K.K. Dube, J.
1. The I.T. Appellate Tribunal has referred the following question of law for our opinion :
' Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the surplus of the sale proceeds earned by the assessee after the disposal of the pieces of land piecemeal was liable to payment of income-tax '
2. The assessee-applicant was a property broker for Damle family of Deori. Damle family had some lands in the town of Bina. The assessee purchased land belonging to Damle family for a sum of Rs. 17,200. He sold portions of the property to nearly 300 persons at different rates spread over a period of 10 years. The sale deeds are from October 23, 1953, to about the assessment year 1966-67.
3. This reference arises out of assessment orders for the years 1956-57 to 1966-67 excluding the assessment year 1960-61. The ITO treated the surplus from the sales of lands as taxable, as, in his opinion, the whole transaction was a venture in the nature of trade or business. The AAC was also of the same view. The assessee then preferred an appeal before the ITAT who, by its order dated November 23, 1962, sent back the matter for further enquiry. The AAC, in turn, sent the matter to the ITO who made the necessary enquiry on the points raised. After the report of the ITO was received by the AAC, he came to the conclusion that the profits arising as a result of the sales of the lands made by the assessee were profits from business; that the land was treated by the assessee as stock-in-trade in business and that the sales of land by the assessee constituted acts done in what was truly a carrying on of the business of buying and selling land and, therefore, the profits realised arising out of the sales of these lands were of a taxable nature. The amounts involved in each of the assessment years are as under :
4. The matter then again came up before the Tribunal in appeal. The Tribunal also came to the conclusion that the purchase of land was not by way of investment but was a venture in the nature of trade and the profits earned by sale of lands were thus taxable. The Tribunal observed as under:
' 5, We would, therefore, proceed to discuss and determine the nature of each of these transactions entered into by the assessee for the purpose of determining as to whether the profits earned by the assessee by the sale of various pieces of land piecemeal are profits earned in the business of selling and purchasing of land or whether it is only an accretion to the capital invested by the assessee. It is common ground between the parties that the assessee acted as a broker for the disposal of the lands owned by the members of the Damle family. It is also common ground between the parties that the assessee is not a professional agriculturist. The contention advanced on behalf of the assessee is that the pieces of land known as Tal-laya is being cultivated by the assessee and agricultural operations are being carried thereon. It is also undisputed before us that some pieces of land have been in the possession of tenants, and as the tenants refused to vacate the lands, the assessee was required to sell those lands to the very tenants who were already in occupation of the same. The rough map which has been produced before us to give us an idea of the location of the various plots of land which have been purchased by the assessee from the members of the Damle family goes to show that these pieces of land are scattered over a wide area and do not form a complete whole. These are separate bits of land, on the remaining portions of which houses or other constructions have been erected by the purchasers of the various lands. In the very nature of things, it is clear from the situation of the plots which have been purchased by the assessee from the members of the Damle family that the intention to cultivate these lands for the purpose of carrying on agricultural operations could not possibly have been present in the mind of the assessee in respect of most of these pieces of land. The assessee has further contended that he has not converted these pieces of land into plots. According to Mr. Chitale, the point that the assessee has not demarcated these lands into various plots for the purpose of constructing houses thereon is a point in favour of the assessee. It will, however, be observed that what the assessee has sold are these inconvenient pieces of land which are neither useful to the assessee for the purpose of carrying on any agricultural operations thereon nor has he constructed any structure or house on these pieces of land. There is yet one more significant circumstance which also must be taken into consideration and it is that the entire residual land belonging to the member of the Damle family-has been purchased by the asssssee. The assessee has acted as a broker for the last 13 years andas the learned departmental representative rightly argues, the assessse is conversant with every inch of the land. The sale deeds, particularly the one executed by Beni Madhav Rao, go to show that the purchase money has not been paid by the assessee to Beni Madhav Rao at the time of the sale deed itself, but that there is a specific agreement between the parties that the price will be paid to Beni Madhav Rao by the assessee only after the land is resold by the assessee to other persons. In our opinion, this recital in the sale deed executed by Beni Madhav Rao clearly goes to prove positively the intention of the assesse in making purchases of these lands. In respect of the sale executed by the other three members of the Damle family the money has been paid to two of- them at the time of the sale deeds and so far as the third person is concerned, namely, Mohan Rao, the purchase money has been paid in instalments. Therefore, the idea or the intention present in the mind of the assessee at the time of making purchases of the residual lands from the members of the Damle family has always been that these lands which have been purchased by the assessee are to be resold at a profit and it is clear that the assessee has carried on the business of selling lands at a profit. Therefore, the cumulative effect of all the circumstances plus the circumstances that during the period that the assessee had retained these lands with him most of these lands were uncultivated, these circumstances which have been discussed above clearly go to prove that the assessee in purchasing the lands from the members of the Damle family intended to resell them at profit and thereby carry on the business of selling the lands. Therefore, the surplus sale proceeds which have been earned by the assessee have been rightly held by the authorities below as liable to the payment of income-tax. '
5. The argument on behalf of the assessee is mainly that what has been sold is unwanted land which was uneconomic or undesirable. The assessee, it was urged, was still retaining a portion of the land and enjoying it. The purchase of the land was by way of investment and the profits from the sales of the unwanted lands were mere accretion to the capital.
