. Lord Carmont in Commissioners of Inland Revenue v. Reinhold, referring to these observations, made the following remarks :
'I do not wish, however, to read this passage out its context bad without regard to the facts of the case then under consideration, and I draw attention to Lord Dunedin language being then used with reference to 'an investment', meaning thereby, as I think, the purchase of something normally used to produce an annual return such as lands, houses or stocks and shares. The language would, of course, cover the purchase of houses as in the present case, but would not cover a situation in which a purchaser brought a commodity which from its nature can give no annual return. This comment of mine is just another way of saying that certain transactions shows incursions that they are not investments but incursions into the realm of trade or adventures of that nature. In my opinion it is because of the character of such transactions that it can be said with additional definitions that certain profits are income from trade and not capital accretion of an investment, the purchase and sale of, for instance, whisky, as in Frasers case was a trading venture and so too in regard to toilet pape : Rutledge. This means that, although in certain cases it is important to know whether a venture is isolated or not, that information is really superfluous in many cases where the commodity itself stamps the transaction as a trading venture, and the profits and gains are plainly income liable to tax'.
Thus, the nature and character of the commodity also plays an important role in determining whether the intention was to hold as an investment or to carry on trade or adventure in the nature of trade. In the present case, the property in question is a land. Though the land is of extensive area, it cannot be said that for the requirements of agriculture and garden for the assessee and the ladies it is too large. Thus, having regard to the nature of the transaction, the nature of the property purchased and the requirement of the purpose for which it is purchased, the subsequent conduct of the purchaser and the circumstances under which the sale became inevitable, it is difficult to hold that the dominant intention of the purchaser at the time of purchase was to resell the land as house sites with profit or the transaction of purchase and sale is an adventure in the nature of trade. The very fact that agricultural operations were started immediately after the purchase make it improbable that the purchaser had intended to make use of the potentiality of the land as house sites. The various known circumstances of the case thus lead to the only conclusion that it was a capital investment and not an adventure in the nature of trade.
Now we advert to the cases cited at the Bar which enunciate various tests to be applied in determining the question. The earliest vase which is somewhat nearer to our case referred to is Radha Debi Jalan v. Commissioner of Income-tax, where a lady, who was habituated to invest her moneys in shares from time to time and owned specified number of shares in a public limited company, purchased some shares in the course of investment and then on a similar occasion sold the shares purchased. The question was, whether the lady by doing so had embarked on trade or an adventure in the nature of trade. While deciding this question, the learned judges referred to various tests that may be applied to cases in general and stated various considerations that must weigh in this behalf, namely, whether there was an intention to turn the commodity for the purpose of making profit and was there any activity applied to it, which is in the nature of trade, and whether the thing purchased was such as must be subjected to some proceeding for the purpose of making it marketable; and whether the bulk of the commodity purchased is so large that in order to sell it the purchaser must necessarily have recourse to some organisation and activity of the kind that is required in trade. Whether the thing purchased is such as is likely to give the purchaser a pride of possession so that he might like to hold and cherish it as a thing which is worth possessing for its own sake or whether the thing purchased is such as must necessarily be sold off. Having dealt with these various test, the learned judges held that since the transaction was an isolated transaction, so far as the assessee was concerned, and she was not a share-dealer, and had not sold any shares in the past and had not dealt in any other shares and in that speculation there was no element of trade, it was not an adventure in the nature of trade. The next case referred to is Sri. Gajalakshmi Ginning Factory Ltd. v. Commissioner of Income-tax. There the learned judges, while considering the expression 'trade and commerce', observed at page 512 thus :
'In ordinary parlance, trade and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce'.
They observed as follows at page 512 :
'If a person buys lands with a view to sell them and thereafter carries on certain operations so as to bring greater profit and facilitate and sale of the plots, it can be said, if it is a single transaction, that his activity is an adventure in the nature of trade, for, the essence of a trade, buying and selling for profit, is present in that activity. But if a person buys land with on intention of selling it and after a long interval finds it convenient to sell the land by parcelling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of a trade'.
