1. Two questions have been referred to this Court for decision by the Income-tax Appellate Tribunal under Section 66 (1) of the Act. They are:
1. Whether on the facts and in the circumstances of the case the inclusion and assessment of the sum of Rs. 9397 representing the sale proceeds of plots of land, by the Appellate Assistant Commissioner after remand and upheld by the Appellate Tribunal, when this amount had not formed the subject matter of the appeal in respect of assessment year 1944-45 either before the Appellate Assistant Commissioner or the Appellate Tribunal in the first instance, is legal?
2. Whether on the facts and in the circumstances of the case the assessment of the sum of Rs. 13197 realised by the sale of vacant plots and fruit shop buildings under the head "business" is lawful?
2. The assessee is Sri Gajalakshmi Ginning Factory Ltd., Palladam, hereinafter called the "company". The company purchased in 1032 a ginning factory with extensive lands appurtenant to the factory and also a plot which was somewhat removed from the factory and was in the heart of the town of Tirupur, On this piot there were some fruit stalls. The whole lot was purchased for a sum of Rs. 33000. The extent of the land appurtenant to the building was about 11 acres 33 cents. The site of the fruit stalls was 9 cents. Before the termination of the accounting year 1942 the building, the machinery and the factory were sold together with some of the land appurtenant to it for a sum of Rs. 40000. The profit which accrued from out of that transaction was subjected to income-tax without objection during the assessment year 1942-43. Out of the vacant site of 7 acres, two acres were reserved by the assessee for erecting a cinema theatre, and the remaining 5 acres of land was parcelled out into 81 small plots in accordance with the requirements of the town planning scheme of the municipality and the plots were sold thereafter in public auction; and by January 1943, 61 plots were sold which fetched a profit of Rs. 2036. Out of this amount the Income-tax Officer assessed the company to pay income-tax on a sum of Rs. 400. But this decision was reversed by the Appellate Assistant Commissioner on appeal who held that the sum of Rs. 2036 was a capital receipt.
3. We are now concerned with the subsequent accounting year ending 31st January 1944. During this period, by the sale of the remaining plots the assessee realised a sum of Rs. 9397 and a further sum of Rs. 3800 from the sale of the fruit shop buildings making a total of Rs. 13197. During this assessment year now (1944-45) the sum of Rs. 9397 was treated as a capital receipt by the Income-tax Officer. He assessed the sum of Rs. 3800 under the head "business" under the erroneous impression that this amount represented the sale proceeds of the factory building on which depreciation was allowed. Against the order of the Income-tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his order of 31st July 1945 upheld the order of the Income-tax Officer, but reduced the amount to Rs. 2800. There was a further appeal by the assessee to the Appellate Tribunal, and the Tribunal was not clear about the facts and therefore, remanded the matter to the Appellate Assistant Commissioner for a decision in accordance with law after considering all the facts of the case. Under the law, the Appellate Tribunal had authority to remand a case, as was decided by this Court in' -- 'Pulleswara Rao v. Commr. of Income-tax, Madras', 1947-15 ITR 425 (Mad). After remand, the Appellate Asst. Commissioner after considering the facts, came to the conclusion that the sum of Rs. 3800 and the sum of Rs. 9397 i.e., in all a sum of Rs. 13197 was assessable to a tax as income of business earned by the assessee. In other words he enhanced the assessment which was made by the Income-tax Officer.
4. The second order of the Appellate Assistant Commissioner was again taken on appeal to the Tribunal and the assessee objected to the order on two grounds. In the first place, it was contended that the whole of the amount of Rs. 13197 was only a capital receipt and not a business income assessable to tax under the Act. In the second place, the sum of Rs. 9397 which was never the subject matter of appeal before the Appellate Assistant Commissioner should not have been added to the assessable income by the Appellate Assistant Commissioner after remand as he was precluded from doing so because that amount was not the subject-matter of appeal before him. The decision on both these questions was adverse to the assessee; and at the instance of the assessee, a reference was made by the Appellate Tribunal of the two questions formulated above.
5. The first question referred to us raises the point relating to the jurisdiction of the Appellate Assistant Commissioner under Section 31 of the Act. In the present case, the appeal in the first instance to the Appellate Assistant Commissioner was confined only to the sum of Rs. 3800 and there could possibly be no appeal against the order of the Income-tax Officer treating the sum of Rs. 9000 and odd as a capital receipt, for, under Section 30 of the Act, the right of appeal against the order of assessment is conferred only upon the assessee and not upon the Commissioner of Income-tax. The actual subject matter of the appeal before the Appellate Assistant Commissioner was only the sum of Rs. 3800. After the matter was decided by him there was further appeal to the Appellate Tribunal under Section 33 of the Act. It must be noted that the right of appeal to the Appellate Tribunal is conferred under Section 33 also upon the Commissioner, unlike the provision in Section 30 of the Act. The Appellate Tribunal in the exercise of its power under Section 33 (4) of the Act remanded the case to the Appellate Assistant Commissioner. The use of the word "thereon" in the Sub-section (4) of Section 33 has been construed as indicating that the power of the Appellate Tribunal was restricted to deal with the actual subject matter of the appeal, for, it was open to both the assessee and the Commissioner to prefer appeals to the Tribunal to the extent to which they were aggrieved by the order of the Appellate Assistant Commissioner. The power under Section 33 (4) of the Act undoubtedly includes the power to remand. See -- 'Pulleswara Rao v. Commr. of Income-tax, Madras'. 1947-15 ITR 425 (Mad). But the position is different so far as the power of the Appellate Assistant Commissioner is concerned.
