TMI Blog1983 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... District judge held enquiry into the claims and enhanced the compensation by passing an award for a sum of Rs. 3,95,020 out of which the petitioner's share was Rs. 2,08,739. The ITO treated this amount of Rs. 2,08,739 received by the petitioner towards his share from out of the compensation paid by the government as income from business. The assessee preferred an appeal to the AAC contending that the land purchased by him was agricultural in character and that what was realised was only a surplus over and above the investment and this only resulted in capital accretion and as such the amount of Rs. 2,08,739 could not be taxed as business income. The AAC held as follows: " As pointed out by the Income-tax Officer in the assessment order, these lands were notified for acquisition by the Government on October 17, 1961, whereas the appellant purchased this actionable claim only on October 22, 1962, a year after the issue of the notification. So, it is evident that it is not a casual purchase of investment but it is an adventure in the nature of trade. So, it is immaterial whether all these lands were agricultural or not and the profit arising out of this transaction has to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee, contends that the transaction is a single and an isolated one and it cannot, therefore, be treated as a transaction being adventure in the nature of trade. In support of his contention, he relied upon Venkataswami Naidu Company v. CIT [1959] 35 ITR 594 (SC), AIR 1959 SC 359; Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC), AIR 1965 SC 1898; Ghanekar v. CIT [1971] 80 ITR 236 (Bom); CIT v. Raunaq Singh Swaran Singh [1972] 85 ITR 220 (Delhi); Khorshed Shapoor Chenai v. Asst. CED [1973] 90 ITR 47 (AP); CIT v. Krishna Industrial Corporation Limited [1973] 92 ITR 261 (AP) and ITO v. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 (SC); [1974] CTR (SC) 273. The learned standing counsel for the I.T. Department, on the other hand, contends that the transaction in the instant case is an adventure in the nature of trade. According to him, a single transaction also constitutes business under the definition given under s. 2(13) of the Act and it is not essential for a transaction to be treated as an adventure in the nature of trade that there should be a series of transactions both of purchase and sale. In support of his contention, he relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, too much to imagine that the petitioner and Kondal Reddy expected even at the time of purchase of the lands that they would receive compensation far and above the sale consideration mentioned in their own sale deed. To say that the assessee and Kondal Reddy purchased the lands in question with the sole intention to get compensation far and above what was mentioned in the sale deed is nothing but indulging in conjecture and speculation. Merely because the petitioner and Kondal Reddy received compensation in a sum of Rs. 3,95,026, an argument cannot be built up that the petitioner and Kondal Reddy purchased the lands in question with the sole intention that they would make profit from out of the transaction. The petitioner and Kondal Reddy, of course, pursued the legal remedies under s. 18 of the Land Acquisition Act. The District Judge ignoring the rate mentioned in the sale deed under which the petitioner and Kondal Reddy purchased the land in question, gave a higher rate of compensation. For that, the assessee cannot be penalised. Merely because the petitioner has received his share of compensation from the court in sum of Rs. 2,08,739, is the Appellate Tribunal just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ston [1926] 11 Tax Cas 538, that from the mere intention to resell at a profit, it would be impossible to attribute to the transaction the character of an adventure in the nature of trade. judged from this ruling, it is clear that the petitioner's transaction is one consisting simply of an isolated purchase of land without any intention that it would be resold for any profit as such, as the question of resale does not arise in view of the notification issued by the Government for acquisition of the said land. Further, the land is purchased not to be sold but only to get compensation at the rate to be fixed by the civil court according to the principles of law which are in vogue. Following the principle laid down by Lord President Clyde in Commissioner of Inland Revenue v. Livingston [1926] 11 Tax Cas 538, we would like to hold that the purchase of the actionable claim, even if it is treated so, to obtain compensation as per the award of the civil court is not a transaction which is an adventure in the nature of trade. In Venkataswami Naidu Company v. CIT [1959] 35 ITR 594, their Lordships of the Supreme Court considered several transactions which do not come under adventure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f profit-making and was, therefore, taxable. On a reference, the High Court also held that the transaction was an adventure in the nature of trade and that the department was justified in taxing the amount. On appeal to the Supreme Court, their Lordships held on the facts 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 which intention raised a strong Presumption in favour of the view taken by the Tribunal and that the High Court was right in holding that the transaction in question was an adventure in the nature of trade. It was further held that the expression " in the nature of trade " appearing in the definition of " business " in s. 2(4) of the Income-tax Act postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business; and that would make the question whether a transaction is in the nature of a trade and its decision one of mixed law and fact. Where the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In cases where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or, using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC), the assessee was carrying on business in iron scrap and hardware and never carried on any business in jute or in pressing jute. At the material time when the purchase of the jute press was made, the appellant had, because of abnormal conditions prevailing in the town of Calcutta, closed its business in iron scrap and hardware. The assessee purchased the jute press and the premises appurtenant thereto subject to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployed labourers. The appellant's claim that it has not so done because the appellant could not secure labourers has not been accepted. But that is not a decisive circumstance. The factory was in the occupation of the lessee, Ramnath Bajoria, and possession was obtained after August 10, 1943. But before August 10, an agreement of sale was executed by the appellant in favour of Ranada Prasad Saba in the light of the sequence of events, the inference that the appellant had no intention to commence doing jute pressing business does not necessarily follow. Even if that inference be regarded as binding upon the court, it cannot be presumed that the sole intention of the appellant was to start a venture in the nature of trade. Barring the expectation of Profit and realisation of profit by sale of the property, there is no evidence bearing on the intention with which the Property was purchased. Thus it is clear that their Lordships of the Supreme Court in Venkatasami Naidu and Co. v. CIT [1959] 35 ITR 594, made it abundantly clear that where the purchase has been made solely and exclusively with the intention to resell it at a profit and the purchaser has no intention to hold it for him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchased it with the intention to get compensation only. As to how much compensation he would get was not in his hands. It is the civil court that has to pass ultimately an award and the award will have to be passed in accordance with the established law. He got the higher compensation as a casual and non-recurring receipt. His getting higher compensation as a result of the award by the civil court cannot make the purchase a venture in the nature of trade. Now, we would like to deal with the decisions on which the department relies. In Jaldu Manikyala Row v. CIT [1964] 54 ITR 409 (AP), the Andhra Pradesh High Court took the view that the question whether or not a given transaction is a venture in the nature of trade, is a mixed question of fact and law and as such is open to review by the High Court in exercise of its jurisdiction under s. 66 of the I.T. Act. It is also well established that in determining whether a venture is in the nature of trade, no general or universal test can be laid down and it is not possible to formulate single criterion or apply an exclusive yardstick to be drawn from the totality of circumstances Present in that case. We have no quarrel with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was irrelevant. At the time of purchasing the actionable claims, the assessee was under no obligation or compulsion to do so. In point of time, there was close proximity between the purchase of the claims and the realisation. The assessee had embarked upon a venture in the nature of trade and the surplus realised from the venture was liable to be included in the income of the assessee under s. 10. We have no quarrel with the proposition of law laid down by the Madras High Court as well as the Bombay High Court in the above-cited decisions. They were rendered with reference to the facts and Circumstances of those cases. In those cases, the transactions were clearly and solely intended to make profit and hence the profits were assessable to income-tax. These two decisions, therefore, do not apply to the assessee's case. Hence, we find no substance in the contention of the learned standing counsel for the Department. Sri A. Panduranga Rao, the learned counsel for the assessee, contends that if the disputed amount is treated as income from business it should be assessed in the assessment year 1965-66 but not in the assessment year 1968-69. Since we took the view that the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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