B.J. Divan, C.J.
1. Both these references arise out of the same set of facts. In its order out of which Reference No. 168 of 1975 arises, the Tribunal followed its earlier order out of which Reference No. 224 of 1975 arises. The assessee in both the cases are brothers and it is out of their transaction jointly entered into in connection with a plot of land at Surat that these two cases have come up before this court and hence we will dispose of both of them by this common judgment. The question which has been referred to us for our opinion in each of these matters is also in identical terms and the question is :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the transaction in question was not an adventure in the nature of trade and it did not give rise to business income and the assessee was subject to tax on profit arising out of the transaction as long-term capital gains ?'
2. The facts leading to these two references are as follows : We are concerned with the assessment year 1968-69, in the case of each of the two assessees before us, the relevant precious year being Samvat 2023. The two assessees before us are carrying on the business of manufacturing art silk cloth at Surat. Each of them has his own independent factor for manufacturing art silk cloth. The two assessees jointly purchased agricultural lands by two transfer deeds. By the first deed dated July 22, 1960, an area of 1,09, 626 square yards was purchased for the price of Rs. 44,999 and by another transfer deed dated February 15, 1963, an area of 6,534 square yards was purchased for the total price of Rs. 22,999. Thus, making allowance for other amounts, the total cost of acquisition of the entire area of agricultural land admeasuring 1,16,160 square yards came to Rs. 80,100. In the year 1965, the assessee got the lands converted to non-agricultural use and 90, 393 square yards were sold on May 2, 1967, for the consideration of Rs. 16,25,000. The case of the assessee is that before the Collector and the revenue authorities would give permission for the sale of the land on May 2, 1967, the assessees were required to donate an area of 4, 843 square yards to a charitable institution known as Nari Graha functioning at Surat, and the balance of the lands is still held by the two assessees. It has been pointed out to us that in the course of the town planning scheme of Surat Municipal Corporation, a part of the balance of the lands out of the original area has been taken away for the purposes of the town planning scheme.
3. In the original return, the assessee disclosed long-term capital gains of Rs. 7,56,347 in respect of this transaction after adjusting costs and other expenses and working out the assessee's half share. That was done by each of the two assessees in his respective return. Subsequently, a revised return was filed execluding the long-term capital gains. The ITO found that the land was situated in Navagam village but that area had been brought within the municipal limits of Surat Municipal Corporation some time in the year 1963. The Government of Gujarat had acquired lands in the vicinity of the lands in question for construction of a depot for the State Transport Corporation. According to the ITO, this area was fast developing as an industrial and residential area. The ITO, therefore, held that the assessee's sole intention in purchasing the land was for selling it at a profit and the assessee had also spent a substantial amount on improvement of the land. He, therefore, assessed the share of profit from purchase and sale of the land on the footing that this was an adventure in the nature of trade and brought to tax the amount of Rs. 7,61,347 by his assessment order. Against the decision of the ITO, the assessee took the matter in appeal before the AAC and that officer held that the land in question was held by the assessee as a capital asset and, therefore, the excess, if any, between the sale consideration and the cost would be taxable as capital gain in the hands of the respective assessees. The AAC held that the transaction could not be treated as an adventure in the nature of trade. The revenue took the matter in appeal before the Tribunal and the appeals in the cases of both the assessees were heard by the Tribunal. The Tribunal considered the position in detail in the case of the assessee in whose case Income-tax Reference No. 224 of 1975 has been made and that decision was followed in the case of the assessee in Income-tax Reference No. 168 of 1975. The Tribunal dismissed the appeal of the revenue and upheld the conclusion of the AAC. The Tribunal came to the conclusion that the transaction under reference was not a transaction in the nature of trade and it did not give rise to business income. Thereafter, at the instance of the revenue, these two references have been made to this High Court for our opinion.
4. The principles for the purpose of determining as to when a transaction can be said to be an adventure in the nature of trade and when it cannot be so called, have been laid down by a series of decisions, both of the Supreme Court and of this High Court. The first of these decisions was in G. Venkataswami Naidu & Co. v. CIT : 35ITR594(SC) . There the Supreme Court considered a number of cases from England, Scotland, etc., and held that the expression 'in the nature of trade' postulates existence of certain elements in the adventure which in law would invest it with the character of trade or business; and that would make the question whether a transaction is in the nature of a trade and its decision one of mixed law and fact. It was further held that when the I.T. Act refers to an adventure in the nature of trade, it clearly suggests 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, provided at least some of the essential features of trade are present in the isolated or single transaction. If a person invests 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. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are relevant, such as, whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable; any act prior to the purchase showing a design or purpose; the incidents associated with the purchase and resale; the similarity of the transctions to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received, sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the transaction being in the nature of trade. The presence of all these relevant factors may help the court to draw an inference that a transaction is in the nature of trade; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction. In cases where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted.
