1. The various grounds in this appeal by the assessee may be seriatim taken up and disposed of as follows.
2. The controversy which arises in ground Nos. 1 to 6 pertains to the nature of surplus realised on sale of a property situate at Sikandrabad. In the return of income filed by the assesses, capital gains of Rs. 3,71,832 had been accounted on sale of the aforementioned property and it was claimed that the capital gains thus derived were liable to be set off against the capital loss determined for the assessment year 1976-77. The ITO did not accept that the sale resulted in capital gains. According to him, it was not the case of realisation of an investment but a case of realisation of profits and gains of business. He also did not accept the quantum of surplus as shown by the assessee which was determined at Rs. 4 lakhs. In appellate proceedings, the Commissioner (Appeals) dealt with the matter at length in paragraphs 2 to 21 of his order. He duly recorded the necessary facts and the arguments made before him by the learned authorised counsel of the assessee and then came to the conclusion that the Sikandrabad property having been acquired in realisation of a trade debt was a business asset and that when that property was sold by the assessee, it resulted into profits and gains of business. As far as the quantum of surplus realised is concerned, he reduced it to Rs. 3,71,832, i.e., to the same figure which had been shown by the assessee as capital gains in the return of income filed.
3. It is against the abovementioned findings of the Commissioner (Appeals) that the assessee is in appeal raising ground Nos. 1 to 6 of the petition of appeal. Mr. C.S. Aggarwal, the learned authorised counsel of the assessee, has vehemently objected to the findings of the Commissioner (Appeals). He has also taken us through the relevant facts and the paper book submitted on behalf of the assessee. Before we take up the contentions raised by the learned Counsel, we may briefly state the relevant facts. As is evident from the copies of accounts of Jugal Kishor Mukat Lal & Sons (P.) Ltd., Bombay (JKML) which are placed on pages 75 to 81 of the assessee's paper book, the assessee had large-scale trading transactions with JKML since some time prior to the year 1957. At the end of the year 1961 JKML was indebted to the assessee-company to the extent of Rs. 4,67,454. In the calendar years 1962 and 1963, relevant to the assessment years 1963-64 and 1964-65, also the same debit balance continued in the account of JKML. In the year 1964 the indebtedness of JKML was reduced by Rs. 2,15,000 thereby leaving a debit balance of Rs. 2,52,454. The credit of Rs. 2,15,000 to the account of JKML was made because to that extent another concern named Mukat Lal Murari Lal (MLML) had agreed to discharge the debts of JKML. The promissory note of Rs. 2,15,000 was executed by MLML in favour of the assessee-company on 24-6-1964 under which interest was also payable at the rate of 6 per cent. The assessee-company thereafter went on debiting interest in the name of MLML in its books and the total amount including principal and interest came to Rs. 2,52,454 in the year 1968. Realising that MLML were neither paying the principal nor the interest, a suit was filed in the Delhi High Court which passed a decree of Rs. 2,51,765 plus future interest in favour of the assessee-company. Since the amount was not realised in spite of the decree of the Delhi High Court, an agreement was entered into between the assessee-company on one hand and one of the partners of MLML under which a property consisting of a cotton and ginning mill on a plot of land admeasuring 4 bighas and 14 biswas situate at Sikandrabad was taken over by the assessee-company in part satisfaction of the indebtedness of Rs. 2,52,765. The property, thus, acquired at Sikandrabad was converted into plots of lands and sold in the calendar year 1976 relevant to the assessment year under appeal resulting in surplus of Rs. 3,71,832. It is the contention of the learned Counsel for the assessee that in the above-mentioned facts it could not be said that realisation of the sale proceeds of the Sikandrabad property had resulted into any business profits. It is, firstly, submitted that the assessee has never been a money-lender and, therefore, the debits into the accounts of MLML of Bombay were not on account of any money-lending business. According to the learned Counsel, even if the advances of JKML were in the course of trading transactions, the settlement subsequently made with MLML under which the Sikandrabad property was acquired did not result in acquiring of any trading asset. In any case when the Sikandrabad property was acquired, the intention of the assessee was to treat it as an investment. Referring to the balance sheets of the assessee-company for the calendar year 1975-76, the learned Counsel submits that the property at Sikandrabad had been clearly shown as a part of the investment under Schedule B of the balance sheets. In these circumstances, when the Sikandrabad property had right from the very beginning been shown as an investment, the realisation thereof for a higher price resulted only in realisation of a capital surplus and not in business profit. It has