TMI Blog1970 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... al order of the Tribunal in appeal. Thus, the statement of case and other documents attached to it and forming part thereof have all to be seen to find out what are the facts of the case and contentions of the parties. A perusal of the documents placed before us shows that the reference has arisen in the following circumstances. The assessee is a limited liability company and owned some cement factories in India as also in areas now forming part of Pakistan in the relevant assessment year which is 1952-53, the corresponding accounting period being the calendar year 1951. During the second world war Mr. R. Dalmia was consulting Messrs. F. L. Smidth Co. (Bombay) Private Ltd. in respect of his plans for development of cement factories owned and controlled by the assessee and other companies with which Mr. Dalmia was directly or indirectly associated. In January, 1945, one of the engineers of Messrs. F. L. Smidth Co. visited Mr. Dalmia in New Delhi, and later that year the plans took definite form in respect of the proposed developments. Orders were placed on Messrs. F. L. Smidth Co. for supply of machinery for four plants in 1946, to be erected at Shantinagar, Dandot, Dalmiana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch will be due much early. We shall be willing to put one of those plants in Orissa provided we get suitable terms. Thereafter a meeting was held on January 8, 1948, in which the general manager of the assessee-company, the chief engineer, Hirakud Dam project, and one Dr. H. B. Mohanty, were present. Discussions were held between the various persons present and a note of the discussions has been attached with the statement of case as enclosure " I " of annexure " D." It is recorded in this note that the assessee had ordered, machinery for replacing their cement plants and the machinery was expected to be shipped at an early date and parts of it would start arriving in March, 1949. The complete supply of the plant was estimated to take about six months and if the negotiations are fruitful the first lot of cement could be supplied by the beginning of 1950. Various other things regarding the company to be floated were discussed and the shares that the promoters, namely, the assessee and the Orissa Government, were to have. Mr. Roy who was representing the assessee at this meeting insisted, it is recorded, that a final decision should be taken at an early date so that the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the machinery as supplied to Orissa Cement Ltd. was, at the time of supply, valued much more than the invoice price which had been debited to it and that the Orissa Cement Ltd. had benefited to the extent of almost Rs. 21 lakhs. On this the Orissa Government looked into the matter and decided that it would have no objection if some extra amount was paid by Orissa Cement Ltd. to the assessee for the machinery received by it. Thereupon, by a resolution dated December 4, 1951, the Orissa Cement Ltd. allowed a further sum of Rs. 7 lakhs to be paid to the assessee and in lieu of cash payment allotted 70,000 ordinary shares of Rs. 10 each fully paid up to the assessee. This amount of Rs. 7 lakhs was taxed by the Income-tax Officer in the hands of the assessee as profits received from an adventure in the nature of trade. The assessee, dissatisfied with the assessment, appealed to the Appellate Assistant Commissioner but the appeal was disallowed. On further appeal to the Tribunal the assessment was upheld. Thereupon, the assessee moved the Tribunal to state a case to the High Court under section 66(1) of the Indian Income-tax Act of 1922, which it has done, and the following question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular business. On the facts stated and according to the case set up by the revenue before all the Tribunals, this matter has to be decided keeping in view that this particular transaction in which the assessee received Rs. 7 lakhs was deemed to be a transaction in the nature of trade or, to use the language of the statute, an adventure or concern in the nature of trade. Mr. Gokhale, learned counsel for the assessee, has urged that, on the facts found by the Tribunal, the only possible conclusion would be that the amount sought to be taxed in the hands of the assessee is either a casual receipt, a windfall or a capital gain but cannot be regarded as profit or gain from an adventure or a concern in the nature of trade. The learned counsel asserts that three basic facts have been found against him. Referring to the decision of the Tribunal, Mr. Gokhale pointed out that after the remand report was received by the Tribunal it stood established first, that the original order was placed for supply of machinery by the assessee in 1946 for using it in its own factory by installing it in Dandot in Pakistan ; secondly, that the Dandot plant made available to the Orissa Cement Ltd. was ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f equity and by way of compensation without there being any obligation on Orissa Cement Ltd. to pay any higher price. From the various circumstances enumerated above Mr. Gokhale sought to draw the inference that the transaction in question was not one which could be regarded as an adventure in the nature of trade. He