Whether the Appellate Assistant Commissioner was hearing an appeal against the order of assessment in the first instance or was hearing an appeal which was remanded by the Appellate Tribunal, he has finally to dispose of the appeal in the manner indicated in Section 31 of the Act; and under Sub-section (3) of Section 31, he is empowered in disposing of an appeal against an order of assessment either to confirm the order, to reduce, enhance or annul the assessment. The power, therefore, conferred upon the Appellate Assistant Commissioner by this clause is undoubtedly wider and is not restricted to the subject matter of the appeal. Even though no appeal was preferred by the Commissioner in respect of that portion of the order of assessment of the Income-tax Officer which contained an adverse decision against the Department, in disposing of an appeal by the aggrieved assessee, though the appeal was confined in its subject matter to a portion of the order, it would be open to the Appellate Assistant Commissioner to deal with, the whole of the assessment order of the Income-tax Officer, even to enhance the assessment. It was held that when once an appeal was preferred by an assessee, it would not be open to the assessee to withdraw the appeal so as to prevent the Appellate Assistant Commissioner from enhancing the assessment under Section 31 (3) (a) of the Act. Vide -- 'Commr. of Income-tax, Punjab v. Sha Nawaz Khan', 1938-6 ITR 370 (Lah). Of course, it would not be open to the Appellate Assistant Commissioner to introduce into the assessment new sources, as his power of enhancement should be restricted only to the income which was the subject matter of consideration for purposes of assessment by the Income-tax Officer.
In view of this scheme underlying the provisions of the Act, it is difficult to accept the contention strenuously urged on behalf of the assessee, that the Appellate Assistant Commissioner, while dealing with the appeal after remand, was not entitled to enhance the assessment so as to include the sum of Rs. 9397 also in the assessable income on the ground that it was not a capital receipt but was a revenue receipt. That decision may be right or wrong. But that is a matter for consideration on the merits. It seems to us difficult to draw a distinction between cases where the Assistant Commissioner was dealing with an appeal which was remanded and an appeal which was heard by him in the first instance. The only power which he could exercise in disposing of on appeal whether received by him after remand or directly against the order of the Income-tax Officer is the one conferred upon him by Section 31 of the Act, and it is not subject to any restrictions arising out of the subject matter of the appeal. The position, however, in the civil cases, i.e. appeals arising under the Civil Procedure Code is different. For, there the aggrieved party, whether he is the plaintiff or the defendant, has got the right to appeal against that portion of the decree which is adverse to him and by which he was aggrieved, and the appellate Court can deal only with such subject matter as was properly brought before it and not otherwise.
If the respondent did not file an appeal in respect of that portion of the decree which was adverse to him, it is open to him to file a Memorandum of Cross objections in case his opponent chooses to prefer an appeal against that portion of the decree which was adverse to him. Without a Memorandum of cross objections, the matter to the extent to which the decision was against the respondent, could not be brought up before, the Appellate Court, subject, however, to this exception viz., that it would be open to the respondent without filing Memorandum of cross objections to support the judgment of the lower Court on the grounds other than those on which it was based by the trial Court. The procedure to be followed and the powers to be exercised by the appellate Court are entirely different under the Civil Procedure Code from that which obtains under the Income-tax Act. As stated already, while the assessee is entitled to prefer an appeal against the order of assessment by which he was aggrieved, no such right was given to the Commissioner. The powers of the Appellate Assistant Commissioner which he is entitled to exercise are wider under Section 31 of the Act than those which could be exercised by an Appellate Court under the Civil Procedure Code. The analogy, therefore, of what obtains in appeals under the Civil Procedure Code does not apply to the case of the appeals against the assessment orders of the Income-tax Officer to the Appellate Assistant Commissioner. The answer, therefore, to the first of the two questions-must be in the affirmative and against the assessee.
6. There remains the second question. The sum of Rs. 13197 referred to in that question consists of two amounts, an amount of Rs. 9397 which represents the sale proceeds of the plots of land which were appurtenant to the factory, and a sum of Rs. 3800 which represents the sale proceeds of the site with the buildings in which there were certain fruit shops. So far as the latter amount is concerned, there cannot possibly be any difficulty in answering the question, in favour of the assessee, as that amount can in no sense be said to be a revenue receipt as opposed to a capital receipt. There is no element of any business in the matter of the sale of those sites, and it is difficult to follow the legal basis on which a contrary conclusion was reached by the Appellate Assistant Commissioner and by the Appellate Tribunal.