5. Thereafter, there is the decision of the Supreme Court in Saroj Kumar Mazumdar v. CIT : 37ITR242(SC) . It was held by majority of the learned judges who decided the case, 'where a transaction was not in the line of the business of the assessee but was an isolated or single instance of a transaction, the onus was on the department to prove that that transaction was an adventure in the nature of trade'. The Supreme Court in that case referred to several cases falling on each side of the point and observed (p. 253) :
'We have set out the illustrative cases on the two sides of the thin line of demarcation that may possibly be said to distinguish one class of case from the other. The question still remains, on which side of the line, the present case should be placed ?'
6. And the question which the Supreme Court posed to itself in Saroj Kumar Mazumdar's case : 37ITR242(SC) , 254 was 'can it be said, in the setting of the facts and circumstances of the present case, set out above, that the transaction in question has such characteristics as to point to the conclusion that it was a venture in the nature of trade ?'
In Janki Ram Bahadur Ram v. CIT : 57ITR21(SC) , the Supreme Court again considered the question and the effect of the earlier case law was thus summarised by Shah J., as he then was, speaking for the Supreme Court, at page 25 :
'A large number of cases were cited at the Bar in support of the respective contentions of the Commissioner and the assessee. Passages from judgments in the same case were often cited claiming support for the respective contentions. No useful purpose would be served by entering upon a detailed analysis and review of the observations made in the light of the relevant facts, for no single fat has decisive significance, and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases. If, for instance, a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and subdivided, altered, treated or repaired and sold, or is converted into a different commodity and then sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture; for instance, a man who purchases a large quantity of aeroplane linen and sells it in different lots, and, for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account : Martin. v. Lowry (1926) 11 TC 297 ; a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit : Rutledge v. IRC  14 TC 490; and a person, even though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whiskey and sells it without taking delivery of it at a considerable profit : IRC v. Fraser (1942) 24 TC 498, may be presumed, having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adventure in the nature of trade. These are cases of commercial commodities. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. A director of a company carrying on the business of warehouseman purchasing a number of houses with a view to resell, and selling them at a profit some years after the purchase : IRC v. Reinhold (1953) 34 TC 389; a person carrying on business in various lines, including an engineering works, purchasing land which was under requisition by the Government, negotiating sale thereof before the land was derequisitioned, and selling it after the land was released : Saroj Kumar Mazumdar v. CIT : 37ITR242(SC) ; and a syndicate formed to acquire an option over a rubber estate with a view to earn profit, and finding the estate acquired too small acquiring another estate and selling the two estates at a profit : Leeming v. Jones  15 TC 333 , may not be regarded as commencing a venture in the nature of trade. These are cases in which the commodity purchased and sold is not ordinarily commercial, and the manner of dealing with the commodity does not stamp the transaction as a trading venture.
It may be emphasised from an analysis of these cases that a 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 profit.'
7. Thus, the question in the present case that we have to consider is, does the revenue, burden being on the revenue, establish that the manner of dealing with the lands in question in the instant case by the two assessees stamped the transaction as a trading venture
These decisions of the Supreme Court and several other cases were considered by the Supreme Court in Raja Bahadur Kamakhya Narain Singh v. CIT : 77ITR253(SC) , and it was held in that case (pp. 262-63) :
'Since the expression 'adventure in the nature of trade' implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business and the question on that account becomes a mixed question of law and fact, the court can review the Tribunal's finding if it has misdirected itself in law.
It is fairly clear that where a person in selling his investment realises an enhanced price, the excess over his purchase price is not profit assessable to tax. But it would be so, if what is done is not a mere realisation of the investment but an act done for making profits. The distinction between the two types of transactions is not always easy to make. The distinction whether the transaction is of one kind or the other depends on the question whether the excess was an enhancement of the value by realising a security or a gain in an operation of profit making. If the transaction is in the ordinary line of the assessee's business there would hardly be any difficulty in concluding that it was a trading transaction, but where it is not, the facts must be properly assessed to discover whether it was in the nature of trade. The surplus realised on the sale of shares, for instance, would be capital if the assessee is an ordinary investor realising his holding; but it would be revenue, if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction. For instance, an assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade. The test often applied is, has the assessee made his shares and securities the stock-in-trade of a business.'