been further contended by the learned Counsel that just because the property was parcelled out in smaller plots, it could not be said that the assessee had entered into the waters of trade or into an adventure in the nature of trade. Shri Aggarwal has also argued that the burden of proof for showing that the realisation of the Sikandrabad property was a trading profit lay heavily upon the shoulders of the department and since that burden was not discharged, the department was not entitled to assess the surplus as business profits. It has been further contended by Shri Aggarwal, without prejudice to his other contentions, that even if the sale of Sikandrabad property was to be treated as an adventure in the nature of trade, the assessee should have been allowed the benefit of conversion of the capital asset into the stock-in-trade and that on the date of the sale or on a date when the process of sale was started, the assessee ought to have been allowed the benefit of adopting the market value of the property before determining any profits from the sale thereof. According to him, the market value of the property on the date when the alleged adventure commenced being the same as was actually realised when the sales .were effected, there was no question of assessing any surplus arising from the alleged adventure. For so contending, reliance has been placed by the learned Counsel on the decision of the Hon'ble Supreme Court in CIT v. Groz-Beckert Sahoo Ltd.  116 ITR 125. For the various other propositions made by the learned Counsel, reliance has been placed on decisions of A.H. Wadia v.CIT  17 ITR 63 (FC), Coimbatore Anupparpalayam Bank Ltd. v. CIT  42 ITR 576 (Mad.), Alapati Ramaswami v. CIT  35 ITR 73 (AP), Kaur Singh v. CIT  144 ITR 756 (Punj. & Har.) and ITO v.Rani Ratnesh Kumari  123 ITR 343 (All).
4. On the other hand, the learned departmental representative has merely placed reliance on the orders of the authorities below.
5. We have given our very careful consideration to the facts of the case, the orders passed by the lower authorities and the arguments of the learned Counsel challenging the findings contained in the impugned order.
6. From the facts stated, the first thing which emerges is that the assessee was not a money-lender and that, therefore, the decision of the Hon'ble Allahabad High Court in 16 ITR 528, which had been relied upon by the Commissioner (Appeals) in support of his views, would not be applicable. All the same, we would agree with the Commissioner (Appeals) that the indebtedness of JKML to the tune of Rs. 4,67,454 arose on account of business transactions between the assessee and the debtor-company. The transactions with JKML right from 1957 to 1964, when part of the indebtedness stood transferred to MLML, copies of which have been placed by the learned Counsel of the assessee at pages 75 to 82 of the paper book, are clearly indicative of the large-scale business transactions between the assessee and JKML. The transactions as extracted by the Commissioner (Appeals) at the end of paragraph 10 of his order also clearly indicate that the assessee-company and JKML were trading with each other. While we would agree with the finding of the Commissioner (Appeals) that the property at Sikandrabad had ultimately come into the possession of the assessee as a result of partial realisation of the trading debts that JKML owed to the assessee-company, we would not be able to agree with the further finding given by the Commissioner (Appeals) that the property remains a stock-in-trade or trading asset of the assessee, sale of which resulted in revenue profits. According to us, an immovable property is not normally stock-in-trade of a business unless the assessee concerned also carried on the business of buying and selling of properties. The nature of the immovable property could not change just because it had been acquired in satisfaction of trading debts. Since in the present case the assessee is not shown to have been dealing in properties at any point of time anterior to the effecting of the sales in question and since we find from the balance sheets of the assessee that the property at Sikandrabad had been clearly shown as a part of the investment of the assessee right from the time that it was acquired in the year 1970, v/e would agree with the representation made on the side of the assessee that the Sikandrabad property had been treated as a capital asset by the assessee. The question whether a property acquired on satisfaction of trading debts has been treated by an assessee as a stock-in-trade/trading asset or a capital asset is a question of fact and since it appears to us from the intention of the assessee, which is manifest from the entries made in the balance sheet, that the Sikandrabad property was one of the investment, of the. assessee, we would not be able to agree with the finding given by the Commissioner (Appeals) in that regard. After having thus reached the conclusion that the Sikandrabad property was treated as an investments or as a capital asset by the assessee, the question that we shall now proceed to decide is as to whether the assessee had entered into the waters of trade when it sold the property by parcelling it out in plots of land.
