Prem Chand Jain, J.
1. Kaur Singh, the assessee, an individual, derives income from shares in certain partnership firms, income from property, interest and plying of a truck. The assessee, along with his two brothers, namely, Jaggar Singh and Maghar Singh, had purchased two bungalows along with certain agricultural land attached to them. One bungalow situated near the Zila Parishad House attached with about 8 bighas of land was purchased on 5th June, 1965. The other bungalow known as 'Krishan Bagh Kothi' and agricultural land measuring 174 kanals attached to that bungalow was purchased on 9th August, 1967, for a sum of Rs, 1,20,000. Both these bungalows were rented out by the three co-owners and the rental income came to Rs. 10,389. The assessee, instead of declaring his income from property at l/3rd of the aforesaid amount, claimed that his share in the aforesaid income was only 1/9th, because in his 1/3rd share there were three co-owners, namely, the assessee himself and his two sons, Hakam Singh and Pargat Singh. In support of this claim, the assessee produced decrees passed on 14th March, 1972, 4th November, 1972, 18th May, 1972, and 7th December, 1972, by the Civil Court in the suits filed by the assessee's sons against him. The ITO did not recognise these decrees on the ground that the same had been passed by the Civil Court after the previous year for the assessment year 1971-72, ended on 31st March, 1971. The ITO, therefore, did not accept the assessee's contention and 1/3rd income from the aforesaid property was taken as the assessee's income.
2. The assessee had invested a sum of Rs. 1,25,500 in a firm known as M/s. Indra Tractors, Ludhiana, and his share of the loss therefrom had been taken at Rs. 89. The assessment of the firm was said to be pending and subject to action later on either under Section 154 or under Section 147 of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the ITO treated the assessee's share income from the aforesaid firm at Rs. 1,000. The assesses had purchased a truck for Rs. 56,260, which was run for a period of about 51/2 months. After claiming the depreciation from the income declared for the aforesaid period, the assessee claimed a loss of Rs. 5,079. As the assessee did not produce the books of account, the loss claimed from the plying of the truck was ignored.
3. The ITO also found that out of the land of about 65 bighas attached to the Krishan Bagh Kothi, a big piece of land had been converted into certain plots out of which 7 were actually sold during the previous year for a consideration of Rs. 18,500. In respect of 28 other plots, the assessee had received an advance of Rs. 14,900. When asked as to why no income had been declared from the sale of the aforesaid plots, it was pleaded that no capital gain was involved in the aforesaid transaction. The ITO held that the assessee entered into an adventure in the nature of trade because after purchasing the land in question, a part of it was converted into numerous plots to make them readily saleable. On the material available before him, the ITO held that the assessee made a profit of Rs. 1,000 from each plot. A sum of Rs. 7,000 was thus treated as the assessee's income from an adventure in the nature of trade. The total income was thereafter computed at Rs. 21,790.
4. Feeling aggrieved from the order of the ITO, the assessee preferred an appeal. The AAC rejected all other pleas of the assessee except the one with regard to the addition of an amount of Rs. 7,000 which was made on the ground that the assessee had entered into an adventure in the nature of trade. This amount was deleted by the AAC on the ground that the assessee had made only an investment in the purchase of property and if there was any accretion on the sale of a part of such investment, such accretion, if any, would not be considered as the assessee's income.
5. Dissatisfied with the order of the AAC, the assessee as well as the Revenue filed appeals before the Tribunal. On a consideration of the entire matter, the Tribunal rejected the appeal of the assessee and allowed that of the Revenue with regard to the addition of the amount of Rs. 7,000 as income of the assessee on the ground that by selling the plots, the assessee derived income from an adventure in the nature of trade. As the assessee was not satisfied with the view taken by the Tribunal, two applications under Section 256(1) of the Act were filed, requiring the Tribunal to refer certain questions of law which arose out of its order dated 19th January, 1976. The Tribunal, on a consideration of the matter, found that certain questions of law did arise which required a decision by this court. Accordingly, the following questions of law have been framed by the Tribunal for our opinion :
'(1) Whether, on the facts and in the circumstances of the case and in view of the award of the arbitrator dated August 5, 1972, read with the judgment dated November 4, 1972, of the Sub-Judge, III Class, Sangrur, and award dated March 14, 1972, read with the judgment of the same date of the Sr. Sub-Judge, Sangrur, the Tribunal was right in law in holding that the assessee was the owner of 1/3rd share in the property known as 'Krishan Bagh Kothi' along with land measuring 107 kanals and 4 marlas ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income derived by the assessee from the sale of plots was from an adventure in the nature of trade ?
(3) Whether the Tribunal was right in law in holding that there was no right of appeal against the levy of interest under Section 139(1) and Section 217 ?'
