1. The assesses (firm) was the Managing Agent of the Janardhana Mills Ltd. from 1934. In 1941 and 1942 the assesses purchased. 5.25 acres of land adjacent to the mill premises under four sale deeds. One of these stood in the name of V. G. Raja, but the assessee admitted all through that it was a benami purchase, and that the assessed was the owner of that plot of land also. The purchase price of Rs. 8713 for the four sale deeds was paid out of the funds of the assessee. The entire extent of 5.25 acres was sold to Janardhana Mills under two sale deeds dated respectively 1-9-1947 and 10-11-1947. The sale proceeds, Rs. 52,606, were credited to the assessee's account in their books. Rs. 43,887 which constituted the difference between the purchase price and the sale price, was treated as the income from an adventure in the nature of trade and was assessed to tax in the assessment year 1948-49. The Tribu-nal ultimately confirmed that assessment. On the application of the assessee wider Section 66(1), Income-tax Act, the Tribunal referred to this Court the following question :
'Whether there was material for the assess-ment of the sum of Rs. 43,887 being the differ-ence between the purchase and sale price of the four plots of land as income from an adventure in the nature of trade?'
2. The real scope of the question referred to us is, whether there was material on record which the Tribunal could come to the conclusion that the isolated transaction of purchase and sale, the two being separated by an interval of more than five year, was not an investment as pleaded by the assessee, but was an adventure in the nature of trade. That question, despite the numerous easts cited before us, has to be answered primarily with reference to the facts of this case as found by the Tribunal. The Courts in England and in India have consistently refused to evolve a formula of universal application, to decide the question, whan an isolated transaction of purchase and subsequent sale, with or without a substantial interval between purchase and sale, can he viewed only as an adventure in the nature of trade. That was what Satyanarayana Rao J. pointed out in -- 'Shri Gajalakshmi Ginning Factory v. Commissioner of Income-tax : 22ITR502(Mad) (A),
'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 last rule can be laid down. That is the only 'principle' that emerges on an analysis of the decisions cited at the Bar.'
3. In para 4 of the. statement of the case submitted by the Tribunal it summed up its find-ings in the case, on the basis of which it came to the conclusion that Rs. 43,887 was a gain made in an adventure in the nature of business in carrying out a scheme of 'profit making'. These find-ings were '(1) that benami purchase of property under sale deed dated 25-10-1941 in the name of V. G. Raja; (2) the sites of the plots and the piecemeal purchase of contiguous plots adjoining the mills at varying rates; (3) the small income re-ceived from the purchased property; (4) total absence of any effort on the part of the assesses to put up buildings or to cultivate the lands; (5) absence of the minute book required to be maintained by the assessee under the deed of partnership wherein decisions taken relating to business were to he recorded; and (6) to the Industrial Tribunal's award, dated 19-6-1947, Janar-dhana Mills was not a party and it was conceded that upto the date of the hearing of the appeal no quarters for labourers had been put up and the award had not been implemented.'
4. The learned counsel for the assessee con-tended that the first two of these factors were of no real evidentiary value in the final determination of the question, whether the purchase and said constituted an adventure in the nature of trade. That there were four deeds under which the property was purchased, and that it was sold under two deeds did not alter the position, that all of them together constituted one transaction, an isolated transaction.
That was the basis on which the Tribunal had to decide whether that isolated transaction was an adventure in the nature of trade. That one of the purchases was admittedly benami in no way really affected the determination of that question. The situs of the land, of course, was a relevant factor to be taken into account.
5. The Tribunal was certainly entitled to rely upon the third and fourth of the factors listed above to reject the contention of the assessee, that it was as an investment that the assessee purchased these lands.
6. With reference to item 5 of the six factors mentioned above, we have to observe that, while it was open to the Tribunal to draw an inference adverse to the asses see from the non-production of a relevant document in its possession, that is, the minute book of the assessee company, such an inference should have been drawn only if the assessee had been directed to produce the document and had failed to comply with the direction.
The learned counsel for the Commissioner could not draw our attention to anything on record which could show that there had been such a direction and a subsequent failure on the part of the assessee.
7. We shall therefore leave out of account findings 1, 2 and 5, except to the extent of taking due note of the fact, that the lands in question were adjacent to the mill premises.
8. The sixth of the factors taken into account by the Tribunal appears to have led to the conclusion, that neither the assessee nor the millhad any real idea of utilising the lands for quarters for the labourers in the mills. The case of the assesses was that at the time of purchase of the lands it had no idea of selling it to the mills, and it was only the need of the mills for the land to provide housing for its labourers that made the assessee se!l the land to the mills.
That contention the Tribunal declined to accept, and it was of the view that the original purchase itself was with a view to sell the lands at a high price to the mills. The lands were adjacent to the mills. While the lands would be very useful to the mills, the assessee had no use and could have had no use for the lands other than to sell the lands to the mills.
9. It is true that the assessee was not a dealer in real property. Its business was that of managing agent of a textile mill. It was an isolated transaction in lands. There was no similar transaction before or after. The question still remains, whether that isolated transaction was an adventure in the nature of trade.
10. That the purchase was not in the nature of an investment was the finding of the Tribunal, and that finding was amply justified by the evidence on record. The learned counsel for the assessee urged that the rejection of the contention of the assessee did not by itself prove that the purchase and sale constituted a transaction, an adventure in the nature of trade.
To a limited extent that contention would be correct. But that the purchase was not for purposes of investment is certainly a relevant factor in deciding whether it was part of a trading venture. The dictum of Lawrence L. J. in -- 'Leeming v. Jones' (1930) 15 Tax Cas 333, is an oft quoted one :
'It seems to me that in the case of an isolated transaction of purchase and resale of property there is really no middle course open. It is either an adventure in the nature of trade or else it is a simple case of purchase and resale of property.'
