TMI Blog1979 (1) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... e was subject to tax on profit arising out of the transaction as long-term capital gains ? " The facts leading to these two references are as follows : We are concerned with the assessment year 1968-69, in the case of each of the two assessees before us, the relevant previous year being Samvat 2023. The two assessees before us are carrying on the business of manufacturing art silk cloth at Surat. Each of them has his own independent factor for manufacturing art silk cloth. The two assessees jointly purchased agricultural lands by two transfer deeds. By the first deed dated July 22, 1960, an area of 1,09,626 square yards was purchased for the price of Rs. 44,999 and by another transfer deed dated February 15, 1963, an area of 6,534 square yards was purchased for the total price of Rs. 22,999. Thus, making allowance for other amounts, the total cost of acquisition of the entire area of agricultural land admeasuring 1,16,160 square yards came to Rs. 80,100. In the year 1965, the assessee got the lands converted to non-agricultural use and 90,393 square yards were sold on May 2, 1967, for the consideration of Rs. 16,25,000. The case of the assessee is that before the Collector and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been made and that decision was followed in the case of the assessee in Income-tax Reference No. 168 of 1975. The Tribunal dismissed the appeal of the revenue and upheld the conclusion of the AAC. The Tribunal came to the conclusion that the transaction under reference was not a transaction in the nature of trade and it did not give rise to business income. Thereafter, at the instance of the revenue, these two references have been made to this High Court for our opinion. The principles for the purpose of determining as to when a transaction can be said to be an adventure in the nature of trade and when it cannot be so called, have been laid down by a series of decisions, both of the Supreme Court and of this High Court. The first of these decisions was in G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC). There the Supreme Court considered a number of cases from England, Scotland, etc., and held that the expression " in the nature of trade " postulates 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal effect of all relevant factors and circumstances that determines the character of the transaction. 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. Thereafter, there is the decision of the Supreme Court in Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242. It was held by majority of the learned judges who decided the case, "where a transaction was not in the line of the business of the assessee but was an isolated or single instance of a transaction, the onus was on the department to prove that that transaction was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roplane linen and sells it in different lots, and, for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account : Martin v. Lowry [1926] 11 TC 297 (HL) ; a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit : Rutledge v. IRC [1929] 14 TC 490 ; and a person, even though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whisky and sells it without taking delivery of it at a considerable profit : IRC v. Fraser [1942] 24 TC 498, may be presumed, having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adventure in the nature of trade. These are cases of commercial commodities. But a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. A director of a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions is not always easy to make. The distinction whether the transaction is of one kind or the other depends on the question whether the excess was an enhancement of the value by realising a security or a gain in an operation of profit-making. If the transaction is in the ordinary line of the assessee's business there would hardly be any difficulty in concluding that it was a trading transaction, but where it is not, the facts must be properly assessed to discover whether it was in the nature of trade. The surplus realised on the sale of shares, for instance, would be capital if the assessee is an ordinary investor realising his holding ; but it would be revenue, if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction. For instance, an assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in higher price. Such an investment, though motivated by a po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset is purchased by way of investment, the transaction does not become an adventure in the nature of trade merely because at the date when the asset was acquired, there was intention to resell it, if an enhanced price could be earned. But, it is equally clear, and that is now settled by the decision of the Supreme Court in G. Venkataswami Naidu and Company's case [1959] 35 ITR 594, that if the purchase of the asset was made solely and exclusively with an intention to resell it at a profit, it would be a strong factor indicating that the transaction is an adventure in the nature of trade. These observations of this High Court in D. S. Virani's case [1973] 90 ITR 255 (Guj) were followed by us in CIT v. Premji Gopalbhai [1978] 113 ITR 785 (Guj). The question that we have to ask ourselves is, firstly, has the revenue pointed out the circumstances which would stamp this particular transaction of purchase and sale with the character of an adventure in the nature of trade? Secondly, whether looking at the totality of the facts and circumstances of this case, it can be said that this particular case of two assessees before us was of a transaction which was an adventure in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land was surrounded by the land which the assessees had purchased earlier in 1960 and in order to consolidate the entire plot of land as a regular plot, the assessees purchased the smaller plot of land on February 15, 1963, for Rs. 22,999. Thus, the purchase of the smaller plot after two and a half years after the first purchase of the plot has been properly explained by reference to the AAC's order. But what is more material is that the lands were purchased as agricultural lands and, on each occasion, that is, at the time of the purchase of July 22, 1960 and at the time of the second purchase on February 15, 1963, permission was obtained by the assessees from the Collector. At page 65 of the record before us is a copy of the permission granted by the Prant Officer, Surat, under s. 63 of the Bombay Tenancy and Agricultural Lands Act, and the conditions under the certificate were that the assessees were to use the plot/area for bona fide industrial purposes within one year from the date of the order and the assessees were not to sell the land in question to anybody without the prior permission of the Collector. The permission was granted on July 20, 1960, and by condition No. 1 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of sale was entered into on December 15, 1965, with the proposed co operative society the same rate was agreed upon, namely, Rs.18 per square yard, and it was this rate which was adopted at the time of executing the sale deed on May 2, 1967, in favour of the co-operative society. The price realised by the assessee was at the rate which was originally agreed upon in 1964. This particular conduct does not seem to be the conduct of persons who are out for an adventure in the nature of trade because the case of the revenue is that the prices of land in this particular area were rising and it was with a view to speculate in rising land prices that this land was purchased by the assessee, but in spite of the difference of nearly two years and ten months, the price has remained the same. It does not become clear from the record as to what was the exact area of the land which was agreed to be sold to Bhogilal Pitambardas, but the Tribunal mentions that what was agreed to be sold was " the land " and that land was sold later to the co-operative society but the rate remains the same. It must not be forgotten that in order to obtain permission from the revenue authorities to sell the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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