6. On question No. 1, half-hearted arguments were advanced by Mr. Gupta, learned counsel for the assessee. It is contended by him that in the absence of any other evidence rebutting the case of the assessee, which stands established from the documentary evidence of awards and decrees, the finding recorded by the Tribunal that the assessee was the owner of l/3rd share in the property known as 'Krishan Bagh Kothi' along with the land measuring 117 kanals 4 marlas, is wholly erroneous. We are afraid, we are unable to agree with this submission of the learned counsel. As would be evident from the discussion in the order of the Tribunal, the decrees and the awards have been taken into consideration and thereafter it has been found that the assessee had failed to prove that his two sons had also a share in his 1/3rd share. In our view, the finding of the Tribunal is perfectly legal. The decrees and the awards, in the circumstances of the case, were rightly ignored. In this situation, the answer to question No. 1 is returned in favour of the Revenue and against the assessee.
7. This brings us to question No. 2, on which lengthy arguments were advanced. It was vehemently contended by Mr. Gupta, learned counsel, that the properties were purchased by the assessee for earning rental income and it was purely a case of investment, that the assessee had no intention to sell any land at the time when the properties were purchased and that the income derived from the sale of the plots could not be treated as income from an adventure in the nature of trade. In support of his contention, the learned counsel placed reliance on several judgments.
8. On the other hand, it was submitted by the learned counsel for the Revenue that certain questions of fact have been found by the Tribunal and on those findings of fact entered by the Tribunal, the answer to the question has to be returned against the assessee.
9. The relevant observations to which reference was pointedly made by the learned counsel for the Revenue in support of his contention read as under:
'I will now take up the ground raised in the Revenue's appeal. It is common ground that out of the land attached to Krishan Bagh Kothi, 42 plots of 200 sq. yards each have been earmarked for sale. In this year itself, 7 plots were sold for Rs. 18,500 and advances were received in respect of the other 28 plots. The question to be determined is whether the assessee simply made an investment in the purchase of immovable property wherein by sale of a part of the property, there was an accretion to his capital or the assessee indulged in an adventure in the nature of trade... It is to be noted that the assessee originally belonged to Sangrur but for some time he shifted to U.P. and then came down to Sangrur and along with his brothers invested moneys in two properties. The property near Zila Parishad House purchased for Rs. 26,000 in 1965, as admitted by the learned counsel for the assessee, has been utilised for the purpose of a cold storage. The Krishan Bagh Kothi itself has been given on rent to a college and some part of the land has been given to the college for the purpose of playground. It is only a part which has been converted into plots for the purpose of sale. The number of plots, as admitted by the assessee, is 42, Seven plots were admittedly sold in this year and advances were received for another 28 plots. Conversion of a part of the land in plots and the sale thereof, on the facts and circumstances of the case, does constitute an activity in the nature of trade...The learned counsel for the assessee had relied on the judgment in Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) , wherein the Supreme Court held that the profit motive in entering into a transaction is not decisive, for an accretion to capital does not become taxable income merely because an asset was acquired in the expectation that it may be sold at a profit. This proposition is not disputed but conversion of a part of the land into as many as 42 plots and the manner of the disposal thereof leaves no doubt that the transaction is of the character of a trade in nature... '
10. After giving our thoughtful consideration' to the entire matter, in the circumstances of the case, we find that the reference cannot be answered in favour of the Revenue only on the strength of the inferences drawn by the Tribunal and that on the basis of relevant legal principles it would have to be decided individually whether the income of the assessee from the sale of the plots was in the nature of a trade.
11. When we read the Tribunal's order as a whole, we only find the conclusion that the transaction showed an adventure in the nature of trade. This question is the one that we have to consider in this reference and we do not think that it can be answered without considering all the facts and merely on the basis of certain observations made by the Tribunal which are only certain inferences of the Tribunal, To emphasise, the so-called findings are merely inferences drawn by the Tribunal. We have to examine whether the inferences are correct and whether the sale was an adventure in the nature of trade. No hard and fast rule can be laid down nor can an exhaustive list of criteria be given, which will exclusively establish that the activity of the assessee constitutes a venture in the nature of trade. The decision of a case must turn on its own facts. The authorities have only laid down various criteria which may go to show that the particular activity of the assessee constitutes a venture in the nature of trade. The learned counsel for the parties had made reference to various decisions on the subject. We do not propose to refer to all of them except a couple of the judgments of the Supreme Court where certain principles have been laid down. In G. Venkataswami Naidu & Co. v. CIT 0065/1958 : 35ITR594(SC) , it has been observed thus (p. 601):
'There is no doubt that the jurisdiction conferred on the High Court by Section 66(1) is limited to entertaining references involving questions of law. If the point raised on reference relates to the construction of a document of title or to the interpretation of the relevant provisions of the statute, it is a pure question of law; and, in dealing with it, though the High Court may have due regard for the view taken by the Tribunal, its decision would not be fettered by the said view. It is free to adopt such construction of the document or the statute as appears to it reasonable. In some cases, the point sought to be raised on reference may turn out to be a pure question of fact ; and if that be so, the finding of fact recorded by the Tribunal must be regarded as conclusive in proceedings under Section 66(1). If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in the case, its correctness or validity is open to challenge in reference proceedings within narrow limits. The assessee or the Revenue can contend that the inference has been drawn on considering inadmissible evidence or after excluding admissible and relevant evidence ; and, if the High Court is satisfied that the inference is the result of improper admission or exclusion of evidence, it would be justified in examining the correctness of the conclusion. It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence ; or that the impugned conclusion drawn from the relevant facts is not rationally possible ; and if such a plea is established, the court may consider whether the conclusion in question is not perverse and should not, therefore, be set aside. It is within these narrow limits that the conclusions of fact recorded by the Tribunal can be challenged under Section 66(1). Such conclusions can never be challenged on the ground that they are based on misappreciation of evidence. There is yet a third class of cases in which the assessee or the Revenue may seek to challenge the correctness of the conclusion reached by the Tribunal on the ground that it is a conclusion on a question of mixed law and fact. Such a conclusion is no doubt based upon the primary evidentiary facts, but its ultimate form is determined by the application of relevant legal principles. The need to apply the relevant legal principles tends to confer upon the final conclusion its character of a legal conclusion and that is why it is regarded as a conclusion on a question of mixed law and fact. In dealing with findings on questions of mixed law and fact the High Court would no doubt have to accept the findings of the Tribunal on the primary questions of facts ; but it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not ; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure points of law.'
