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income-tax Officer Vs. Amrit Foods (P.) Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1984)10ITD681(Delhi)
Appellantincome-tax Officer
RespondentAmrit Foods (P.) Ltd.
Excerpt:
.....of the manufacturing and trade activities carried on by it, could not make use of the margarine plant purchased by it, more so when the raw material required for running the said plant is available only in a vanaspati manufacturing unit. the said raw material becomes available with an assessee already manufacturing vanaspati and the same is available at a stage prior to the ultimate manufacture of vanaspati. there is no basis and evidence or material on record to prove the assertion made by the ito in the remand report that the plant purchased had a close link with the business of the assessee-company, namely, manufacture and sale of desi ghee. as such for the successful working of a margarine plant, the person holding it should be one which was already manufacturing vanaspati. it is.....
Judgment:
1. This appeal is by the revenue. The assessee to the appeal is Amrit Foods (P.) Ltd., Ghaziabad, a company incorporated under the Companies Act, 1956. The year of assessment involved is 1974-75 for which the previous year ended 31-3-1974. As in the past, in the year under consideration, the assessee carried on the business of manufacture and sale of desi ghee, etc.

2. The assessee, who was also engaged in the business of manufacture and sale of food products, such as bakery products, butter and ghee, came to know prior to 1-1-1969 that a party had a margarine plant at Bangalore and that Mr. N.K. Bajaj of the assessee-company had been negotiating with the said party for the purchase of the said plant. The above facts were brought to the notice of the board of directors of the assessee-company in the meeting held on 1-1-1969 as Mr. Bajaj felt that the plant could be purchased at a reasonable price and thereafter it could be sold at a profit. On these facts, the assessee-company in its resolution dated 1-1-1969 resolved that Mr. Bajaj was authorised to make enquiries about the margarine plant at Bangalore and to negotiate the purchase of the said plant.

3. Pursuant to the said authority, Mr. Bajaj negotiated for the purchase of the margarine plant at Bangalore and these negotiations have been successfully completed. According to the settlement arrived, the purchase price together with the expenses to be incurred for purchasing it came to about Rs. 1 lakh. This fact was brought to the notice of the board of directors of the assessee-company at the meeting held on 6-5-1969. Mr. Bajaj also informed in the said meeting that the plant had been imported by the Bangalore party many years ago and a buyer may not agree to offer a good price, as it may be felt that the plant was bad and not useable. Mr. Bajaj, accordingly, suggested that the plant should be properly installed, shown to potential buyers with a view to prove that it could be worked satisfactorily and that its working would yield profits to the buyers. On these facts, the board of directors resolved that the purchase of the plant at a cost of Rs. 1 lakh including expenses be confirmed. Mr. Bajaj was authorised to make all arrangements for the installation of the plant with a view to make it in working condition so that suitable buyers could be attracted. The chairman of the assessee-company also expressed the desire that as this was going to be a good proposition, the first preference would be given to Amrit Banaspati Co. Ltd., so that it may derive proper benefit from the said plant.

4. In the meeting of the board of directors of the assessee-company held on 6-10-1969, the minutes of the meeting reads as under : The company was able to buy a margarine plant from Margarine and Refined Oil (P.) Ltd., Bangalore, for a cost of about Rs. 1 lakh including expenses. The plant is expected to be sold at a profit with a view to show the working of the plant and to attract a good customer, it was decided to instal it and it is hoped that it will be installed by December, 1969.

5. This was followed by the following minutes of the meeting of the board of directors of the assessee-company held on 6-1-1970 : Shri N. K. Bajaj informed the board that the erection of the margarine has not yet been completed. The work, however, is in progress.

6. In the meeting held on 26-8-1970, the board of directors have in the report stated that 'the margarine plant, which was purchased with a view to sell, has not been completed and offers for purchase of the plant have not been received from any of the manufacturers and the plant is still under installation'.

7. In the director's report of the minutes of the meeting of the board of directors of the assessee-company as held on 4-12-1971, it was reported that the margarine plant has been installed, but satisfactory offer to purchase the plant has not been received.

8. In the meeting of the board of directors of the assessee-company held on 3-9-1973, the minutes read as under : Your directors are pleased to report that negotiations for the sale of the plant have been going on with the management of M/s Amrit Banaspati Co. Ltd., who started experiments with the plant with effect from February, 1973. They were able to produce a substantial quantity during the year 1972-73. As the plant is considered to be suitable and a profit-making device, Amrit Banaspati Co. Ltd. may by it over after the matter is considered and passed by their board of directors.

