TMI Blog1965 (5) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... The company also applied for unfiltered water supply and to the telephone authorities asking for telephone connections. A firm of architects was approached for preparing plans for the building to be constructed. In 1952, the plot was sold for ₹ 4,83,617 and an excess of ₹ 1,65,906 was realised.... The further facts emerging from the orders of the Income-tax Officer, of the Appellate Assistant Commissioner and also from the order of the Appellate Tribunal (which is a judgment of affirmance of the orders of the Tribunal below) are briefly as follows: (a) One of the assessee-company's directors, Sri K.L. Jatia (shortly hereafter stated as Jatia) is the main figure in the company. The company's staff consists of only one assistant. Its establishment expenses comes to ₹ 675 only. Some of the shareholders of the company were Jatia's close relations. Jatia was connected with a number of concerns. One of such concerns is M/s. Onkarmal Kanailal and Co. (shortly stated hereafter as O.K. Co). It had on January 1, 1950, a credit balance of ₹ 2,35,000 only and on December 31 of the same year, a sum of ₹ 3,47,000. The account shows that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution passed by the assessee-company for realisation of an average price of ₹ 6,000 per cottah of land on sale. The assessee offered the land for sale in the market. (g) The explanation for purchase given by the assessee before the Income-tax Officer was for constructing a building for the use of the company but the explanation given before the Appellate Assistant Commissioner was for Jatia's residence. (h) The reason for sale given by the assessee before the Income-tax Officer was that the land became unsuitable for construction and thereafter the project was given up. The Income-tax Officer referred to clause 9 and held that the present transaction was within the objects of the company's business. He rejected the contention that the plot had been acquired for the object of constructing building for the use of the company because there was no evidence to support it. Even relying on the assessee's contention as to the reason for sale, viz., that the assessee later found the plot unsuitable for construction , there was no need, in the opinion of the Income-tax Officer, for such a building, considering, inter alia, the facts that the land was purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts. Some plans prepared by architects of a house for K.L. Jatia were put before the Tribunal but it did not see how they are at all relevant . The Tribunal found as a fact that all the applications for water, electricity and telephone seemed to have been made with a view to bolster up the case of intention to build the same. It was also found that there was certain amount of foresight, calculation and origination by the assessee in buying up the lands, keeping them and selling them when the price was high . There can be also no doubt say the members and whatever has been done to the plot has been done with a view to make it marketable . In its view, the company cannot build for its director. The Tribunal ultimately upheld the order of the Appellate Assistant Commissioner, which, as already stated, in its turn, confirmed the assessment. Mr. Mitra, the learned standing counsel appearing on behalf of the applicant-assessee, with his usual thoroughness, contended before us: (1) That it is a case of a solitary isolated transaction which is not in the line of the assessee's business; (2) that the onus of proof required to be discharged by the department was not done in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in a particular case. In my view no decided case can, strictly speaking, be a precedent which would govern the decision of a later case involving a somewhat similar question. Sinha J. laid down ten tests in the case of Janki Ram [1963] 50 I.T.R. 350for application to cases of such transactions. Gajendragadkar J. (as his Lordship then was), speaking on behalf of the Supreme Court in Venkataswami Naidu's case([1959] 35 I.T.R. 594), however, held that it is impossible to evolve any formula in determining the character of isolated transactions in tax proceedings. To my mind, the decisions can be used only by way of illustrations of the different view-points. I now proceed to examine the grounds or propositions put forward by Mr. Mitra in support of his contention that the profit resulting from sale of the plot is not an adventure in the nature of trade. The line of demarcation between the case of isolated transaction of purchase and sale being ventures in the nature of trade and those which are not such ventures is very thin. The nearest case cited was that of Saroj Kumar Majumdar(10). The facts scrutinised in the said case afford a useful contrast to the case in hand and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting of the facts. Some of the other salient facts of the case in hand for having useful comparison with those in the case of Saroj Kumar Majumdar [1959] 37 I.T.R. 242 (S.C.) are as follows: (a) the purchase of the land was by borrowing, (b) after purchase, the assessee company was heavily indebted, (c) there was no resolution of the board to purchase the land, though there was a resolution at the time of the sale, (d) there was no fund to raise any building, rather there was no attempt to raise any fund; and no evidence was adduced as to how the assessee could have hoped to find the fund necessary to construct the building on such an extensive land, (e) different cases were made at different times for the use of the proposed building, viz., residence of a director, for the directors (in plural), for staff (only one), for company's use, etc. Before the Appellate Assistant Commissioner, the assessee's case was that the building was for office accommodation. The terms of appointment of the director for free residence were not produced before the Tribunal for the residential use of the director, Jatia. There is no evidence as to no accommodation for the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunals below was perverse. The facts before