6. Numerous decisions were cited at the bar. The decisions point out that in determining whether a transaction was an investment or an adventure in the nature of trade no universal rule or principles can be applied. Each case has to be judged on its own merits and the court has to come to the conclusion taking into account the totality of facts and circumstances. We may refer to the Supreme Court's observations in G. Venkataswani Naidu & Company v. CIT 0065/1958 : 35ITR594(SC) . The Supreme Court observed as under (at p. 610) :
' 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 broadlytrue ; 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. In Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) , it was held, that the fact that the assessee had a profitable bargain when he purchased the property and that he had a desire to sell the property if a favourable offer was forthcoming could not, without any other circumstances, justify an inference that the assessee intended by purchasing the property to start an adventure in the nature of trade. Normally, the purchase of land represents an investment of money in land. A profit motive, in entering into a transaction of the purchase of land, is not decisive for an accretion to capital and does not become taxable income merely because an asset was acquired in the expectation that it may be sold at profits. Again, the Supreme Court in Raja Bahadur Kamakhya Narain Singh v. CIT : 77ITR253(SC) stated that the fact that the original purchase was made with the intention to resell if an enhanced price would be obtained is, by itself not sufficient. Hidayatullah J. (as he than was) in Karanpura Development Co. Ltd. v. CIT : 44ITR362(SC) observed that ownership of property and leasing it out may be done as a part of business or it may be done as land owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. In deciding whether the company dealt with its properties as owner one must see not to the form which it gave to the transaction but to the substance of the matter.
8. When Section 2(4) of the I.T. Act, refers to an adventure in the nature of trade, it clearly suggests that the transaction in question cannot properly be regarded as trade or business. It is allied to a transaction that constitutes trade or business but may be trade or business itself. It is characterised by some of the essential features that make up a trade or business but not all of them. Whether the business amounted to dealing in properties and was an adventure in the nature of trade or merely an investment is a mixed question of law and fact and the legal effect of the facts found by the Tribunal as a result of which, the applicant could be treated as a dealer or an investor is a question of law. The Tribunal has found several facts which in its opinion, characterised the transactions made by the assessee as an adventure in the nature of trade.
9. We may at this stage refer to some of the guidelines indicated in Venkataswami Naidu's case 0065/1958 : 35ITR594(SC) . It was pointed out in the above Supreme Court case that if a person invests money in land intending to hold it and enjoys 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 clearly outside the domain of adventure in the nature of trade. In deciding the character of each transaction several factors are relevant, e.g., whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it, nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased may thereby make it more readily resaleable ; any act prior to the purchase showing a design or purpose; the incidence associated with the purchase and resale; the similarity of the transactions to operations usually associated with trade or business ; the repetition of transactions ; the element of pride of possession. It is not a matter of merely counting the number of facts and circumstances pro and con. What is important is to consider their distinctive character. In cases 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 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 thatthe transaction was not an adventure in the nature of trade. The presumption may be rebutted.