It is hoped that plant will be sold to Amrit Banaspati Co. Ltd. at reasonable figure which will have substantial amount of profit for the company. The directors have to place on record the facts that the management of this company has been devoting a great deal of time and attention to this plant and its installation.

A considerable portion of the expenditure incurred by the company related to this plant but as it was purchased and installed only with a view to sell it at a profit, such expenditure was always debited to profit and loss account.

9. This was followed by the meeting of the board of directors held on 11-3-1974 when it was resolved that the plant was to be sold to Amrit Banaspati Co. Ltd. for a total value of Rs. 3,50,000. Prior to the said resolution, the chairman of the assessee-company informed the board that Amrit Banaspati Co. Ltd. had ultimately decided to take over the margarine plant and machinery in its final shape after working it for a period of over about 12 months to their full satisfaction and that the sale of the said plant would result in substantial profit to the assessee-company.

10. In the meeting of the board of directors held on 8-2-1975 the sale, according to the directors, has resulted in surplus of Rs. 1,75,255.48.

11. The assessee in the return for the accounting period relevant to the assessment year 1974-75 had returned the above profit as profit from an adventure in the nature of trade. This stand of the assessee was rejected by the ITO. According to him, the said amount represented short-term capital gain of the assessee-company.

12. Aggrieved by the said assessment, the assessee-company brought the matter by way of appeal before the AAC, who for diverse reasons stated in his order dated 29-3-1976 and the additional evidence led in the shape of the above minutes of the board of directors of the assessee-company had held that the said amount of Rs. 1,75,034 should be treated as income from an adventure in the nature of trade.

13. Aggrieved by the said decision of the AAC, the revenue brought the matter by way of appeal before the Tribunal (Delhi Bench 'D', New Delhi) bearing IT Appeal No. 1093 (Delhi) of 1976-77, who vide their order dated 30-11-1977 has upheld the stand of the department that the AAC had erroneously admitted additional evidence in the shape of the above minutes of the meetings of the board of directors of the assessee-company without giving an opportunity to the ITO, as the said additional evidence was never produced before the ITO.14. After the matter went back to the appellate authority, the matter came to be heard by the Commissioner (Appeals), who vide his order dated 30-11-1981, passed a remand order with a direction to the ITO to 'carefully go through the order of the AAC dated 29-3-1976 and submit a remand report after examining all the evidences that were produced by the appellant before the AAC in the above order and submit his comments if he has any and material to controvert the submission made by the appellant before the AAC 15. Pursuant to the said order of the Commissioner (Appeals), the ITO submitted the remand report dated 21-12-1981. According to the said report, neither the judicial decisions referred to by the assessee-company, nor the factual position supported his claim that the surplus by the sale of plant to Amrit Banaspati Co. Ltd. was an income from an adventure in the nature of trade and, therefore, the benefit of the set off should be allowed.

16. After the said remand report was received by the Commissioner (Appeals), he has once again held that the profit earned by the assessee on the sale of the said margarine plant represented a business profit by observing as under : I have myself again seen the extracts of the minutes of the meeting of the board of directors referred to above and it is very clear from these minutes that the intention of the board of directors of the appellant company from the very beginning was to purchase the margarine plant at Bangalore with the sole intention of selling it at a profit. I, therefore, find no hesitation in confirming the finding of the AAC given earlier in his order dated 29-3-1976 that the sum of Rs. 1,75,034 should be treated as a business profit of the appellant resulting from a transaction as an adventure in the nature of trade and the same has to be treated as such for the purpose of set off of the brought forward business losses of the preceding assessment years as per the provisions of Section 72(1)(i) read with the proviso thereafter of the Income-tax Act, 1961.

As mentioned earlier the appeal has been restored on my file for the specific purpose of fulfilling the provisions of Sub-rule (3) of Rule 46A which have now been complied with. At this stage, it is neither open for me nor it is open for the ITO to reopen the subject as to whether the appellant's case was covered by the ratio of the decisions on which reliance had been placed by the AAC.17. In the appeal before the Tribunal, the departmental representative has urged that the Commissioner erred in law and on facts in confirming the finding of the AAC that the sum of Rs. 1,75,034 should be treated as a business profit resulting from a transaction as an adventure in the nature of trade and in directing the ITO to allow the claim of the assessee for set off of the brought forward business losses from the preceding assessment years against the aforesaid sum of Rs. 1,75,034.

According to the departmental representative, short-term capital gain has arisen from the purchase and sale of the plant and machinery in question, as the assessee had himself showed the above amount in the profit and loss account as profit on the sale of fixed assets. In support of his arguments, the departmental representative has advanced the same reasons, which were advanced by the ITO in the remand report.

