SOHANI J. - By this reference under s. 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 circumstances of the case, the Tribunal was right in holding that the surplus of Rs. 42,048 (for R.A. No. 82, Rs. 44,051) received by the assessee as a result of the sale of agricultural lands, referred to in the appellate orders, arose out of an adventure in the nature of trade and was, therefore, rightly assessed to tax ?
2. Whether, on the facts and circumstances of the case, the lands in question could be held to be agricultural lands ?
3. Whether, on the facts and circumstances of the case, it could be held in law that there could be an adventure in the nature of trade in agricultural lands, particularly in view of the provisions of revenue law restricting the transfer of such land ?
4. Whether, on the facts and circumstances of the case, the surplus was not assessable as being in the nature of agricultural income and hence exempt under the Income-tax Act ?'
The material facts giving rise to this reference, briefly, are as follows : The assessee is an individual and the assessment years in question are 1967-68 and 1968-69. In the assessment year 1967-68, the assessee claimed that a profit of Rs. 42,048, earned by the assessee by the sale of agricultural land, was exempt from taxation. The land in respect of which the transaction of sale had taken place was purchased by the assessee in November, 1964, and on June 1, 1966, the assessee received compensation amounting to Rs. 9,982 from the improvement trust for the acquisition of a part of the said land. The remaining portion of land was sold by the assessee to M/s. Sureshchandra Prakashchandra & Co. on March 23, 1967, for a sum of Rs. 45,000. The ITO found that the assessee had never carried out agricultural operations on the land in question and the intention of the assessee was only to realise income from the land as a venture in trade. In this view of the matter, the ITO held that the income of Rs. 42,048 would have to be assessed as a business income of the assessee. Similarly, in the assessment year 1968-69, the assessee contended that the profit of Rs. 44,051, earned by the assessee by the sale of another piece of agricultural land, was exempt from taxation. The land in question was purchased by the assessee on August 16, 1966, for a sum of Rs. 50,949, including registration expenses. It was sold on May 22, 1967, for a consideration of Rs. 95,000 to M/s. Jankinagar Colony, a branch of the partnership firm, M/s. Badrilal Bholaram & Sons, of which the assessee was a partner. The ITO found that no evidence was led by the assessee to show that the land in question was ever subjected to agricultural operations by the assessee. The ITO further found that the assessee was a partner of M/s. Badrilal Bholaram & Sons, carrying on the business of developing lands. In this view of the matter, the ITO held that the profit realised from the sale of this land was a business income of the assessee. Aggrieved by the orders passed by the ITO, the assessee preferred appeals before the AAC.
The AAC held that the assessee belonged to a family which had been carrying on the business of purchase and sale of land with or without development, that the assessee had interest as a partner in several concerns carrying on the business of developing land, that the assessee had purchased the land in the year 1964, when a parcel of that land had already been notified by the City Improvement Trust as marked for developing it into a residential area, that a copy of the said notification was endorsed to the assessee in March, 1964, by the City Improvement Trust showing that the assessee had already owned other parcels of land in that area, and that when the assessee purchased the land, he had already known that the said land had been marked for development for non-agricultural use. Similarly, in respect of the appeal against the order of the ITO passed in proceedings for the assessment year 1968-69, the AAC held that the land was purchased by the assessee not with a view to carry out any agricultural operations or for the purpose of investment but for earning profits by a sale of the land in question. In this view of the matter, the AAC dismissed the appeals filed by the assessee. Aggrieved by the orders passed by the AAC in the two appeals, the assessee preferred appeals before the Tribunal.
The Tribunal examined the material on record in the light of the decision of the Supreme court in G.Venkataswami Naidu & Co. v. CIT 0065/1958 : 35ITR594(SC) . The Tribunal found that the main source of income of the assessee was the share income from M/s. Badrilal Bholaram & Sons, Indore, which had developed the Jankinagar Colony, that the said firm had been doing the business of purchase and sale of land for a few years prior to the assessment year 1965-66, that the assessee had got supervision charges in those years for supervising the development work and that the material on record clearly indicated that the assessee was very much connected with the business of purchase and sale of land and its development. The Tribunal further found that the assessee had no intention of carrying out agricultural operations in the land and his only intention was to make a profit by getting a higher amount of compensation than the purchase price. The Tribunal found from the material on record that the income derived by the assessee by a sale of the lands in question was from an adventure in the nature of trade. In this view of the matter, the Tribunal dismissed the appeals preferred by the assessee. Aggrieved by the orders passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid question of law have been referred to this court for its opinion.
Shri Choudhary, learned counsel for the assessee, contended that the purchase of property in the shape of agricultural land is ordinarily an investment and that a transaction of purchase of land cannot be assumed, without more, to be a venture 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 in Saroj Kumar Mazumdar v. CIT  37 ITR 243, Raja J. Rameshwar Rao v. CIT  42 ITR 179, Janab Abubucker Sait 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  74 ITR 692, Raja Bahadur Kamakhya Narain Singh v. CIT : 77ITR253(SC) , Michael A. Kallivayalil v. CIT : 102ITR202(Ker) , CIT v. Mahalingam Chettiar  107 ITR 236 and Addl. CIT V. Bhagwati Prasad : 114ITR682(All) .
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 a business, the onus to prove the existence of these elements is undoubtedly on the Department. We have, therefore, to examine whether the inference drawn by the Tribunal that the transaction in question are transactions in the nature of trade is, in law, justified.
Now, the various decisions relied on by learned counsel for the assessee 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 & Co. v. CIT  35 ITR 594, in each case, it is the total effect of all the relevant factors and circumstances that would determine the character of the transaction.
What then are the relevant facts found by the Tribunal in the instant case. The main source of income of the assessee is the share income from M/s. Badrilal Bholaram & Sons, Indore, which had developed one housing colony and had been doing the business of purchase and sale of land some years prior to the assessment year 1965-66. The assessee had received supervision charges from the said firm for supervising development work. A part of the land purchased by the assessee in November, 1964, was, at the time of purchase by the assessee, proposed to be acquired by the City Improvement Trust, Indore, for developing into a residential colony. The entire land, therefore, had the potentiality of being developed into house sites. The assessee did not carry out any agricultural operation in any portion of the lands in question from the date of purchase till they were sold or acquired by the improvement trust. This conduct of the assessee shows that the assessee was not interested in obtaining any return from these lands. If the lands in question had been purchased by the assessee as a matter of investment, the assessee would have tried either to cultivate the land or to build on it, but the assessee did neither. 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.
With regard to the second question referred to this court, learned counsel for the parties agreed that the lands in question were agricultural and that there was no material on record to the contrary.
As regards the third 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 s. 165 of the M.P. Land Revenue Code, 1959. But that section does not prohibit the 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 third question referred to this court is, therefore, in the affirmative and against the assessee.
With regard to the fourth question referred to this court, learned counsel for the assessee contended that the profit realised by the 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 inNawabzadiMeharBano Khanum v. Secy. of State : AIR1925Cal929 and Maharajadhiraj of Darbhanga v. CIT, AIR 1928 Pat 468. Now, cl. (a) of s. 2(1) of the Act requires three conditions to be satisfied before an 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 the sale of land. Our answer to the fourth question referred to us is that the surplus in question was not in the nature of agricultural income exempt from taxation.
Reference answered accordingly. In the circumstances of the case, parties shall bear their own costs of this reference.