8. Applying the same test, the question that we have to pose to ourselves, is, have the two assessees before us converted the lands in question into their stock-in-trade and treated them as a commodity for the purpose of dealing with them
In D. S. Virani v. CIT  90 ITR 255, decided on September 16, 1971, a Division Bench of this High Court considered the earlier decisions on the point and observed (pp. 259, 260, 261) :
'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 factors 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. But, where it is not related to the business of the assessee, there would have to be clear and positive evidence of facts and circumstances to show that the transaction was an adventure in the nature of trade. The nature of the commodity which forms the subject matter of the transaction may also throw light on the true legal character of the transaction. If the commodity is a commercial commodity, 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...... 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 : 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.'
9. These observations of this High Court in D.S.Virani's case (1973) 90 ITR 255 were followed by us in CIT v. Premji Gopalbhai : 113ITR785(Guj) .
10. The question that we have to ask ourselves is, firstly, has the revenue pointed out the circumstances which would stamp this particular transaction of purchase and sale with the character of an adventure in the nature of trade Secondly, whether looking at the totality of the facts and circumstances of this case, it can be said that this particular case of two assessees before us was of a transaction which was an adventure in the nature of trade or business, and the third question is, since the purchase and resale was of land, the question that we will have to ask ourselves is whether the purchase of the asset, namely, 1,16,160 square yards of land, was made solely and exclusively with an intention to resell it at a profit
11. Coming to the facts of this particular case, Mr. Raval for the CIT at whose instance the two references have been made, urged that the land was purchased by the two assessees from their funds though they were paying interest in the other business accounts. It was further urged that this was not a case of investment of surplus funds and hence it was not a case of investment, but it was a case of investment merely and exclusively with a view to earn profit by purchasing land in a locality where development was fast coming up. Mr.Raval further alleged that the alleged expansion requirements of the two assessees were not established so far as their business of manufacturing art silk cloth was concerned and after six to seven years, the actual utilisation was not more than ten per cent. He further urged that a smaller plot of 6,534 square yards was purchased two and a half years after the bigger plot was purchased on July 22,1960, and that the two assessees had spent nearly Rs. 22,000 in building an approach road and in improving the condition of the land. Mr.Raval emphasised that there was no evidence on record about other steps taken by the assessees for the purpose of the business. He also urged that on July 7,1964, an agreement to sell a large quantity of land,namely,90,343,square yards, was entered into by the assessee with one Bhogilal Pitambardas but that transaction could not materialise. Ultimately, another agreement to sell land was entered on December 15,1965, to a proposed co-operative society and ultimately the land was sold on May 2,1967, to the present purchasers, namely, Trikambagar Co-operative Housing Society, for a consideration of Rs. 16,25,994.
12. The Tribunal in its order and the AAC in his order have pointed out several circumstances which explain the background of the purchase of the land in question and the circumstances under which the land came to be sold to the co-operative housing society. It has been pointed out that the smaller plot of 6,534 square yards was purchased as appears from the order of the AAC because that particular plot of land was surrounded by the land which the assessees had purchased earlier in 1960 and in order to consolidate the entire plot of land as a regular plot, the assessees purchased the smaller plot of land on February 15,1963, for Rs. 22,999. Thus, the purchase of the smaller plot after two and a half years after the first purchase of the plot has been properly explained by reference to the AAC's order. But what is more material is that the lands were purchased as agricultural lands and, on each occasion, that is, at the time of the purchase of July 22, 1960, and at the time of the second purchase on February 15,1963, permission was obtained by the assessees from the Collector. At page 65 of the record before us is a copy of the permission granted by the Prant Officer, Surat, under s. 63 of the Bombay Tenancy and Agricultural Lands Act, and the conditions under the certificate were that the assessees were to use the plot/area for bona fide industrial purposes within one year from the date of the order and the assessees were not to sell the land in question to anybody without the prior permission of the Collector. The permission was granted on July 20,1960, and by condition No. 1 of that grant, it was incumbent upon the purchasers to use the plot for bona fide industrial purposes within one year. A similar condition was also imposed when the second plot of land was purchased in 1963. That second permission, also under s. 63 of the Bombay Tenancy and Agricultural Lands Act, is to be found at page 76 of the record in Income-tax Reference No. 224 of 1975. On this occasion, the condition was that the purchaser should use the plot purchased by them for a bona fide industrial purpose within one year from the date of taking over the possession of the said land. No condition about obtaining prior permission of the revenue authorities before resale of the land was imposed at the time of granting the permission on February 8,1963.
