1. In this reference made at the instance of the revenue, the following question has been referred to us for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the surplus realised on the sale of the plots of land was assessable as capital gains and not as business profits ?'
2. The assessment year under consideration is assessment year 1969-70, and the relevant previous year is the financial year 1968-69. The assessee, who is an individual, owned agricultural land bearing survey No. 335 on the outskirts of Rajkot City. This plot was admeasuring 7,500 square yards. This land was inherited by him from his ancestors and in 1957-58 he converted this survey number into non-agricultural land. He divided the land into plots and sold the plots as and when a purchased was available. Prior to assessment year 1969-70, whenever a plot of land or plots of land were sold, the profit realised by the assessee on such sales had been assessed as capital gains and at no time the assessee was treated as a dealer in land. Out of the different plots in Survey no. 335, the assessee sold two plots of land bearing plots Nos. 78 and 83 in the year 1961. The two plots together admeasured 1, 136 square yards. He realised Rs. 3,500 in 1961. However, on June 2, 1964, he repurchased these two plots, Nos. 78 and 83, for Rs. 4,900. It was contended subsequently that these plots were repurchased for the purpose of constructing a building thereon. However, no construction took place on these repurchased plots and ultimately the plots were sold on October 4, 1968, in respect of one plot and March 11, 1969, for the other plot for aggregate amount of Rs. 28,815. The gain to the assessee was Rs. 23,627. The Income-tax officer treated this as profit arising from business activity and not as capital gains. Against this decision of the income-tax Officer the assessee preferred an appeal before the Appellate Assistant Commissioner and the appeal was dismissed and the order of the Income-tax Officer was confirmed.
3. The assessee took the matter in further appeal before the Appellate tribunal against the order of the appellate Assistant Commissioner. The Tribunal held that the surplus realised on sale of the lands should be assessed as capital gains instead of a business profit and thus accepted the contention of the assessee. The Tribunal came to the conclusion that there were no sufficient materials brought on record to uphold the assessment of the surplus realised on sale of the two plots of land profits and gains of the business. Thereafter, the question set out hereinabove has been referred to us for our opinion at the instance of the revenue.
4. Mr. Desai for the revenge drew our attention to the fact that, as pointed out by the Income-tax officer himself, in the year under reference, apart from the sale of these plots of land, the assessee had sold another plot of land together with the building standing thereon. This seems to be another plot of 87 square yards, not forming part of original survey No. 335. This was purchased by the assessee on February 13, 1965, for Rs. 3,250. Thereafter, the assessee constructed a superstructure on that plot and the assessee sold in the relevant previous year, that is, during the financial year 1968-69, this plot to one Chimanlal M. Khara for the aggregate amount of Rs 18,500 and the Income-tax officer found that the profit of Rs. 3,500 resulting from the sale of the plot to Chemanlal M khara was business activity. Against the finding regarding the item of Rs. 3,500 treated as business income, no appeal was preferred to the Appellate Assistant Commissioner and the assessee seems to have been content to allow the matter to rest with the finding of the Income-tax officer. However, the amount of Rs. 23,627 was also treated as business income by the income-tax officer and the appeal was preferred by the assessee only as regards this item of Rs. 23,627.
5. In may be pointed out that according to the Income-tax officer's order, which is annexure 'A' to this reference, the assessee's advocate was asked to produce evidence for the original cost of agricultural land which was converted into non-agricultural land in the year 1958. He was also asked to produce the details of cost of construction of the residential building which was sold in the relevant previous year. On February 3, 1972, the assessee's advocate filed a chart of purchase and sale of building and lands for the assessment years 1965-66 to 1971-72. Mr. Desai wanted us to refer to the chart which is regarded to in the Income-tax officer's order as the chart which was filed by the advocate on February 3, 1972. However, this chart does not from part of the reference it has not been annexed as an annexure to this reference and part of the statement of the case. Under these circumstance, we decline to look at the chart because, in our opinion, it is not open to us to look at the documents which do not form part of the reference unless by consent of the parties an additional annexure of the exhibit is brought on the record of the reference at the High Court stage. Since that consent from the assessee's side was not forthcoming, we declined to look at the chart.
6. Mr. Desai for the revenue relied upon the following circumstances for the purpose of convincing us that the repurchase of the land in 1964 and selling these two plots of land in 1968 and 1969 were an adventure in the nature of trade or business in land and, therefore, the profit accruing from this activity was rightly treated by the Income-tax officer as income from business. he has specifically relied upon the instance of the purchase of the plot of land admeasuring 87 square yards in 1967 and after putting up the superstructure, selling the superstructure together with the land of 87 square yards to Chimanlal M. khara. he has further relied upon this fact as a circumstance that goes in favour of the revenue, that the assessee was content to treat this finding of the Income-tax Officer, namely, that the amount of Rs. 3500, the profit realised by the assessee from sale to Chimanlal M Kahara, as business income and he contended that this finding of the Income-tax Officer indicated that in the relevant previous year, the assessee was carrying on at least some adventure in the nature in the nature of trade or business. Mr. Desai further relied upon the fact that the assessee having sold the two plots of land originally in 1961 had repurchased them in 1964 by paying an additional price of Rs. 1,400 and, thereafter, when he found the market to be rising, he ultimately sold the plots in October, 1968, and March, 1969, respectively. He has drawn our attention to the arguments which were advanced before the appellate assistant Commissioner by the learned advocate appearing for the assessee and contended that contradictory stands seem to have been taken up by the assessee before the appellate assistant Commissioner and before the Income-tax appellate Tribunal.