7. Whether a particular transaction is a transaction of business or an adventure in the nature of trade on the one hand or is merely realisation of a capital asset on the other depends on the facts and circumstances of each case. No hard and fast rules have been laid down by the courts of law which unanimously seem to be of the opinion that the decision of a case must depend on its own facts. Even though transactions of sale are characteristic of trade, yet they may not always be distinctive of it. A transaction or a set of transactions of sale which are entered into by a taxpayer not in the ordinary course of its business may or may not constitute transactions of business. The issue has to be decided on the basis of the dominant impression that one gets after looking into the facts and circumstances of each case.
Besides, when a transaction is entered outside the ordinary activity of business carried on by a taxpayer and the department wants to tax the surplus arising out of that as profits and gains of business, the onus very heavily lies on the department to show that the transaction resulted in a revenue gain. After keeping in our mind the above principles, it appears to us that when the Sikandrabad property was acquired in satisfaction of a pronote and as an aftermath of a decree of the Hon'ble Delhi High Court, the assessee had right from the year 1970 shown the property as a part of its investment. As mentioned in an earlier portion of this order, some of the balance sheets of the assessee which have been made a part of the paper book clearly show that the Sikandrabad property had been shown as a part of its investment in Schedule 'B' of the balance sheets. The other significant fact which we noticed is that right from the time the assessee came into the possession of the Sikandrabad property, it was deriving income from property year after year till the property was sold in the accounting year of the assessment year 1977-78. There is total absence of any indication as would show that at the time when the assessee acquired property in satisfaction of a pronote, it acquired it with a view to deal with it. Although the initial intention at the time of purchase or acquisition of property is not determinative of whether the transaction of sales subsequently made were transactions in the waters of trade or not, yet it is a very important factor which has to be taken into account. In the present case, there is no indication that the assessee had initially intended in the year 1970 to deal with the property at Sikandrabad as a part and parcel of its business activity.
The argument of the learned Counsel of the assessee that the onus that lay upon the department having not been discharged the department was not entitled to assess the surplus as profits of trade, appears to be acceptable to us in view of the fact that the order of the assessing authority does not in any way discharge the burden that lay upon it. A capital investment may be realised bit by bit in order to realise a higher price thereof but the fact that it is sold bit by bit would not convert a capital transaction into a business transaction. Receipts of realisation of capital investment do not change in colour just because the property or investment is parcelled into parts before it is sold.From the facts on record and from the discussion in the assessment order, we are not able to get any dominant impression that the assessee was dealing in land when it sold away the Sikandrabad property by parcelling it in plots of lands. In these circumstances, we would hold that the surplus of Rs. 3,71,832 was assessable as profit under the head 'Capital gains' only. Since we have taken the above view on facts, we need not decide the alternative argument of the learned Counsel of the assessee based on the decision of the Hon'ble Supreme Court in Groz-Beckert Saboo Ltd.'s case (supra). The contentions raised by the assessee in ground Nos. 1 to 6 of the petition of appeal, therefore, succeed.
8 to 12. [These paras are not reproduced here as they involve minor issues.]