1. This reference under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act') at the instance of the Department raises the following question :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the purchase of land by the assessed in 1958 and its acquisition by the Government in 1963 under the Land Acquisition Act, 1944, did not represent an adventure in the nature of trade ?'
2. The facts noticed in the statement of case are these. The question arises out of the proceedings for the assessment year 1967-68, the relevant accounting period ending on March 30, 1967. Mrs. Padma Bhandari, the assessed, had purchased land measuring 8 bighas 5 bids was in Village Kilokri near the Mathura Road and Ring Road crossing on August 25, 1958, for Rs. 1,10,000 by adjustment of displaced persons' claims at Rs. 12,135 per bigha. On March 5, 1963, a notification under s. 4 of the land Acquisition Act, 1894, was issued by the Delhi Administration notifying the land for acquisition for a public purpose, namely, 'Planned Development of Delhi'. The declaration under s. 6 of the same Act was also issued on August 22, 1963. The entire holding of 8 bighas, 5 bids was was subsequently acquired by the Delhi Administration by its award No. 1651 announced on December 17, 1963. The compensation admissible under the award was Rs. 3,500 per bigha. The assessed was not satisfied with the determination of the compensation by the award and made a petition of reference under s. 18 of the said Act for determination of the compensation by court. The Additional District Judge, Delhi, by judgment dated February 28, 1967, determined the compensation for the acquired land at Rs. 12,000 per bigha. As a consequence, the assessed received a sum of Rs. 1,13,850 on account of compensation and solarium for the acquisition in May, 1967. She was also awarded a sum of Rs. 16,041 as interest payable on the enhanced compensation at the rate of 6% per annum : 'from the date the Collector entered into possessing till payment is made'.
3. Before the ITO, it was claimed that the surplus realised by the assessed on the compulsory acquisition of land was not taxable under the Act either as a business profit or even as capital gain because the land so acquired was agricultural land. The ITO brought the surplus to tax as profit after holding that it was an adventure in the nature of trade. The AAC before whom an appeal was filed by the assessed reversed the finding of the ITO. The Department went up in appeal before the Income-tax Appellate Tribunal (for short called 'the Tribunal').
4. On the facts and circumstances of the case, the Tribunal held, firstly, that there was no evidence to show that the assessed had incurred any heavy expenditure filling up the land with the intention of developing it as a building site, that secondly, merely because the land was purchased at a high cost or the land had fetched a high price on acquisition, it would not mean that the assessed had carried out an adventure in the nature of trade, that the assessed's conduct subsequent to the purchase of land in 1958 was not that of a person who tried to develop the land as a building site for sale at profit, that the Department had failed to establish that the transaction made by the assessed in the purchase and sale of this land represented an adventure in the nature of trade. The Tribunal also held that the AAC's finding that the land was agricultural land was correct on the facts and circumstances of the case on record.
5. Finding arrived at by the Tribunal on a question of fact has got to be relied upon by the High Court in a reference under s. 256(1) of the Act, unless it is shown that there was no evidence before the Tribunal upon which they as reasonable men could have come to the conclusion on which they arrived. The submission of Shri Wazir Singh, the learned counsel for the Department, is that the question posed for our opinion is essentially a mixed question of fact and law. We will assume it for the purpose of consideration of this case but we may observe that in the case of a finding of fact which is supported by the material on the record, we will not be inclined to substitute our opinion for the finding recorded by the Tribunal.
6. The first finding of fact recorded by the Tribunal is that the assessed did not effect any improvement on the land. The ITO had raised a suspicion by recording that the assessed had incurred certain expenditure on filling up the land with the intention of developing it as a building site. This inference is drawn from an alleged fact that the assessed did some filling up work on the land to raise its level and to make it fit for construction purposes. There is no evidence on the record that any expenditure was incurred or when it was incurred on the work of improvement except certain statements in the order of the Addl. District Judge dated February 28, 1967, which forms part of the statement of the case. The relevant portion is :
'...... The fact remains that the claimants' acquired land near the crossing of main Mathura Road and Ring Road had a potential value as a building site. It, however, suffered from this defect that its level was lower than that of the adjoining land. It was described as 'Ghairmumkin Nala' in the revenue records and the Land Acquisition Collector actually found it low lying, for which reason he placed it in Block II. A good deal of expenditure had, thereforee, to be incurred by the claimant in raising its level, so as to utilise it for construction purpose. Hence, on a consideration of all these factors and having regard to the fact that the area of the claimant's land (8 bighas, 5 biswas) was about fourteen times more than that of field No. 261/1, which was sold at Rs 15,000 per bigha on January 2, 1961, vide Ext. A-4, its price is assessed at Rs. 12,000 per bigha....'
