TMI Blog1967 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee-firm purchased the Brengun Factory and the properties attached to it consisting of 403 acres of land, 14 factory buildings, about one hundred residential quarters and railway sidings, furniture, etc., in addition to the stores, from the Government of India. The price of the Brengun Factory and the properties together with the furniture, etc., was fixed at Rs. 27 lakhs while the price of the stores was fixed at Rs. 8 lakhs. During the relevant accounting years, the assessee-firm sold a part of the stores for Rs. 9,53,918 O.S. and 46 acres of land, 14 factory buildings, furniture, railway siding, etc., for Rs. 26,48,215 O.S. It was not disputed that the excess over the price realised for the resale of stores was Rs. 2,26,484 O.S. and for the resale of part of the factory land, building, etc. was Rs. 10,46,834 O.S. It was admitted by the assessee-firm before the Appellate Tribunal that the surplus realised by the resale of stores was not a capital accretion but an adventure in the nature of trade. With regard to the factory it was argued that it was an investment and not an adventure in the nature of trade and as such the excess amount realised represented a realisation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erabad Income-tax Act (hereinafter referred to as the "Hyderabad Act"), which corresponds to section 23(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as the "Indian Act"). The assessments for the subsequent years were made under the Indian Act. The charging section under the Hyderabad Act is section 3, which corresponds to section 4 of the Indian Act. The word "business" is defined in section 3(1) of the Hyderabad Act which is identical with the language of section 2(4) of the Indian Act. Section 8 of the Hyderabad Act states : "Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing, namely : . . . (iv) Profits and gains of business, profession or vocation." It corresponds to section 6 of the Indian Act. The question whether profit in a transaction is a capital accretion or has arisen out of an adventure in the nature of trade is a mixed question of law and fact. In G. Venkataswami Naidu and Co. v. Commissioner of Income-tax it was pointed out by this court that the expression "in the nature of trade" in sub-section (4) of section 2 of the Indian Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such transactions several factors have been treated as significant in decided cases. For instance, if a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold or is converted into a different commodity and then sold. The magnitude of the transaction of purchase, the nature of the commodity, the subsequent dealings of the assessee, the nature of the organisation employed by the assessee and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture. In Martin v. Lowry the assessee purchased a large quantity of aeroplane linen and sold it in different lots, and for the purpose of selling it started an advertising campaign, rented offices, engaged an advertising manager, a linen expert and a staff of clerks, maintained account books normally used by a trader, and passed receipts and payment in connection with the linen through a separate banking account. It was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be also a certain pride of possession. But the purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade ; and I can find no single fact among those stated by the Commissioners which in any way traverses that view. In my opinion, the fact that the transaction was not in the way of the business (whatever it was) of the respondent in no way alters the character which almost necessarily belongs to a transaction like this. These are cases of commercial commodities but a transaction of purchase of land cannot be assumed without more to be an adventure in the nature of trade. In Leeming v. Jones, a syndicate was formed to acquire an option over a rubber estate with a view to resell it at a profit, and finding the estate too small the syndicate acquired another estate and sold the two estates on profit. It was held that the transaction was not in the nature of trade and the profit was not liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he labourers of the mills but came to the conclusion that the transaction was an adventure in the nature of trade. On a reference, the High Court expressed the same view. It was held by this court in appeal 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 and that the High Court was right in holding that the transaction was an adventure in the nature of trade. As we have already said, it is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction. What then are the material facts found in the present case ? Alladin and Co. was the managing agent of several joint stock companies, viz., Hyderabad Asbestos Cement Products Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs to Government of India, though by that time it had sold properties valued over Rs. 30 lakhs. It is a significant circumstance that on 23rd December, 1946, a meeting of the board of directors of the Asbestos Co. was held and in that meeting a resolution was passed that the Government should be approached in the matter of the valuation of the site and building in the establishment of the "Asbestos Works" in the premises of the Brengun Factory purchased by the assessee-firm and that the managing agents be authorised to address Nawab Medhi Nawaz Jung Bahadur in that behalf. The notice convening the meeting was issued on the 23rd December, 1946, on which date the assessee-firm had not even intimated their acceptance of offer made by the Government of India for the sale of Brengun Factory. Pursuant to the resolution of 28th December, 1946, the Asbestos Co. resolved to purchase 14 acres of land, buildings, etc., for Rs. 5 lakhs. It should be noticed that the valuation by the P.W.D., which was considered necessary on the 28th December, 1946, was given up and the price of Rs. 5 lakhs was accepted by the board of directors. In the circumstances, the inference that that resolution was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lish that the assessee-firm had not enough financial resources to invest Rs. 36 lakhs on the Brengun Factory and that the transaction was launched upon with view to make profit and not as a permanent investment. There is another aspect of the matter to be taken into account. The property income from Brengun Factory during the year 1953-54 as would appear from the assessment orders of the years 1953-54, 1954-55 was about Rs. 22,000 I.G. The interest on loans or overdrafts is said to be 4 1/2 per cent. On 27 lakhs, the balance of price payable to the Government, the annual interest would be about Rs. 1,21,500. It is manifest that the assessee-firm could not have borrowed the money to purchase the property as an investment when the income was about 1/6 of the interest payable on the amount borrowed. Mr. Sukumar Mitra suggested that the assessee-firm intended to develop the Brengun Factory as an industrial estate and referred to certain correspondence in this connection. But the correspondence does not establish that any of the foreign companies agreed to start a cycle factory of their own or in collaboration with the assessee-firm. The correspondence between the parties admittedly end ..... X X X X Extracts X X X X X X X X Extracts X X X X
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