referred to us a number of decisions in which the various individual aspects enumerated by him were held to be not sufficient in regarding a particular venture to be a concern or adventure in the nature of trade. We shall presently deal with those cases but a few salient features in deciding a reference like the present one must first be set out. It is settled law that the jurisdiction conferred on the High Court by section 66(1) of the Act is limited to entertaining references involving questions of law. If the point raised is one which only relates to the interpretation of a statute or the provisions of a statute, there is no doubt that it is a pure question of law and the High Court in such a reference is not bound by the views of the Tribunal, but can itself construe the provision. Similarly, a construction of a document of title would also be a pure question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion one way or the other. Keeping the two aspects on which we have adverted to above in mind we will now proceed to consider the various cases cited by Mr. Gokhale in support of the contentions of the assessee. The first case to which our attention was invited is a decision of the Supreme Court in Saroj Kumar Mazumdar v. Commissioner of Income-tax. In this case the assessee, who was engaged in various types of business activities and was a shareholder and director or managing director of several companies apart from being a partner in a firm carrying on engineering work, held shares of the value of Rs. 2,45,000, a considerable portion of which belonged to members of his family. For the assessment years 1946-47 and 1947-48, he was assessed to income-tax on the sums of Rs. 53,000 and Rs. 59,000 but for the assessment year 1948-49, he submitted a loss return of Rs. 2,000. In order to acquire a plot of land for building a residential house for himself and constructing a workshop for his business activities the assessee had paid a sum of Rs. 32,748 to an insurance society in January, 1946, the amount being 25% of the estimated price of the plot of land comprised in a development sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstood 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 manifest that the purchase was made not with a view to utilising the commodity for the personal use of the purchaser, but with a view to making profit by a resale, which was apparent from the very nature and magnitude of the commodity purchased. " At another place, while considering some English cases, the learned judge observed as under: " It was the assessee's sole dealing in whisky, but all the same it was held to be liable to income-tax on the ground that the nature of the transaction, with reference to the commodity dealt in in large quantities, which would not ordinarily be meant for personal or family consumption, may indicate that it was an adventure in the nature of trade. " Thus, it is the totality of the facts brought out which have to be taken into account and not an isolated fact that a particular transaction was an isolated transaction or that there was no intention to sell when the asset was acquired. The next case to which our attention was invited was also a decision of the Supreme Court in Janki Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilk mill was an adventure in the nature of trade. There was no material in this case to come to a finding that either when the assessee-company started negotiations to purchase the silk mill or when it purchased the silk mill there was any intention on the part of the company to sell the same at a profit later on. According to Mr. Gokhale this aspect is present in the present case also and in fact according to him there is a finding that there was no intention to sell the cement plant when it was originally ordered in 1946. So, he concludes that the transaction in question must be held to be one not falling within the mischief of the phrase " an adventure in the nature of trade ". To our mind once again the ratio is not applicable and, in fact, as has been observed by the learned judges of the Madras High Court, on page 310, of the report : " Thus the existence of an intention to sell at a profit even at the time of the purchase may be a relevant factor in deciding whether the transaction of purchase and sale constituted an adventure in the nature of trade. The existence of such an intention is neither conclusive nor decisive in proving that the purchase and the subsequent sale t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the transaction of sale from the transaction of purchase on the ground that the particular transaction under scrutiny was not one which had been entered into at the time of purchase with the intention of earning a profit but was one where the purchase was made with the intention of investment. The rule laid down in this case would have no applicability in view of the facts and circumstances on which we will comment hereafter. Lastly, Mr. Gokhale relied on the well-known decision of the House of Lords in Leeming v. Jones. This was a case where the assessee as a member of a syndicate of four persons had acquired an option over a rubber estate with a view to resale at a profit. Another option of an adjoining estate was also acquired and the two estates were sold to a public company