AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1959 (5) TMI 10
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....', Calcutta, dated September 5, 1953. The facts of this case leading up to this appeal are as follows: The appellant is engaged in various types of business activities, being a shareholder and director or managing director of several limited liability concerns, and is also a partner in the firm known as "Pioneer Engineering Works". In respect of his income during the previous two assessment years, the appellant was assessed to income-tax on the sums of Rs. 53,000 (1946-47) and Rs. 59,000 (1947-48). The appellant holds investments in shares of the value of Rs. 2,45,000, out of which, according to the assessee, shares of the value of Rs. 1,95,000, though standing in his name, belong to other members of his family, including his father and his wife. The Hindusthan Co-operative Insurance Society Limited, of Calcutta, (hereinafter referred to as "the Society"), acquired a block of about 578 bighas of land lying between Diamond Harbour Road and Tolly's Nullah, within the Municipal limits of the Corporation of Calcutta, between the years 1940 and 1942. The Society decided to level the land thus acquired and to open out roads; and after developing the same, it sub-divided it into....
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....nt of the amounts paid by him to the Society by way of advance for the completion of the transaction. The assessee's case is that as the terms of the payment of purchase-price in several instalments, as aforesaid, were convenient to him, he agreed to take the plot on the conditions aforesaid, with a view to building a residential house for himself and constructing a workshop in connection with his business activity. At the end of the Second World War, the assessee's construction activities began to decline, and there was no immediate prospect of the land in question being de-requisitioned by Government. In those circumstances, the assessee negotiated for the assignment of his rights under the agreement with the Society to Rani Yuddha Rajya Devi of Nepal. The Rani appeared to have taken a fancy to the plot and to have made an attractive offer to the appellant. Hence, after exchange of letters between the parties, it was agreed between them that a sum of Rs. 1,07,000 odd would be deposited by the Rani with the assessee on suspense account until the transaction of sale between the Society as the vendor and the Rani or her nominee as the vendee would be executed and the transac....
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....y event, the receipt accrued to the assessee only in 1950, after the transaction of sale had been completed as between the Rani's nominee and the Society. The Appellate Assistant Commissioner did not agree with the Income-tax Officer that the assessee was not in a position either to complete the transaction of purchase by paying the full amount of consideration, or to erect a building thereon, or to use the land in any other way. He pointed out that under the scheme, the Society had offered terms of purchase on instalments and on execution of a mortgage in respect of the vended property to the extent of 50% of the consideration money. He also pointed out that the assessee had considerable investments to the extent of Rs. 2,45,000 in shares of different limited concerns. He, therefore, came to the conclusion that the assessee was a man of means, and that it could not be said that he had not intended to purchase the plot for his own use. He further held that the motive of making a profit at the time of the purchase, had not been established by the Department, and that it was a "solitary transaction". On these findings, he found himself unable to confirm the finding of the Income-....
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....ut only an excursion into the realm of trade. Against this decision of the Appellate Tribunal, the assessee moved this court and obtained special leave to appeal. Before we deal with the main question in controversy in this appeal, we would like to make some general remarks on the nature of the questions involved in this case. It is not disputed on behalf of the respondent that the question now before us is a question of law, or a mixed question of fact and law, as has been recently laid down by this court in the case of Venkataswami Naidu v. Commissioner of Income-tax. Speaking for the court, Gajendragadkar, J., after a detailed discussion of the decisions of this court in Sree Meenakshi Mills v. Commissioner of Income-tax and Oriental Investment Co. Ltd. v. Commissioner of Income-tax, and of the House of Lords, in Edwards v. Bairstow, came to the conclusion that the question arising in the case, is a mixed question of law and fact, and, therefore, open to examination by this court. In Venkataswami Naidu & Co. v. Commissioner of Income-tax, the question raised was exactly similar to the question now before us, though in a different setting of facts. His conclusion may be stated ....
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....usemen, and had bought four houses in January, 1945, and sold them at a profit in December, 1947. He admitted that he had bought the property with a view to resale, and had instructed his agents to sell the same whenever a suitable purchaser was forthcoming. The assessee was made liable for tax in respect of the profit made by him on the resale. On an appeal by the assessee before the General Commissioners, it was contended on his behalf that the profit on the resale was not taxable. On behalf of the Crown, it was contended that the transaction of purchase and sale in question constituted an adventure in the nature of trade, and that, therefore, the profits arising out of the transaction were chargeable to income-tax. The General Commissioners, being equally divided, allowed the appeal. It was held by the Court of Session (First Division) that the fact that the property was purchased with a view to resale, did not, of itself, establish that the transaction was an adventure in the nature of trade, and that, therefore, the determination by the Commissioners was justifiable in law. The court, in coming to that conclusion, took into account the considerations that the respondent was no....
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.... out for a good purchaser. He was lucky to find a lady with a lot of money to spare, who had, as he alleged, taken a fancy to the plot in question. Thus, he could assign to her the benefit of his agreement with the Society on terms which were highly profitable to him. There is no clear evidence in support of the inference of the Appellate Tribunal that the land was purchased with the sole intention of selling it later at a profit. The Tribunal considered two alternatives in relation to this transaction---one, that the land was purchased in order to build a residential house, and the second, that it was purchased in the hope of selling it later for a profit. The first alternative, the Tribunal rejected on the ground that "he does not seem to have very much of means at his disposal." That itself is a statement which does not bear close scrutiny. During the two years previous to the year under assessment, the appellant had been assessed to income-tax on Rs. 53,000 and Rs. 59,000, as already indicated. That does not lend countenance to the surmise that the appellant was not a man of means. Admittedly, he held marketable shares of the value of about 2 1/2 lakhs of rupees, though all tho....