12. It has been further observed thus (p. 603) :
'In other words, in reaching the conclusion that the transaction is an adventure in the nature of trade, the Tribunal has to find primary evidentiary facts and then apply the legal principles involved in the expression 'adventure in the nature of trade' used by Section 2, Sub-section (4). It is patent that the clause 'in the nature of trade' postulates the existence of certain elements in the adventure which in law would invest it with the character of a trade or business ; and that would make the question and its decision one of mixed law and fact.........Even if theconclusion of the Tribunal about the character of the transaction is treated as a conclusion on a question of fact, it cannot be ignored that, in arriving at its final conclusion on facts proved, the Tribunal has undoubtedly to address itself to the legal requirements associated with the concept of trade or business. Without taking into account such relevant legal principles it would not be possible to decide whether the transaction in question is or is not in the nature of trade. If that be so, the final conclusion of the Tribunal can be challenged on the ground that the relevant legal principles have been misapplied by the Tribunal in reaching its decision on the point; and such a challenge would be open under Section 66(1) because it is a challenge on a ground of law. The same result is achieved from another point of view and that is to treat the final conclusion as one on a mixed question of law and fact. On this view the conclusion isnot treated as one on a pure question of fact, and its validity is allowed to be impeached on the ground that it has been based on a misapplication of the true legal principles. It would thus be seen that whether we call the conclusion in question as one of factor as one on a question of mixed law and fact, the application of legal principles which is an essential part in the process of reaching the said conclusion is undoubtedly a matter of law and if there has been an error in the application of the said principles it can be challenged as an error of law. '
13. In Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) , it has been observed thus (p. 24):
'It is for the Revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the income-tax authorities.'
14. Keeping in view the principles enunciated by the Supreme Court, we shall now independently examine whether on the facts found by the Tribunal, the sale was an adventure in the nature of trade. A bare analysis of the facts found by the Tribunal would show that for arriving at this conclusion that it was an adventure in the nature of trade, the Tribunal was mainly influenced by the fact that out of the land attached to the Krishan Bagh Kothi, 42 plots of 2000 sq. yards each have been earmarked for sale ; that in the year in question 7 plots were sold for Rs. 18,500 and that advances were received in respect of other plots. In our view, on the basis of these facts alone, no such inference could legally be drawn that the transaction in dispute has the character of a trade in nature. The assessee admittedly had purchased the property in the year 1967. The Revenue has not at all brought any circumstance or evidence on the record to show that at the time of the purchase of the property in the year 1967, the assessee had an intention to sell the property. Merely carving out plots in a portion of the land, without proof of anything more, cannot give rise to the conclusion that the transaction is an adventure in the nature of trade. Our attention was pointedly drawn by the learned counsel for the Revenue to a Division Bench judgment of this Court in Harbans Singh v. CIT . But that decision is of no assistance to the Revenue as the facts of that case are entirely different and on the facts found in that case, the view was rightly taken that it was an adventure in the nature of trade. There can be no gainsaying that even a single venture may be regarded as a trade or business, but there have to be circumstances which may give rise to such a conclusion. As earlier observed, in this case the Tribunal has fallen in error in holding the venture as a trade or business merely on the ground that 42 plots were carved out, out of which 7 were disposed of in the year in question. In this view of the matter, in the circumstances of the case and on the facts found, the Tribunal was not right in law in holding that the income derived by the assessee from the sale of plots was from an adventure in the nature of trade. Consequently, the answer to this question is returned in favour of the assessee and against the Revenue.
15. So far as question No. 3 is concerned, it was conceded at the Bar that in view of the judgment of this court in CIT v. Raghubir Singh and Sons and an unreported judgment in CIT v. Himalaya Woollen Mills, I.T.R. No. 83 of 1976, decided on 12th March, 1981--(since reported in (Appx.)(infra)) the answer to this question has to be in the negative, i.e., against the Revenue and in favour of the assessee.
16. In the circumstances of the case, we make no order as to costs.
S.P. Goyal, J.
17. I agree.