them point to an adventure in the nature of trade. By all normal tests of trade, this was a trading activity. Everything which was done here was precisely what is normally done by financiers in this line of activity or part of what is normally understood to be trade. It is no doubt true that one must consider a trading transaction at the time of buying and selling. The transaction was merely a test of machinery. It is also true that the difference between the purchase and the sale price must also be considered. In the instant case it was a genuine transaction and no sham. Nothing is extraordinary. The revenue can never tell the taxpayer how to conduct his trade. The sum of the evidence upon which the Tribunals below made the findings, it must be assumed, that their determination can only have been based on the fact that it is an adventure in the nature of trade. Even if one may agree to the first proposition of the learned standing counsel as a matter of words, regard must be had to the subsequent dealings and, so viewed, this was not really an isolated transaction but one out of four. When I say isolated, I mean that there was no ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to another judgment, delivered within a course of 3 months, viz.,in the case of S.K.AR.K.AR. Somasundaram v. Commissioner of Incometax [1963] 47 I.T.R. 336 where it seems that the principle laid down in the earlier decision has not been strictly followed. Of course, human affairs and business affairs are of infinite variety and they do not fit neatly into categories or classes in all cases. But I can find nothing in the instant case that enables me to say that it is not a trading transaction and the question is echoed, as asked by Mr. Meyer, If it is not trade, what is it? In the light of such knowledge I may have of the usage in business affairs I must put myself the question whether it is unreasonable to say that the operation of the assessee in this case was not trading or that the expression trade does not apply to it. I am not prepared to say that the opinion of the Tribunals below is unreasonable; so unreasonable that it can be dismissed as one which could not reasonably be entertained by them. It is not sufficient that the Tribunal would itself have come to a different conclusion. Reasonable people on the same facts may at times reasonably come to different conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is somewhat contradictory to the expression used in the earlier Supreme Court decisions. Accordingly, even if there by any onus on the department, it is sufficiently discharged in the present case. I, therefore, find myself unable to discover where I have gone wrong in what I have said on this second proposition. The third proposition is an extension of the earlier two propositions. Rather it harps back to the first. The learned standing counsel took great pains in attempting to differentiate between pure facts, primary facts and inferential facts and placed before us passages after passages for hours from the several decisions and particularly from the decision in Edwards v. Bairstow([1955] 28 I.T.R. 579; [1956] A.C. 14) and also from the Supreme Court decision of Sree Meenakshi Mills v. Commissioner of Income-tax([1957] 31 I.T.R. 28; [1956] S.C.R. 691). Mr. Mitra wanted first to clear up the ground between different categories of facts. Mr. Mitra then argued that the facts appearing in the orders of the Income-tax Officer and the Appellate Assistant Commissioner cannot be looked into as the said orders were not made part of the statements of the case. Only the facts fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only at one-half of the transaction and turn a blind eye to the other half. I do not believe that there is any rule of law which requires the Income- tax Officer or the Appellate Assistant Commissioner to disregard the object of the transaction as irrelevant or its result. There may be occasions when a reasonable man may turn a blind eye to the facts but this is not one of them. To my mind, the facts found by the Income-tax Officer and affirmed by the Appellate Assistant Commissioner and more so, when they are not disputed, can be and were properly looked into by the Appellate Tribunal; particularly when no challenge was made about the finding of facts before the Tribunals below. On the fourth and the last proposition, the learned standing counsel submits that the discussion in the judgment of the Tribunal below, even though partly irrelevant, the whole judgment comes into the arena of conjectures and surmises. The Appellate Tribunal has misdirected itself to come to the findings in the reasonings for necessity of such a building and the order accordingly becomes a pure conjecture. Mr. Mitra puts the question: What does it matter if the company constructs the building for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by themselves, separately they cannot pass the test of conjectures and surmises and that, therefore, the totality cannot pass that test. This is exactly what is attempted by Mr. Mitra in this case. In the line of authorities, culminating in Edwards v. Bairstow([1955] 28 I.T.R. 579 (H.L.)), I ask myself the same question put by Lord Radcliffe: What detail does it lack that prevents it from being an adventure in the nature of trade, or what element is present in it that makes it capable of being aptly described as anything else . The inherent nature of the transaction in the instant case undoubtedly suggests a trading operation. On the facts found by the Income-tax Officer, affirmed by the Appellate Assistant Commissioner and the Tribunal, I am driven to the conclusion that the transaction was an adventure in the nature of trade and the Income-tax Officer had no grounds upon which he could hold that it was not. The fourth and last proposition of Mr. Mitra, therefore, does not also help him. I beg to add that it is not an exceedingly simple case and we have to give our most anxious consideration. There are different questions of law involved in it. The application of old prin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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