1. By this reference under Section 256(1) of the I.T. Act, 1961, hereinafter called 'the Act', the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the surplus of Rs. 1,47,100 received by the assessee as a result of sale of the agricultural land referred to in the appellate order arose out of either trade or at least an adventure in the nature of trade and was, therefore, rightly assessed to tax ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee could deal in agricultural lands as much as any other commodity in spite of the provisions of the M.P. Land Revenue Code restricting the transfer of lands ?
3. Whether, on the facts and in the circumstances of the case, the surplus could be taxed as it retained the character of agricultural income and was hence exempt under the Income-tax Act ?'
2. The material facts giving rise to this reference briefly are as follows : The assessee-firm was at the material time carrying on business of contractor and of developing land. During the assessment year 1965-66, the assessee purchased agricultural land and sold it in three parcels to Prakash-chandra, Sureshchandra and Smt. Prembai, relatives of the partners of the assessee-firm. The profit arising out of these sales was taxed as business income by the ITO. On appeal, the order of the ITO was affirmed. On further appeal, the Tribunal held that the surplus or profit received bv the assessee as a result of the sale of land in question arose out of an adventure in the nature of trade and was, therefore, rightly assessed to tax as business income. In this view of the matter, the Tribunal dismissed the appeal. At the instance of the assessee, the Tribunal has referred the aforesaid questions of law to this court for its opinion.
3. Shri Choudhary, learned counsel for the assessee, contended that the purchase of property in the shape of agricultural land is ordinarily aninvestment and that a transaction of purchase of land cannot be assumed; without more, to be an adventure in the nature of trade. It was further contended that there was no intention to trade which must be present at the time of purchase to impress a venture with the character of trade, and the onus to prove that fact was on the department. Reliance was placed on the decisions reported in Saroj Kumar Mazumdar v. CIT : 37ITR242(SC) , Raja J. Rameshwar Rao v. CIT : 42ITR179(SC) , Janab Abubucker Sail v. CIT : 45ITR37(Mad) , Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) , CIT v. P. K. N. Co. Ltd, : 60ITR65(SC) , Bhogilal H. Patel v. CIT : 74ITR692(Bom) , Raja Bahadur Kamakhya Narain Singh v. CIT : 77ITR253(SC) , Michael A. Kallivayalil v. CIT : 102ITR202(Ker) , CIT v. Mlm. Mahalingam Chettiar : 107ITR236(Mad) and Addl. CIT v. Bhagwati Prasad : 114ITR682(All) .
4. The real question for consideration is whether the profit realised from the transaction in question can be held to be income arising out of an adventure in the nature of trade, i. e., whether there are certain elements in the adventure which in law would invest it with the character of a trade or business. The onus to prove the existence of these elements is undoubtedly on the department. We, therefore, have to examine whether the inference drawn by the Tribunal that the transactions in question are transactions in the nature of trade is in law justified.
5. Now, the various decisions relied on by learned counsel for the asses-see do not purport to lay down any general or universal test. It would not, therefore, serve any purpose to examine every decision in detail. As held by the Supreme Court in G. Venkataswami Naidu and Co. v. CIT 0065/1958 : 35ITR594(SC) , in each case it is the total effect of all relevant factors and circumstances that determine the character of the transaction.
6. What then are the relevant facts found by the Tribunal in the instant case The Tribunal has found that the assessee had been doing the business of purchase and sale of land and of developing the land as housing colonies from the beginning of the year 1961 and the transaction in question was, therefore, in the line of the business of the assessee. The Tribunal has further found that at the time of purchase the land was situated in a residential area and was surrounded by the Holkar College and two colonies--Ashoknagar Colony and Professors Colony. The Tribunal also found that the land was covered by the town planning scheme of the State Govt. notified in 1961 indicating that the Government had decided to develop the area, including the land in question into a residential colony through private colonisers. The Tribunal thus found that the land in question could not have been available to any one for cultivation after 1961. The Tribunal also found that the assessee had taken steps for developing the land into a colony known as Vidyanagar Colony. The assessee, had made an application to the Executive Engineer, Public Health Dept., on 25th May, 1961, soon after the purchase of the land for obtaining a no objection certificate for development of the entire land in dispute. No objection certificate was issued to the assessee on 27th September, 1961. The assessee then submitted the layout plan of the proposed colony and by letter dated 21st February, 1964, the assessee requested for issuance of a final sanction to the scheme for development of the colony. Thus, the Tribunal found that the assessee had taken vigorous and persistent steps for obtaining necessary permission to convert the use of land to non-agricultural purposes and for developing the same into a colony. The Tribunal also found that the vendees are relations of the partners of the assessee and that they developed the land into a housing colony. In these circumstances, the inference drawn by the Tribunal that the transaction in question was an adventure in the nature of trade is in law justified. Our answer to the first question referred to us is, therefore, in the affirmative and against the assessee.
7. As regards the second question referred to this court, learned counsel for the assessee contended that there were restrictions on the transfer of land and hence there could be no adventure in the nature of trade. Learned counsel for the assessee was, however, unable to point out any provision of law which placed a bar on the sale of agricultural land. Our attention was invited to Section 165 of the M.P. Land Revenue Code, .1959. But that section does not prohibit sale of agricultural land. No provision of law providing for such restrictions on the transfer of agricultural land was brought to our notice so as to rule out the intention to trade. Our answer to the second question referred to this court is, therefore, in the affirmative and against the assessee.
8. With regard to the third question referred to this court, learned counsel for the assessee contended that profit realised by sale of land was revenue derived from land and hence was exempt from taxation as it was agricultural income. Reliance was placed on the decisions reported in Nawabzadi Mehar Banu Khanum v. Secy, of State : AIR1925Cal929 and Mahwajadhiraj of Darbhanga v. CIT, AIR 1928 Pat 468. Now, Clause (a) of Section 2(1) of the Act requires three conditions to be satisfied before the income can be called agricultural income. The three conditions are : (i) the rent or revenue should be derived from land, (ii) the land should be situated in India, and (iii) the land should be used for agricultural purposes. By no stretch of imagination it could be held that the aforesaid conditions are satisfied in the case of income resulting from sale of land. Our answer to the third question referred to us is that the surplus in question was not in the nature of agricultural income exempt from taxation.
9. Reference answered accordingly. In the circumstances of the case, parties shall bear their own costs of this reference.