11. The learned counsel for the assessee stressed that the mere fact, that the purchase of the lands was with the idea of selling them at a profit even to a preselected buyer, was not by itself enough to prove that the transaction savoured of trade. We have already pointed out that the question whether a given transaction was one in the nature of a trade, will have to be determined with reference to all the facts proved in that case.
Of the cases cited before us by the learned counsel for the assessee we shall refer only to the two, -- 'Commissioners of Inland Revenue v. Rein-hold', (1953) 34 Tax Cas 389 and -- 'Radha Debi v. Commissioner of Income-tax, Calcutta : 20ITR176(Cal) . It was not such an unqualified proposition of law, as the learned counsel for the assessee urged for our acceptance, that was laid down in either of these two cases.
12. In (1953) 34 Tax Cas 389, the main fact on which the taxing authorities relied was that the assessee admitted that ho had bought the property which he subsequently sold not as a residence for himself but for sale, and that he had instructed his agents to sell whenever a suitable opportunity arose. After quoting with approval the observation of Lord Dunedin in (1930) 15 Tax Cas 333.
'The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the' nature of trade in respect of hisinvestments, but 'per se' it leads to no conclusionwhatever'.
Lord Carment stated :
'A disclosed intention not to hold what was being bought might, as Lord Dunedin said, provide an item of evidence that the buyer intended to trade, and if the commodity purchased in the single transaction was not of a kind normally used for investment but for trading and if the commodity could not produce an annual return by retention in the hands of the purchaser, then the conclusion may easily be reached that the venture was a trading one.
If, however, the subject of the transaction is normally used for investment -- land, houses, stocks and shares -- the inference is not so readily to be drawn from an admitted intention in regard to a single transaction to sell on the arrival of a suitable preselected time or circumstance and does not warrant the same definite conclusion as regards trading or even that the transaction is in the nature of trade.'
Lord Keith pointed out with reference to the facts in (1953) 34 Tax Cas 389, that 'these facts were at the worst for the tax payer equivocal'. That certainly does not support the extreme contention put forward by the learned counsel for the assessee in this case, that a purchase with an intention to sell and with nothing more proved would be no basis at all for holding that the transaction was an adventure in the nature of trade.
In the present case, the Tribunal found that the assessee purchased the property only with an idea of selling it at profit. It was riot a general intention to sell the property at a favourable opportunity. The real object of the purchase was to sell the property to the mills, the needs of which the assessee as the Managing Agent could guage with accuracy, and the decision of which the assessee could and apparently did influence.
That the assesstee failed to prove the specific case pleaded by it, that the mills purchased the property only to provide quarters for its labourers, because in an industrial dispute relating to another mill, the Industrial Tribunal bad recommended such a course to the employer, does not alter the fact, that the lands adjacent to the mills were useful to the mills and could be useful only to the mills and not to the assessee itself.
13. In : 20ITR176(Cal) , after referring to the test of continuous activity laid down by the Privy Council in -- 'Commissioner of Income-tax Bengal v. Shaw Wallace & Co , the learned Chief Justice observed :
'The only way in which the exposition given by the Judicial Committee can perhaps be adjusted to a casual receipt from a stray operation is by holding that while a transaction may be a single one and in that sense isolated, it must nevertheless have some' width of content and must comprise some activity in the nature of operations which are ordinarily followed in respect of trade.'
That was the test the learned Chief Justice postulated to decide whether a given transaction was an adventure in the nature of trade. The learned Chief Justice obviously did not Jay this down as an absolute and unqualified test, because he also recorded :
'It is well settled now that the mere fact that a person purchases a commodity with the intention of reselling it at a profit docs not by itself make the transaction of purchase and sale a trade. Such intention, however, is certainly an element to be home in mind, but is not by itselfdecisive. . . . Perhaps it will not be incorrect to say that if a person purchases by an isolated transaction some particular - commodity merely in the hope and expectation that be may spine day be able to sell it at a profit, he cannot be said to be trading; but if, as Lord President Clyde observed in the case of -- 'Rutledge v. Commissioners of Inland Revenue', (1929) 14 Tax Cas 490, he makes the purchase 'for no purpose except that of resale at a profit', an intention to trade can properly be inferred.'
The learned Chief Justice further observed:
'I have said so much simply in order to make it clear that, to my mind, it is not correct to state broadly that a purchaser not for the purpose of holding the commodity purchased permanently but with its disposal at a profit in contemplation, can in every case, be regarded as an indication or as evidence of an intention to trade.'
It was thus a very cautious summing up of the position. It is certainly not an authority for the proposition for which the learned counsel for the assessee contended, that a purchase for resale with nothing more proved could be no indication or evidence of an intention to trade.
14. Even the mere fact, that the purchase itself was the purpose of resale at a profit, is thus a relevant factor in deciding whether the purchase and sale constituted a transaction, and that transaction was an adventure in the nature of trade. Only in given circumstances it may by no means be a conclusive factor as Lord Dunedin pointed out in (1930) 15 Tax Cas 333.
In the present case the intention to resell was not only the only factor that weighed with the Tribunal when it came to the conclusion that it was a transaction in the nature of trade. We are unable to hold that on the material placed before the Tribunal and considered by it there was no evidence on which it could come to the conclusion, that it was an adventure in the nature of trade and the profits from that transaction constituted taxable income.
15. The question referred to us is answeredin the affirmative and against the assessee. Theassessee will pay the costs of the respondent. Counsel's fee Rs. 250.Answered in the affirmative.