TaxTMI 
TaxTMI 
1969 (2) TMI 4
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....r. A. V. George or his nominees. On 15th August, 1955, the assessee entered into an agreement with Mr. A. V. George whereby the assessee agreed to purchase 447.71 acres forming part of Kuttikal Estate for Rs. 6 lakhs. An advance of Rs. 11,000 was paid by the assessee. The balance of Rs. 5,89,000 was to be paid by the assessee on or before 25th September, 1955. It was agreed that Mr. A. V. George should execute a sale deed himself or cause it to be executed by Kailas Rubber Co. Ltd. on whose behalf he was acting in favour of the assessee or his nominees. The assessee subsequently divided the area of 477.71 acres into 23 plots and found purchasers for 22 of these plots. The total extent of 22 plots for which he found purchasers was 373.58 acres, and the total price paid by the 22 purchasers was Rs. 5,18,500. A sale deed was executed by the Mundakayam Valley Rubber Co. Ltd. on 31st March, 1956. It covered all the 23 plots. The 22 plots for which the assessee found purchasers were conveyed to the respective purchasers and the 23rd plot was conveyed to the assessee himself. Mr. A. V. George and the Kailas Rubber Co. Ltd. were parties to this document. The plot which the assessee had ret....
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.... from realisation or conversion of securities may be so assessable where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business... What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts ; the question to be determined being---is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme for profit-making ? " But in judging the character of such transactions several factors have been treated as significant in decided cases. For instance, if a transaction related to the business which is normally carried on by the assessee, though not directly a 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 sub-divided, altered, treated or repaired and sold or is converted into a different commodity and then sold. The magnitude of the transaction of purchase, the nature of the commodity, the subseque....
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.... to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchase stocks and shares with a view to selling them at an early date at a profit, but, if he does so, he is purchasing something which is itself an investment, a potential source of revenue to him while he holds it. A man may purchase land with a view to realising it at a profit, but it also may yield him an income while he continues to hold it. If he continues to hold it, there may be also a certain pride of possession. But the purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade ; and I can find no single fact among those stated by the Commissioners which in any way traverses that view. In my opinion, the fact that the transaction was not in the way of t....
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.... held by this court in appeal that the Appellate Tribunal was right in inferring that the appellant knew that it would be able to sell the lands to the managed company whenever it thought it profitable so to do, that the appellant purchased the four plots of land with the sole intention of selling them to the mills at a profit and that the High Court was right in holding that the transaction was an adventure in the nature of trade. Again in Raja J. Rameshwar Rao v. Commissioner of Income-tax , the assessee purchased 217 acres of land from the pattadars and on a portion of the land the assessee constructed a ganj and shops. The rest of the land he laid out as plots which he sold for a sum of Rs. 75,820. In computing the assessable income the Income-tax Officer added a sum of Rs. 75,820 as receipt from business. The decision of the Income-tax Officer was affirmed by the Appellate Assistant Commissioner and the Tribunal in appeal. The High Court held on a reference by the Appellate Tribunal that there was evidence upon which the Appellate Tribunal could have come to the conclusion that the sum of Rs. 75,820 was the income from business. It was held by this court on appeal that when a ....
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.... a profit-making scheme and the question was rightly answered by the High Court against the assessee. It was then contended on behalf of the appellant that, even assuming that there was an adventure in the nature of trade, the profits from such an adventure have not been properly ascertained in the present case. It was said that the income-tax authorities were wrong in holding that the value of the 23rd plot retained by the assessee represented the profit made in the transaction. The argument was that the adventure would terminate after the portion retained by the appellant was also sold and therefore the profits in the adventure could be determined only at the time of the completion of the sale of the entire estate. In our opinion, there is no justification for this argument. It is not a correct proposition to say that the profits of the assessee cannot be ascertained even on the assumption that the transaction of the adventure of trade was not completed. Under the Income-tax Act for the purpose of assessment each year is a self-contained unit and in the case of a trading adventure the profits have to be computed in the manner provided by the statute. It is true that the Income-....
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.... accounting period should be taken in and that the amount of the stock-in-trade at the end of the period should also be taken in. It would be fantastic not to do it : it would be utterly impossible accurately to assess profits and gains merely on a statement of receipts and payments or on the basis of turnover. It has long been recognised that the right method of assessing profits and gains is to take into account the value of the stock-in-trade at the beginning and the value of the stock-in-trade at the end as two of the items in the computation. I need not cite authority for the general proposition which is admitted at the Bar, that for the purposes of ascertaining profits and gains the ordinary principles of commercial accounting should be applied, so long as they do not conflict with any express provision of the relevant statutes. " In Commissioner of Income-tax v. A. Krishnaswami Mudaliar it was observed by this court that whichever method of book-keeping was adopted in the case of a trading venture for computing the true profits of the year the stock-in-trade must be taken into account. At page 133 of the report Shah J., speaking for the court, stated the principle as follo....