10. It would appear from the above case that normally the purchase of land represents an investment of money in land. A transaction of purchase of land cannot be assumed, without more, to be an adventure in the nature of trade. An investment in purchasing a property is also made with a view to earning a return on the sum invested. The mere fact that a person invested for the purpose of reselling whenever a suitable opportunity arises is not a sufficient ground to hold that the transaction, is in the nature of trade. We would, therefore, proceed to consider the various circumstances that have been found by the Tribunal in connection with the transactions and find out whether the presumption 'that the land has been purchased as an investment is rebutted by the various facts and circumstances.
11. The assessee, in the instant case, is a real estate broker. He had been the broker of Damle family for the past 13 years. He, therefore, not only knows the hazards and the profits of dealings in land and real estate but he is also fully acquainted with the land belonging to the Damle family and their potentialities. The assessee is not an agriculturist nor does it appear from the circumstances that the lands were purchased for the purpose of doing agriculture. Though it had been shown that he was doing some agriculture on a small portion of land and had recently purchased a tractor, it is clear from other circumstances that the land had not been purchased for cultivating it. The land also is not in one continuous stretch but lies in patches spread all over. Some of the lands are in occupation of the tenants and it was known that these tenants could not be easily ejected. The lands after purchace were sold to these very tenants. This would undoubtedly go to show that such lands were purchased with the sole idea of reselling them. The Tribunal found that there was no income worth the name from the lands in question. Damle's previous sales of lands were also not for agricultural purposes but mainly as building sites. The above facts would indicate that the purpose of purchasing the lands was to resell them at a profit and not to do cultivation over it.
12. The lands have been sold in course of time under about 300 transactions. There is a continuous activity of selling of the land spread over a period of 10 years. The selling activity appears similar to the normal trading activity in real estate.
13. The assessee did not pay the entire price of the lands in some of the cases. Sales made by Bent Madhav Rao would show that the assessee had not paid the entire consideration at the time of execution of the sale deed. The lands had been purchased on credit with a stipulation to pay the priceafter they had been resold. With Madhav Rao he had entered into an agreement to pay the price in instalments. The assessee was aware of the fact that the lands would soon fetch high prices as the Railway Institute was being constructed in the near vicinity. He could, therefore, pay the price in the immediate future after it had been sold at a profit. The lands had been purchased speculating that it would bring him quick returns. There would undoubtedly be cases where the nature and quantity of the subject-matter of transactions may exclude the possibility that its sale was the realisation of an investment. Land ordinarily is not considered an object of commerce but, if treated (such an object) could be envisaged in a land; the activity would undoubtedly be similar to one organised by the assessee.
14. The dominant purpose at the time of purchase of the land from Damle was to resell at a profit. It is not a case where the intention to sell was inspired by the fortuitous circumstances of an unforeseen rise in price, but, the land was purchased with the calculation that it will bring profit immediately. There were continuous transactions of sales of land. From the very beginning, the intention was to resell it rather than utilise it for any other purpose. The buying and selling activity in the lands is characterised by a multiplicity of transactions, a prior association of business and the existence of a scheme, system and business operation.
15. The learned counsel for the assessee relied on a decision in Saroj Kumar Majumdar v. CIT : 37ITR242(SC) , where a building contractor when he sold the property at a considerable profit, the transaction was treated not as an excursion into the realm of trade. In Saroj Kumar's case, the selling of property was not in the line of the business of the assessee and the transaction was solitary. Moreover, the transaction was more of a windfall, and such profit could not be in contemplation of the assessee. We think that Saroj Kumar's case, is quite distinguishable. It cannot be said, in the present case, that the assessee was unconnected with the business of sale and purchase of land. Though the assessee may not have himself purchased the land earlier to the transactions in question but being a broker of the real estate, the dealing in land was in the line of his business. The present transactions are also to be distinguished from the cases where the assessee had sold ancestral property or his own land. The circumstances of the case point out that the assessee had purchased the land with the intention of embarking on a venture in the nature of trade. The profits from the transactions, in our opinion, are clearly taxable to income-tax.
16. We, therefore, answer the question in the affirmative against the assessee. The assessee shall bear the costs of the reference. Counsel's fee Rs. 200, if certified.