R.R. Rastogi, J.
1. This reference under Section 256(1) of the Income-tax Act, 1961 (hereafter 'the Act'), relates to the assessment year 1971-72. The Income-tax Appellate Tribunal, Allahabad Bench, has referred the following question for the opinion of this court.
'Whether, on the facts and in the circumstances, the Income-tax Appellate Tribunal was correct in holding that the excess profit accruing on the transaction amounting to Rs. 14,254 for the assessment year under consideration constituted assessee's income assessable under the head ' Capital gains' and not as the income arising out of an adventure in the nature of trade '
2. The brief facts are that the assessee, an individual, had purchased a house property of an area of about 20,000 sq. yards comprising of two bungalows, servant quarters and a vast piece of vacant land, in the city of Jaipur, on February 12, 1968. The consideration was Rs. 87,999. Later on, the assessee divided a portion of the vacant land in sub-plots and made some improvements therein and sold a total area of 10,830.75 sq. yards by means of six sale deeds executed between the assessment years 1961-62 and 1972-73. It may be noted that the previous year of the assessee ends on 31st of October. In other words, these sale deeds were executed in between 1959-60 and 1970-71. The total consideration received was Rs. 1,74, 145. In the previous year, relevant to the year under consideration, the assessee had sold 1,842 sq. yards for a sum of Rs. 21,990. The ITO being of the opinion, that the activity of the assessee amounted to an adventure in the nature of trade, brought to tax Rs. 14,354 in respect of the aforesaid transaction. He did not accept the assessee's contention that this profit amounted to a capital gain only.
3. The assessee appealed and submitted written submissions before the AAC. The case taken by the assessee there, was that she had purchased this property for her own residence and for making further constructions and the vacant land was to be used by her for her own cultivation. It was stated that it had never been her primary intention at the time of the purchase of this property to make any profit out of it by resale of any portion thereof and it was only later on when she was in need of money, she sold some portions of the vacant land. There was absolutely no profit motive in the mind of the assessee when she purchased this property. It was urged that from the sale price received the assessee constructed a residential house and let out a portion of the same to some bank. The AAC accepted the submission and held that the intention of the assessee at the time of the purchase of this property was not to resell any portion thereof and thereby earn any profit. Subsequently, however, when she found that the land appurtenant to the house was much more than what she required, she thought of selling a portion of the same and if thereby she earned some profit, that would not make the transaction an adventure in the nature of trade. In the opinion of the AAC, in order to bring a transaction in this category, the onus was on the department to prove that the intention of the assessee was to resell the property later on at a profit and that the department had failed to discharge such onus. He, thus, held that the profit which the assessee earned on a part of that land would constitute a capital gain and not a business profit.
4. The revenue took up the matter in appeal before the Appellate Tribunal but remained unsuccessful and now at its instance the present reference has been made to this court.
5. It was submitted before us by the learned counsel for the revenue that on the facts and circumstances found by the authorities below what could be inferred was that the intention of the assessee at the time of the purchase of this property was to bring it to her own use. However, soon after she changed her mind and developed a portion of the vacant land by carving out small plots and by laying out roads and then she sold as much as 10,830 sq. yards of land by means of six sale deeds during the period of about a decade. The land sold represented almost half of the total area of the property purchased. Further, she constructed a building on a portion of the vacant land and leased it out to the bank. Now, the AAC and the Appellate Tribunal, both decided the nature of the transactions on the basis of the initial intention of the assessee. They did not refer to the subsequent change in the conduct of the assessee. It was, further, urged that the question is to be decided on a consideration of all the facts and circumstances obtaining in a case and hence the case might be remitted to the Appellate Tribunal for fresh consideration.
6. After hearing counsel for the parties we find that there is considerable substance in what has been urged before us by the learned departmental counsel. As regards the initial intention of the assessee at the time of the purchase and its subsequent motive for selling the land on profit the Supreme Court in G. Venkataswami Naidu & Co. v. CIT 0065/1958 : 35ITR594(SC) , observed at page 610 as follows:
' It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true, and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive ; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.'