7. In our opinion, these different circumstances and contention of Mr. Desai cannot be accepted as conclusive in the light of the legal position as explained by a Division Bench of this court in D.S. Virani v. Commissioner of Income tax 1973] 90 ITR 255. Bhagwati C.J., speaking for the Division Bench, observed at pages 259, 260 of the report :
'It is now well settled that the burden lies on the revenue to establish that the profit earned in a transaction is within the taxing provision and it would, therefore, be for the revenue to show that the transaction is an adventure in the nature of trade.... There are numerous cases where this question has been considered and decided in the context of the particular facts and circumstances prevailing in those cases but it is not possible to glean from these decided cases any general or universal test which would be applicable in all cases for determining whether a transaction is an adventure in the nature of trade. No single fact or circumstance has decisive significance and it is the totality of the relevant factor and circumstances that has to be taken into account for the purpose of determining the true nature of the transaction.... If for instance a transaction is related to the business normally carried on by the assessee, though not directly part of it, an intention to engage in an adventure in the nature of trade may be readily inferred' there would be no difficulty in such a case in concluding that it is a trading transaction..... If the commodity is a commercial community, the transaction may lend itself more easily to the inference that it is an adventure in the nature of trade than in a case where the commodity is not a commercial commodity.' At page 216, Bhagwati C.J. observed : 'It is, therefore, clear that if an asset is purchased by way of investment, the transaction does not become an adventure in the nature of trade merely because at the date when the asset was acquired, there was intention to resell it, if an enhanced price could be earned. But, it is equally clear, and that is now settled by the decision of the Supreme court in G. Venkataswami Naidu and Company's case 0065/1958 : 35ITR594(SC) , that if the purchase of the asset was made solely and exclusively with an intention to resell it at a profit, it would be a strong factor indicating that the transaction is an adventure in the nature of trade.'
8. It is, therefore, clear that the burden of proving that the particular transaction was an adventure in the nature of trade is on the revenue. Of course, that burden can be discharged by pointing to circumstances which lead to the conclusion that the transaction is an adventure in the nature of trade. However, even if land which is not a commercial commodity is purchased and it can be shown that the purchase of the land was made solely and exclusively with an intention to resell it at a profit, it would be a strong factor that the transaction would be an adventure in the nature of trade.
9. In the instant case no such strong factor emerges from the facts of the case. It is not possible for us to hold that the assessee before us was a dealer in land or was treating land as his stock-in-trade. It may be pointed out that when the assessee sold different plots out of Survey No. 335 in the past, that is, prior to 1968-69, the profit realised by the assessee from those sales were treated as capital gins. It may also be emphasised that, as pointed out by the Tribunal, it was strongly urged before the Tribunal that even the sales out of the original holdings subsequent to the sales in question in 1968 and 1969 had been treated as realisation of capital assets resulting in capital gains and, hence, it is obvious that unlike Virani in D.S. Virabi's case  90 ITR 255 this particular assessee before us was not dealer in land. That is a strong circumstance in his favour and even in respect of subsequent sales he was not treated as a dealer in land.
10. As regarded the other circumstances to which Mr. Patel for the assessee drew our attention they are the facts that the land of survey No. 335 was an ancestral agricultural land of the assessee and it was in 1957-58 that the assessee converted this ancestral agricultural land into non-agricultural land and sub-divided the land into plots which he started gradually selling to difference t persons. The fact that he repurchased plots out of original survey No. 335 is a factor which goes in his favour. It was urged before the Tribunal and there seems to be considerable substance in that factor that the assessee was not a dealer in the past and was only disposing of his capital asset in the land and apart from this solitary instance of purchased was repurchased, accordingly to the assessee, because it was adjacent to the land in which the existing building of the assessee stood.
11. In any event, it seems to us that the revenue has not discharged the burden of establishing g that the repurchase and sale of these two plots out of survey No. 335 was an adventure in the nature of trade; it cannot be said in view of the totality of the circumstances of the case that this was the sole intention of the assessee at the time when he repurchased the land in 1964 to sell the two plots at a profit.
12. Under these circumstances, the conclusion reached by the Tribunal that the amount of Rs. 23,627 should be treated as capital gains and assessed as such and not as business profits is correct. Under these circumstances, the question referred to us is answered in the affirmative, that is, in favour of all assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.