formed for the purpose of exploiting the rubber estate. The syndicate's total receipts amounted to pound 3,000 and the balance remaining after deduction of certain expenses was sought to be taxed under Schedule " D " of the English Income Tax Act. It was held that the transaction was not a concern in the nature of trade. The learned counsel strongly relied on the observations of Lord Buckmaster in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sell it again at Christie's. ' That ', according to the learned judge, ' is not carrying on a trade ' and ' so what the Commissioners must do is to say, one way or the other, was this, I will not say carrying on a trade, but was it a speculation or an adventure in the nature of trade.' The learned judge no doubt added that he did not indicate which way the finding ought to be, but he commended the Commissioners to consider what took place in the nature of organising the speculation, maturing the property and disposing of the property, and when they have considered all that, to say whether they think it was an adventure in the nature of trade or not. It is thus clear that Rowlatt J. indicated clearly though in cautious words what he thought was the true nature of the transaction made. Even so, on reconsideration of the matter, the Commissioners returned a finding in favour of the assessee. After the finding was returned Rowlatt J. held that he must abide by his own decision in Pearn v. Miller, and so the appeal was allowed. The matter was then taken to the Court of Appeal where the revised finding of the Commissioners was treated as a finding on a question of fact not open to chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that Case VI was inapplicable because Case VI necessarily refers to the words of Schedule D, that is to say, it must be a case of annual profits and gains and those words again are ruled by the first section of the Act which says that when an Act indicates that income tax shall be charged for any year at any rate the tax at that rate shall be charged in respect of the profits and gains according to the Schedules '. Lord Buckmaster agreed with the observations of Lord Justice Lawrence, that there can be no middle course open in such cases. Viscount Dunedin, in concurring with the opinion of Lord Buckmaster, dealt with the several arguments urged by the Crown but the observations made by him with regard to the last argument are relevant for our purpose. ' The last argument of the counsel for the Crown ', observed Viscount Dunedin, ' was that there was a finding that the respondent never meant to hold the land bought as an investment. 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 his investment but per se it leads to no conclusion whatever '. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These were admittedly obtained after the deal with the Orissa Government had gone through. It is also apparent from the record that the supply of the Dandot plant was kept in abeyance on account of the creation of Pakistan which came into existence soon after the confirmation of the orders made on August 6, 1947, by M/s. F. L. Smidth Co. No fact has been brought on record to show that when the actual order to despatch the plant was given, there was still an intention on the part of the assessee to utilise the plant in question for one of its own cement factories or to purchase it as an investment. In fact, it is clear that when the order was given to despatch the plant it was with the intention to sell it to Orissa Cement Ltd. Mere debiting or crediting of the price, would also not be relevant inasmuch as soon after the supply of the plant to Orissa Cement Ltd., Mr. J. Dalmia by his letter dated April 7, 1950, raised the question of increase of price. Mr. Gokhale would like us to take into consideration the intention of the assessee only at the time of the placing of the order in 1946, but the intention to sell before placing of the despatch order cannot be ignored. It is true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogous to that. In the circumstances, it would not be correct to lay much stress on the isolated nature of the transaction. Further, the intention at the time of the placing of the order would by itself not be a guiding factor inasmuch as the subsequent development in a case like the present one would have to be taken note of in coming to the conclusion as to when did the purchase really materialise and whether the same could be corelated to the sale. The purchase of the plant in question can also not be regarded as an investment or in the nature of an investment. From the very nature of the machinery purchased it is obvious that the plant was not and could not be acquired for the purpose of an investment like land or other immovable property and be retained indefinitely, even in the hope of selling it at some future date at a profit. The machinery or the plant could not be kept idle indefinitely, it had on the contrary to be put to use and worked soon after its import, lest it should lose its utility either wholly or in part by becoming rusted or becoming out of date. Our answer, therefore, to the question referred to us would be in the affirmative, against the assessee and i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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