In reply, the representative for the assessee, Mr. P.L. Tandon, firstly, urged that since the ITO has not challenged the genuineness of the aforesaid minutes of the meetings of the board of directors referred to above, the same in view of the facts and circumstances of the case, should make us to hold that the earlier order of the AAC was correct. In the alternative, the representative for the assessee, relying on the reasons given by the Commissioner (Appeals), has urged that the impugned order by him was correct.

18. We have given consideration to the above arguments. The short point for decision in the present appeal is as to whether the profit from the above sale transaction by the assessee of the margarine plant was profit of an adventure in the nature of trade, as held by the Commissioner (Appeals) or a pure and simple transfer of a 'capital asset', as defined in Section 2(14) of the Income-tax Act, 1961, as held by the ITO. For deciding this question, certain facts admitted/proved on record, have to be kept in mind. These are that the assessee, in view of the manufacturing and trade activities carried on by it, could not make use of the margarine plant purchased by it, more so when the raw material required for running the said plant is available only in a vanaspati manufacturing unit. The said raw material becomes available with an assessee already manufacturing vanaspati and the same is available at a stage prior to the ultimate manufacture of vanaspati. There is no basis and evidence or material on record to prove the assertion made by the ITO in the remand report that the plant purchased had a close link with the business of the assessee-company, namely, manufacture and sale of desi ghee. As such for the successful working of a margarine plant, the person holding it should be one which was already manufacturing vanaspati. It is also a fact that the assessee-company as such was not manufacturing vanaspati. It is also a fact that the assessee-company did not have funds of its own to buy the plant. It had to resort to borrowings for this purpose. The interest payable in respect of the said borrowings, which were utilised for the purchase and installation of the said margarine plant, was not added to the cost of the plant. The same was, however, claimed by the assessee as revenue expenditure and allowed as such in the respective assessments of the assessee. Furthermore, certain other overhead expenditures connected with the said plant were debited to the profit and loss account under the appropriate heads. Another thing to be noticed from the aforesaid minutes of the meetings of the directors of the assessee-company, as brought out in paras 4-10 above, is that the intention of the assessee right from the beginning was to purchase the margarine plant at Bangalore and to instal it for the purpose of showing its working to the prospective purchasers with the sole intention of selling the same at a profit. The ITO has not been able to prove on record, although an opportunity was given to him, that the said minutes were not genuine. The ITO, as rightly pointed out by the Commissioner (Appeals) in the impugned order, has not given any comments whatsoever in this regard. Since the margarine plant was a plant, the same had to be shown in the balance sheet as such under the head 'Plant and machinery'. There was no other way but to show it as such. It is wrong to infer from there, as done by the ITO in the remand report, that the margarine plant was always included in the fixed assets and not in the current assets in the balance sheets. It is also a fact, which was not disputed at the time of the hearing by the departmental representative, as was also clear from the earlier assessment orders shown to us at the hearing, that depreciation had not been allowed to the assessee in respect of the margarine plant either in the year under consideration or in the preceding year after the plant was installed.

19. Keeping in mind the facts stated in the preceding paragraph, we now come to the law on the subject. It is now well settled that even a single transaction may constitute 'business', as defined in Section 2(13). It is not essential that there should be a series of transactions, both of purchase and of sale to constitute trade. Even a single purchase followed by a single sale may be regarded as business.

A single transaction of purchase and sale outside the assessee's line of business may constitute adventure in the nature of trade. Neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade-Regent Estates Ltd. v. CIT [1963] 48 ITR 162 (Cal). It is also well established that where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case, e.g., the nature and quantity of the article purchased and the nature of the operations involved, whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale-Ajax Products Ltd. v. CIT[1961] 43 ITR 297 (Mad.). The intention to resell may in conjunction with the conduct of the assessee and other circumstances, point to the business character of the transaction. See also in this connection the decision of the Supreme Court in G. Venkaiaswami Naidu & Co. v. CIT [1959] 35 ITR 594.

Applying the said law to the facts as found and stated in the preceding para, we find that the assessee had purchased the margarine plant, which was not in its line of business, with intention to resell it for profit. The assessee by its conduct has treated the above transaction an adventure in the nature of trade. Close proximity between the purchase of the plant and its sale exists in this case, which when considered in the circumstances brought out in para 17 above proves that the assessee-company had embarked upon an adventure in the nature of trade. There is nothing on the record to displace the said conclusion of the Commissioner (Appeals). We, therefore, on the facts and in the circumstances of the case and the material on record, uphold the order of the Commissioner (Appeals) on the point at issue.

20. In the result, the appeal by the revenue fails and is hereby dismissed.


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