7. The sum of Rs. 9397, in our opinion, must also be treated as a capital receipt and not a revenue receipt. It was claimed by the Department that this amount really represents profits earned by the assessee by carrying on business or at any rate an adventure in the nature of a trade; and in support of this view, a number of decisions, English and Indian, were cited, in which on a given set of facts one view or the other was held. It is, however, not possible from an examination of these decisions to evolve a satisfactory definition or draw the line of demarcation between a capital receipt and a revenue receipt. As is often the case, each case must be decided on its own facts and no hard and fast rule can be laid down. That is the only principle that emerges on an analysis of the decisions cited at the Bar. When it is claimed that an income is an income earned by carrying on a business, one has naturally to look into the definition of "business" contained in the Act (vide Section 2(4)) where it is defined as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. It consists, therefore, really of two parts. The activities of a person constitute either trade, commerce or manufacture or it may be an adventure or concern not exactly amounting to trade, commerce or manufacture, but may be something analogous or in the nature of a trade, commerce or manufacture. Now then, what is trade? Trade has been explained in the Concise Oxford Dictionary as "business, especially mechanical or mercantile, employment opposed to profession carried on as means of livelihood or profit". The meaning of 'commerce' as given by the same Dictionary is 'exchange of merchandise, especially on large scale'. In ordinary parlance, trade, and commerce carry with them the idea of purchase and pale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade.
If the transactions are in a large scale it is called commerce. Nobody can define the volume of business which would convert a trade into commerce. But everybody understands the distinction between the two with sufficient vagueness. It cannot be said that the sale of the plots by the assessee is made or commerce in the ordinary sense of the term. Indeed, it was not claimed by the Department at any stage of these proceedings that the person did in fact carry on trade in sites for the purpose of earning profit. But what was claimed was that the transactions of the assessee in selling these plots were an adventure in the nature of a trade, and therefore it falls within the definition of 'business' and the profit he made is profit which accrued from a business. If a person buys lands with a view to sell them and thereafter carries on certain operations so as to bring greater profit and facilities the sale of the plots, it can be said, if it is a single transaction, that his activity is adventure in the nature of trade, for, the essence of a trade, buying and selling for profit, is present in that, activity. But if a person buys land with no intention of selling it and after a long interval finds it convenient to sell the land by parcelling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, It cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot be said, therefore, that it is an activity in the nature of a trade. He was merely selling and did not at the time of buying start with the intention of buying and selling with a view to make profit. The intention must be that even at the time when the property was acquired it was so acquired for the purpose of sale with a view to make profit. In other words, the object of the acquirer was to deal in that commodity, if one may use that expression, as he deals with the goods in the course of an ordinary trade. In the absence of any such intention gather able from the circumstances of the case, it is difficult, if not impossible, to hold that the activity he carried oh was something analogous to a trade and therefore, the profit he made was not a capital receipt but a revenue receipt.
It is not necessary to deal with any of the decisions cited at the Bar, Except to make a passing reference to the case in -- ''Hudson's Bay Co. v. Stevens', (1909) 5 Tax. Cas. 424, where at page 437 Farewell L. J. gave the illustration which is nearer to the present case. There, the learned Lord observed; "Again, a landowner may lay out part of his estate with roads and sewers and sell it in lots for building, but he does this as 'owner', not as a land 'speculator'" (the italics (here' ') are ours).
The contrast is, therefore, between an owner selling the property for the purpose of converting his investment into money and a speculator purchasing property with a view to sell and make profit out of it. If it is the latter, it may be an adventure in the nature of a trade and the income would not be a capital receipt but an income earned by exercise of a trade or something in the nature of a trade and would be assessable to tax.
The case in -- 'Kahanchand and Kishanchand v. Commr. of Income-tax, Punjab', 1944-12 I T R 472 (Lah) to which our attention was drawn by Mr. Rama Rao Sahib, the learned counsel for the Commissioner of Income-tax, refers to two transactions, one of which was held to be an investment of surplus capital and the profits arising from the sales were casual and non-recurring and therefore, not taxable, while in the other case which related to 158 kanals of land the purchase was from the beginning a speculative purchase and the brothers intended to sell the land to their best advantage. It was held that it was not an investment of surplus capital but a purchase made with the sole and exclusive object of selling it at a profit when a suitable opportunity had occurred. This case itself brings out the distinction between, and explains under what circumstances the profits received by the sale of land would be a capital receipt and when it would be a revenue receipt. It is unnecessary, therefore, to refer to the other decisions on the point. In our opinion, the sum of Rs. 9397 also should be treated as a capital receipt. It, therefore, follows that the sum of Rs. 13197 is exempt from tax and the second question must be answered in the negative and in favour of the assessee.
8. As the assessee has substantially succeeded, he is entitled to costs, which we fix at Rs. 250.