There the learned judges were concerned with a company, which had purchased a ginning factory with extensive lands pertaining thereto and also a plot containing some fruit stalls for a certain sum. Some years thereafter, the assessee-company sold the factory and some of the lands pertaining thereto and parceled 5.00 acs. of land into several small plots and sold them by public auction and in the next accounting year the remaining plots and also fruit stalls were sold and profit was realised. The learned judges held that the profit received from the sale of the plot of land and fruit stalls is a capital receipt. In another case in P. K. N. Co. Ltd. v. Commissioner of Income-tax, where the partners of a firm formed a private company and transferred to it item by item all the properties one after the other during a course of three years till 1940, and, in the subsequent accounting year, purchased the adjoining rubber estate known as the Lee Rubber Estate, but between 1940 and 1950, sold 700 acres of the estate, which did not include any part of the Lee Rubber Estate and sold it because of Communist disturbance and consequent difficulty in managing them, the question arose whether the surplus realised by the company by the sale of the above-mentioned properties was income. The Madras High Court held that the sale was not made in the course of adventure in the nature of trade and that, therefore, the sum was not income chargeable to tax. The learned judges observed as follows :
'An owner of property, it is well recognised, can sell portions of his estate. It is undoubtedly one of the modes of enjoyment of his own property. Merely because a person owns a large estate and chooses to sell portions of it year after year, it cannot immediately lead to the conclusion that he was so doing in pursuit of a business of dealing in properties. The disposal of a capital asset under such circumstances can but be equivocal in its nature and it is only special features that can stamp such an activity with the character of a business of dealing in properties'.
Then, after referring to the passage in Venkataswami Naidu & Co. v. Commissioner of Income-tax, the learned judges at page 214 observed thus :
'.... there is no evidence of any intention on the part of the assessee to deal in properties.... Though, as their Lordships of the Supreme Court point out, even if an intention to trade existed and a presumption that the sales were in the course of adventure in the nature of trade may be drawn, it is not a conclusive presumption. When facts and circumstances clearly show that the sales were rendered necessary for the purpose of better management of the estate as a plantation, which was the sole business in which the assessee was engaged, we may well regard any such initial presumption as satisfactorily rebutted. The total effect of all the relevant factors and circumstances clearly negative any conclusion in favour of an adventure in the nature of a trade'.
In Cherian v. Commissioner of Income-tax, where the assessee jointly with another person had purchased coffee estates and worked the estates for six years and then in 1943 transferred the same to the public limited company promoted by co-owners, the consideration for the transfer being allotment of share in the company, the assessees profit from this transaction was assessed to tax as arising from an adventure in the nature of trade. The Tribunal upheld this taxation on the ground that the assessee had intended to resell the estates at the time of purchasing them and this conclusion was reached, because the money for the purchase had been borrowed land further the joint purchaser of the estate was a dealer in the purchase and sale of such estates. It was held by the Madras High Court that the mere circumstance that the joint purchase had been made with borrowed capital could not lead to the conclusion that the property had been purchased with the intention to resell, as the co-owners had worked the estate for six years and the income derived from the estate was in part applied in the discharge of the loan originally taken and this fact negatived the existence of an intention to resell and that the transaction was not, therefore, an adventure in the nature of trade.
In Vadlamani Kameswara Rao v. Commissioner of Income-tax, this court had to consider the case of an assessee, who was a money-lender and who used to take over lands in satisfaction of the money-lending debts from debtors who were unable to pay the principal or interest or both. During the relevant accounting year, he had sold five pieces of land, four of which had been acquired by him during the course of the money-lending business. The fifth, however, was unconnected with the money-lending business and was purchased by him in a court auction about two years earlier. The sale of this plot resulted in a profit of Rs. 5,000. The question was whether this gain is assessable to tax on the ground that it is in an income from an adventure in the nature of trade. The venture being an isolated from an adventure in the nature of trade. The venture being an isolated transaction not in the line of business, as it was a purchase by him in court auction, it was held the onus lay on the department to prove that it was an adventure in the nature of trade. Since this onus was not discharged, the learned judges observed that merely because the assessee accepted land in the course of his money-lending business in payment of principal or interest from debtors who were unable to pay, he was not prohibited from entering in to a single venture, which was not in the nature of trade; nor could the fact that the assessees representative, who appeared before the department, did not make any distinction between the sum of Rs. 5,000 and the profits realised from the other transactions justify the treatment of all the five transactions as having been carried on in the course of the assessees money-lending business.