13. Under the terms imposed by the Prant Officer when these two respective plots were purchased,it is obvious that the land was purchased for bona fide industrial purposes by the respective assessees. Again, it appears that in 1963,Nawagam, within the jurisdiction of which village these lands were situated, was brought within the area of Surat Borough Municipality and, therefore, under the master plan of the municipal authorities, the land in question was reserved for residential purposes. The difficulty arising out of the provisions of the master plan reserving the land in question for residential purposes was pointed out by the assessees and they took the matter right up to the Government of Gujarat, urging that they should be permitted to use the land for industrial purpose. Moreover, from time to time, the assessees got extension of time from the Prant Officer because the original condition at the time when the permission was granted under s. 63 of the Bombay Tenancy and Agricultural Lands Act was that construction should be put up within one year of the grant of the permission respectively in 1960 and 1963. Further, on each occasion when extension of time was sought for, the assessees pointed out that it was because of the shortage of steel and cement and also because of the above reasons that they were not in a position to put up structures for industrial use. One important feature is that when the agreement to sell dated July 7,1964, was entered into by the assessee to sell the land to Bhogilal Pitambardas, the price was Rs. 18 per square yard, but after cancelling that agreement of sale, when a fresh agreement of sale was entered into on December 15,1965, with the proposed co-operative society the same rate was agreed upon, namely,Rs. 18 per square yard, and it was this rate which was adopted at the time of executing the sale deed on May 2, 1967, in favour of the Co-operative society. The price realised by the asessee was at the rate which was originally agreed upon in 1964. This particular conduct does not seem to be the conduct of persons who are out for an adventure in the nature of trade because the case of the revenue is that the prices of land in this particular area were rising and it was with a view to speculate in rising land prices that this land was purchased by the assessee, but in spite of the difference of nearly two years and ten months, the price has remained the same. It does not become clear from the record as to what was the exact area of the land which was agreed to be sold to Bhogilal Pitambardas, but the Tribunal mentions that what was agreed to be sold was 'the land' and that land was sold later to the co-operative society but the rate remains the same.
14. It must not be forgotten that in order to obtain permission from the revenue authorities to sell the land to a co-operative society, the assessees had to donate an area of 4,843 square yards to a charitable institution, namely, Nari Graha at Surat,and after the sale of 1967, the balance of the land, subject to the adjustments under the town planning scheme, has remained with the assessees. The assessees were manufacturers of art silk cloth and for the purpose of expansion of their business, they purchased this land. That is their case and looking to the permissions obtained in this case at the time when the lands were purchased and looking to the efforts made by them to put up structures on this land, for example, they even offered to pay half the cost of laying municipal water pipeline to their land so far as Surat Municipality was concerned, it cannot be said,looking to the totality of the circumstances, that the sole intention of the assessees when they purchased the land in 1963 was to sell the land at a profit or that their subsequent manner of dealing with the land stamped the transaction with the character of an adventure in the nature of trade. Barring these two particular plots of land and sale of 90,343 square yards to the co-operative society, they do not appear to have dealt with any other piece of land or immovable property. They purchased the land as agricultural land and till November 9, 1965, the land was still kept as agricultural land and it was only on that date in 1965 that permission for non-agricultural use was obtained from the revenue authorities. All these circumstances indicate that the income-tax authorities have not discharged the burden of proving that this particular transaction was in the nature of an adventure in the nature of trade. The factors which we have indicated above go to show that the case is on the other side of the line and it was a transaction which was not an adventure in the nature of trade. It is clear that the assessees invested part of their business capital in the purchase of this land and, ultimately, when they found that they could not get permission from the municipal authorities and the Government for using the land for industrial purposes, they sold the land to a co-operative society. The efforts made by them to use the land for industrial purposes, as indicated by the materials on the record, militate against the case of the revenue.
15. Under these circumstances, it is clear that the Tribunal applied the correct test and came to the correct conclusion on the totality of circumstances of this particular case. Therefore, the question referred to us in each of these two cases is answered in the affirmative, that is, in favour of the assessee concerned and against the revenue. The Commissioner will pay the costs of the assessee in each of these two references.