7. Thus, the dominant or even sole intention to resell is a relevant factor and raised a strong presumption, but by itself is not a conclusive proof. The initial intention in conjunction with the conduct of the assessee and other circumstances should all be looked into with a view to determine the real character of the transaction. In CIT v. Sutlej Cotton Mitts Supply Agency Ltd. : 100ITR706(SC) the same principle was reiterated. The Delhi High Court in A. N. Seth v. CIT : 74ITR852(Delhi) , followed the dictum laid down by the Supreme Court in G. Venkataswami Naidu & Co. v. CIT 0065/1958 : 35ITR594(SC) . In a later case of CIT v. Raunaq Singh Swaran Singh : 85ITR220(Delhi) , though that court referred to the decision in Venkataswami Naidu 0065/1958 : 35ITR594(SC) , but laid down a slightly different proposition and it was that in order to bring a transaction within the category of an adventure in the nature of trade it has to be shown that the sole intention at the time of the purchase was to sell the property purchased later on at a profit. With respect to their Lordships of the Delhi High Court, who decided that case, we do not think that that is a correct proposition of law. Initial intention of the purchaser is certainly a very important and relevant material for determining the nature of a transaction with regard to the property purchased, made subsequently; but that is not conclusive. The subsequent events and the conduct of the assessee are also important factors and the question is to be decided on a totality of all the facts and circumstances. There is no doubt that the onus is on the department to prove that the transaction in question was an adventure in the nature of trade. For the nature of onus we may refer to the dictum laid down in Saroj Kumar Mazumdar v. CIT : 37ITR242(SC) . That dictum is that where a transaction was not in the line of the business of the assessee but was an isolated or single instance of the transaction the onus was on the department to prove that the transaction was an adventure in the nature of trade. It would be seen that it cannot be laid down as a matter of absolute proposition that the onus is on the department to prove that the initial intention of the purchaser was to resell the property purchased, later on at a profit. The relevant facts to be seen in this behalf are: firstly, as to whether the transaction in dispute was not in the line of the business of the assessee and secondly, whether it was an isolated or a single instance of the business or there was a series of similar transactions. In the present case, of course, the transactions entered into by the assessee in respect of the property concerned were not in the line of her business but they do not represent an isolated or a single instance of the business. The department had brought out certain material and it was that almost within a year of the purchase of the property the assessee divided a substantial part of the vacant land into sub-plots. That area was developed and roads were laid out and thereafter within a decade by means of six sale-transactions as much as 10,830 sq. yards of land out of the total area of 20,000 sq. yards was sold away. In the written submission made by the assessee before the AAC, these facts were not disputed by the assessee. Neither the AAC nor the Appellate Tribunal referred to those facts which had been found by the ITO. In other words, the case was not examined in the light of the subsequent change in the conduct of the assessee. Thus, it is a case in which certain essential facts have not been considered by the Appellate Tribunal and, therefore, it is a case which should be remitted to the Income-tax Appellate Tribunal to determine the facts in accordance with the observations, made by this court as above and determine whether the transaction was an adventure in the nature of trade or was a transaction of investment.
8. An attempt was made on behalf of the assessee by Sri Bharat Ji Agrawal to show that even if the facts found by the ITO are taken into consideration, this transaction would not amount to an adventure in the nature of trade. It was submitted that a resale in changed circumstances would only be realization of capital and would not alter the initial intention of the purchaser when the property was purchased. It was also submitted that the assessee is not a dealer in land or property and if because of financial necessity and change of circumstances she sold away some of the vacant land, it would not make any difference. Reliance was placed on certain decisions in this behalf. We should not enter into this aspect of the matter because, as we have noted above, neither the AAC nor the Income-tax Appellate Tribunal considered the nature of the transaction with reference to the changed circumstances and the subsequent conduct of the assessee. They were merely guided by the initial intention of the assessee when the property was purchased and regarded it as conclusive. That view is erroneous in law as we have shown above. In our opinion, therefore, the proper course for us would be to remit the case to the Income-tax Appellate Tribunal to determine the nature of the transaction with reference to all the facts and circumstances obtaining in the case and in accordance with the observations we have made above.
9. For the reasons, stated above, we return the question unanswered and in the circumstances of the case make no order as to costs.