Then we are referred to Saroj Kumar Mazumdar v. Commissioner of Income-tax. There the assessee, who was engaged in various types of business activities, 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, 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 land comprised in a land development scheme undertaken by the society. The area which the society had undertaken to develop was in the occupation of the Government. It was requisitioned by the Government for the purposes connected with the prosecution of the Second World War and 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. The assessee assigned his rights under the agreement with the society to another person for a consideration of Rs. 1,07,000 the amount to be paid by him on suspense account until the plot of land to be purchased was finalised. The purchaser undertook to pay the balance of the sale price, which was Rs. 98,000, to the society. Ultimately, on December 27, 1950, the society executed a sale deed in favour of the purchaser. As the adventure resulted in a sum of Rs. 74,485 in excess of the amount the assessee had paid, the Appellate Tribunal came to the conclusion that the sale was an adventure in the nature of trade and the excess was profit assessable to tax. The reasons given therefor were :
1. That the payment of Rs. 32,748 came out of a loan from a company;
2. That the appellant could not have paid the balance of the purchase price of the plot and had no means to construct a house;
3. That the site itself fetched no income, thus showing that the appellants venture could not be an investment but only an excursion into the realm of trade.
The Supreme Court held that (1) 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; (2) 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; and (3) that the inference of the Appellate Tribunal that the appellant was not a man of means was a mere surmise not supported by the evidence; and, therefore, the probability that the site might appreciate in value did not necessarily lend itself to the inference that the transaction was as venture in the nature of trade, as distinguished from a capital investment. Thus, on a consideration of all the circumstances of the case, their Lordships came to the conclusion that the department did not make out a case that the dominant intention of the appellant was to embark into a transaction which is in the nature of trade at the time when he entered into the agreement which resulted in the profits sought to be taxed and held that the transaction was not in the nature of trade.
The next case cited is Raja Rameshwar Rao v. Commissioner of Income-tax, wherein a Raja of a samasthan in the erstwhile Hyderabad State acquired a village and a vast area of land with regard to which the said Raja had contended that it was acquired as part of the duty of the jagirdar to provide amenities and to undertake works of a public venture and the acquisition was made to construct a market and the sales were effected not by way of business but to disposing of land left over after effecting public utility. Their Lordships observed that such an acquisition of the village and a vacant area of land was certainly not at all needed for a market, and the development of the land and the laying out of plot and their subsequent sale go beyond what can be described as a work for public welfare and that, in the facts and circumstances of the case, it can be said there was evidence to support the conclusion that it was a venture in the nature of trade or business.
We think it unnecessary to refer to the other authorities cited at the Bar. Judged in the light of the above principles, it is clear that the circumstances of the present case do not bring the transactions in question within the description of an adventure in the nature of trade. We, therefore, answer question No. 1 in the negative.
Then, turning to the second question, it is indisputable that the receipts of the sale of the land which took place on March 18, 1949, can come in for taxation only for the assessment year 1949-50, for which the previous year was 1948-49, as the accounting year ended on March 31, 1949. The Tribunal also held to the same effect, but at the time directed the Income-tax Officer to bring to tax the said sum for the assessment year 1949-50. The question is, whether the Tribunal had jurisdiction to give such a direction. Whatever the judicial opinion before, now all doubts have been removed and the law on the point has been explained and authoritatively laid down in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das. There their Lordships construed the expressions 'finding' and 'direction' and held that where the appeal related to a particular assessment year, the finding and direction must necessarily be limited to that particular year. So then, the Appellate Tribunal had no power or jurisdiction under section 33(4) to give directions with regard to the proceedings of the earlier year or to include the amount to be deleted from that years assessment in the previous years assessment. In this state of law, the second question must also be answered in favour of the assessee to the effect that the Tribunal had no power or jurisdiction to direct the Income-tax Officer to tax the assessee for the assessment year 1949-50, as the appeal related to the assessment year 1950-51. The references are answered accordingly. The assessee shall get his costs in Reference R. C. No. 9 of 1961. Advocates fee is fixed at Rs. 250.