7. The petition of reference under s. 18 of the Land Acquisition Act, 1894, sought the determination and enhancement of the compensation in respect of the acquired land. There was no claim by the assessed for payment of the cost of leveling or improvement of the land. The Addl. District Judge noticed the nature of the land as a potential building site but suffering from the defect that its level was lower than the adjoining land. The Land Acquisition Collector must have inspected the land after the date of notification under s. 4 when he found it low-lying for which reason he placed it in Block II. It is in this context that the observation was made by the Addl District Judge that 'a good deal of expenditure had, thereforee, to be incurred by the claimant in raising its level so as to utilise it for construction purposes.' It does not even remotely suggest that any expenditure had in fact been incurred by the assessed in raising the level of the land. That is one of the reasons why the Addl. District Judge assessed the value of the acquired land at Rs. 12,000 per bigha though there was an instance of sale on January 2, 1961, at the rate of Rs. 15,000 per bigha. We have referred to the evidence and appreciated the evidence in order to ascertain whether the Tribunal could hold the view on the material that the assessed did not effect any improvement on the land. The reference has, thereforee, to be answered on the basis of the finding of fact that the assessed did not effect any improvement of the land.
8. The question to be considered is whether the surplus realised is as a result of any adventure in the nature of trade. The expression 'adventure in the nature of trade' came to be considered by the Supreme Court in G. Venkataswami Naidu & Co. v. CIT 0065/1958 : 35ITR594(SC) . It was held (p. 607) :
'When section 2, sub-section (4), refers to an adventure in the nature of trade, it clearly suggest that the transaction in question cannot properly be regarded as trade or business It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade.'
9. It was further held (p. 609) :
'Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it Affirmative answers to these questions may furnish relevant date for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resalable What were the incidents associated with the purchase and resale Were they similar to the operations usually associated with trade or business Are the transactions of purchase and sale repeated In regard to the purchase of the commodity and its subsequent possession by the purchased, does not the element of pride of possession come into the picture ?'
10. This was relied upon by the Bombay High Court in CIT v. Himalayan Tiles & Marble P. Ltd. : 100ITR177(Bom) . In a subsequent case, Dalmia Cement Ltd. v. CIT : 105ITR633(SC) , the Supreme Court held that the onus of proving that a single and isolated transaction of purchase and sale is a transaction in the nature of trade lies on the Department.
11. The first factor is whether the assessed is a trader and whether the purchase and its resale is allied to usual trade or business or incidental to it. The answer to this factor is in the negative. The assessed had not ever dealt in the purchase or sale of the land. She purchased on March 22, 1957, a piece of land at Hauz Khas for Rs. 10,059. The assessed gifted behalf of this land to her grand-daughter, Malini Devi, on June 24, 1964, the paying gift-tax thereon. The other half of the land was retained by her for the construction of a house for her own residence. On December 22, 1964, the assessed's mother-in-law died and by her will bequeathed a plot of land in Maharani Bagh to the assessed. The assessed had to furnish an affidavit to the Maharani Bagh Co-operative Society that she was not the owner of any other property before the said plot was transferred in her name. Hence, she had to sell the remaining portion of the Hauz Khas land and this she sold to her son at the cost price. The purchase of the land of 8 bighas 5 bids was on August 28, 1958, is thus an isolated transaction. The second relevant factor is the quality of the land purchased. The area of the land purchased is 8 bighas 5 biswas. The assessed purchased the land by adjustment of displaced persons' claim. Approximately, Rs. 10,000 in the shape of the assessed's own claim for the properties left in Pakistan, approximately Rs. 28,000 by associating the claim of her husband for the properties left in Pakistan and the balance of Rs. 62,000 odd were paid by purchasing the claims of other parties and associating them. The market price of the displaced parsons' claim in August, 1958, was 11 annas per compensation rupee. The true price in terms of cash price was Rs. 8,345 per bigha. This is the Department's own case. The area purchased from the investment point of view may be a little on the high side but that cannot be a decisive factor. It is, however, a circumstance in favor of the Department and against the assessed. The third factor is as to whether the assessed by any act subsequent to the purchase improved the quality of the land purchased and thereby made it more readily resaleable. The finding of fact recorded by the Tribunal is that the assessed did not effect any improvement on the land. The next incident is the incident associated with the purchase and sale. In this case, the assessed had to suffer acquisition. The land was compulsorily acquired by the Delhi Administration under the Land Acquisition Act, 1894, for a public purpose, namely, 'Planned Development of Delhi'. At best it can be the passive submission of the assessed and not an active participation which is associated with a trading adventure. Again, the transaction of purchase and sale of the land has not been repeated.
12. On a careful consideration of the facts and circumstances before us, we cannot accept the submission of the counsel for the Department that the transaction in the instance case was an adventure in the nature of trade. If a person invest money in land intending to hold it, enjoys its income for some time and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. The Department or the authorities under the Act did not find in this case that it was the intention of the assessed to undertake a trading adventure. The purchase and sale of land is not the assessed's line of business. The assessed did not effect any improvement on the land. The assessed had to suffer compulsory acquisition by the Delhi Administration. The mere fact that the area of land purchased was 8 bighas, 5 bids was is not sufficient to hold that the original intention of the assessed was to sell the property by parcelling out the same. From the total impression gathered from all the relevant facts and circumstances of the case, we answer the question against the Department and in favor of the assessed.
13. On the facts and circumstances of the case, there will be no order as to costs.