1964 (12) TMI 53 - HC - Income Tax

Land sale not trade, Tribunal lacked jurisdiction to tax gains.

P.J. Udani Versus Commissioner of Income-Tax, Andhra Pradesh

The High Court held that the transaction of purchase and sale of land was not an adventure in the nature of trade, as the land was bought for agricultural ... - Issues Involved:1. Whether the transaction of purchase and sale of lands in question was an adventure in the nature of trade.2. Whether the profits alleged to have been made by the assessee related to the assessment year 1949-50 or 1950-51, and if they related to 1949-50, whether the Tribunal had jurisdiction to direct the Income-tax Officer to tax the gains for the assessment year 1949-50.Detailed Analysis:Issue 1: Whether the transaction of purchase and sale of lands in question was an adventure in the nature of trade.Facts and Circumstances:- The assessee purchased land at Sembium on November 6, 1946, for Rs. 30,000 and sold it on March 18, 1949, for Rs. 3,17,000.- The assessee was a civil engineer and a partner in Udani Engineering Company, not ordinarily engaged in land transactions.- The land was purchased in the names of the assessee's wife and his brother's wife, but the assessee was the real owner.- The assessee claimed the land was bought for agricultural purposes and undertook several agricultural operations, including planting trees and applying for agricultural implements.Legal Tests and Principles:- Even a single transaction outside the assessee's usual line of business can be an adventure in the nature of trade if it bears the essential indicia of trade (Clyde in Commissioners of Inland Revenue v. Livingston).- The onus is on the department to prove that an isolated transaction was an adventure in the nature of trade (Commissioner of Inland Revenue v. Reinhold, approved by the Supreme Court in Saroj Kumar Mazumdar v. Commissioner of Income-tax).Findings:- The Tribunal based its conclusion primarily on the statement of Rangaswamy Iyer, who claimed a profit-sharing agreement with the assessee, and the assessee's failure to cross-examine him.- The Tribunal also considered the assessee's financial position, involvement in other land transactions, and the potential for profit in an expanding city.- The High Court found that the Tribunal failed to consider all material evidence, including the agricultural operations undertaken by the assessee and the circumstances leading to the sale, which were not indicative of a commercial motive.Conclusion:- The High Court concluded that the transaction was not an adventure in the nature of trade. The land was purchased for agricultural purposes, and the sale was a result of unforeseen circumstances, not a premeditated profit-making scheme.Issue 2: Whether the profits alleged to have been made by the assessee related to the assessment year 1949-50 or 1950-51, and if they related to 1949-50, whether the Tribunal had jurisdiction to direct the Income-tax Officer to tax the gains for the assessment year 1949-50.Facts and Circumstances:- The sale of the land occurred on March 18, 1949, which falls within the accounting year 1948-49, relevant to the assessment year 1949-50.- The Tribunal directed the Income-tax Officer to tax the gains for the assessment year 1949-50, despite the appeal relating to the assessment year 1950-51.Legal Principles:- The jurisdiction of the Tribunal to give directions is limited to the assessment year in question (Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das).Findings:- The High Court held that the Tribunal had no jurisdiction to direct the Income-tax Officer to tax the gains for the assessment year 1949-50, as the appeal related to the assessment year 1950-51.Conclusion:- The High Court answered the second question in favor of the assessee, stating that the Tribunal had no power to direct the Income-tax Officer to tax the gains for the assessment year 1949-50.Summary:The High Court concluded that the transaction of purchase and sale of land was not an adventure in the nature of trade, as the land was purchased for agricultural purposes and sold due to unforeseen circumstances. Additionally, the Tribunal had no jurisdiction to direct the Income-tax Officer to tax the gains for the assessment year 1949-50, as the appeal related to the assessment year 1950-51.