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....company to be formed for the purpose. Another member of the syndicate undertook to arrange for the promotion of the company. The syndicate's rights were transferred to a company. This company floated another company to which the properties were sold. The syndicate's profits were divided between the members, and the appellant, as one of the members of the syndicate was assessed to income-tax in respect of his shares of the profits. The General Commissioners, on appeal, were of the opinion that the interest in the property in question had been acquired with the sole object of making a profit, and that there was no intention of holding it as an investment. Hence, the assessment to income-tax was affirmed. The King's Bench Division, at the first hearing, remitted the case to the General Commissioners for a finding as to whether there was a concern in the nature of trade, and the Commissioners found that the transaction was not such a concern. It was held by the House of Lords that the profits were not liable to tax on the basis that they were income from an adventure in the nature of trade. Viscount Dunedin, in the course of his opinion, referred, with apparent approval, to....
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....same to a second company, consideration for the sale being paid-up shares of the latter company. It was held by the Court of Exchequer (Scotland) Second Division, that the difference between the purchase price and the value of shares for which the property was exchanged was a profit assessable to income-tax. It was pointed out by the court that the case involved a deal which was a "proper trading transaction, one within the company's power under their articles, and contemplated as well as authorised by their articles." The ratio of the decision in that case appears to have been that though it was a single transaction in which profit was made, it was an adventure in the nature of trade, being in the line of the business adopted by the company. The next case of Martin v. Lowry is another instance of a single transaction of purchase of property being treated as a venture in the nature of trade, on account of the very nature and magnitude of the commodity dealt in by a person whose usual line of business was wholly outside the scope of the new venture. That was a case in which a wholesale agricultural machinery merchant, who never had any dealings in linen trade, purchased from the....
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....cinema business, he happened to be in Berlin, and there took the opportunity of purchasing, for a very cheap price, a very large quantity (one million rolls) of toilet paper for pound 1,000---and realised pound 12,000 by sale of that commodity. He was taxed on the net profit of pound 10,895. It was held by the Court of Session, Scotland (First Division), that it was certainly an adventure, because the assessee made himself liable for the purchase of that vast quantity of toilet paper, obviously for no other conceivable purpose than that of reselling it for a large profit. As regards the question whether the adventure was in the nature of trade, it was contended on behalf of the assessee that it was essential to the idea of trade that there should be a continuous series of trading operations. The court rightly pointed out that the question was not whether it was a trade but whether it was a venture in the nature of trade. Hence, though the single transaction of purchase and sale may not have amounted to what is ordinarily understood by trade in the sense of a series of transactions, it was certainly a venture in the nature of trade, because from the very beginning, the intention was....
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....the same side of the line as the recent decision of this court, which had to deal with a similar question, as already indicated. In that case, the assessee had purchased four plots under four different deeds. During the time that the assessee was in possession of those plots, he made no efforts to put up any structures, or to utilize them in other ways. The assessee was in a fiduciary position with the mills contiguous to which the plots purchased were; and it was also found that the assessee was in a position to influence the mills to purchase those plots at a price favourable to him. It was in that setting of the facts, that this court made the following observations : " When section 2, sub-section (4) refers to an adventure in the nature of trade it clearly suggests that the transaction 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 characterized 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. " Can it be said, in the sett....
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....llow this appeal, and set aside the orders of the Tribunal below with costs. KAPUR, J.---I regret I am unable to agree that the appeal in the present case should be allowed and my reasons are these: On the facts which were proved the Income-tax Appellate Tribunal came to the conclusion that the purchase of land by the appellant was an adventure in the nature of trade and profit arising therefrom was assessable to income-tax. In coming to this conclusion the Appellate Tribunal took into consideration certain facts; (1) that the only payment the appellant made for the purchase of the land was of a sum of Rs. 32,748 which he borrowed from his company and he was not in a position to pay the balance of Rs. 98,246; (2) the appellant had no money available at all to pay the part of the purchase price of Rs. 1,30,994 and he had no means to construct the house (3) that his financial resources were such as not to justify the purchase of the plot of land for the construction of a house ; (4) the site itself fetched no income but it was a kind of investment with the hope of making a profit out of it and the land was purchased only for the purpose of sale; (5) that the appellant being a keen b....
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....ion to the Appellate Tribunal to state the case under section 66(1) but he did not make any application to the High Court till 1957 after he had obtained special leave in this court and the High Court dismissed the petition on the ground that it was barred by time. The position comes to this that the Tribunal refused to state the case under section 66(1) of the Income-tax Act and the appellant did not apply to the High Court under section 66(2) till long after the period of limitation had expired. In these circumstances the courses open to this court would be (1) to set aside the order of the Appellate Tribunal and remit the case to the Tribunal for decision in accordance with the observations made by this court as was done in the case of Omar Salay Mohamed Sail v. Commissioner of Income-tax or it may be open to this court to direct a reference as was done in Jogta Coal Company Ltd. v. Commissioner of Income-tax. Then in Dhakeshwari Cotton Mills v. Commissioner of Income-tax, this court only remitted the case to the Appellate Tribunal to proceed in accordance with law on the ground that certain principles of natural justice had been violated and the assessee was not given an opport....