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TMI Blog1971 (9) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... tskirts of the city of Rajkot for the price of Rs. 10,000 from Thakoreshri Shivsinhji Pratapsinhji and Prince Shri Ajitsinhji Shivsinhji. Each of the assessees contributed an equal sum of Rs. 2,500 towards the purchase price and was entitled to an equal 1/4th share in the land. Nothing was done on the land by the assessees by way of development or plotting or laying out roads; the land remained in the same condition in which it was when purchased. On 2nd October, 1959, the assessees entered into an agreement with one Bhagwanji Khataubhai and three others for sale of 91,571 square yards out of this land at the price of Rs. 1 per square yard. This agreement is not on the record of the case. The Tribunal, at the hearing of the appeals before it, called upon the assessees to produce it but they expressed their inability to produce it on the ground that it was not available. Whatever be the reason for non-production, the fact remains that it was not produced and it is, therefore, not possible to say what were the precise terms on which the assessees agreed to sell 91,571 square yards of land to Bhagwanji Khataubhai and his three colleagues. But, it does appear from a subsequent document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. If the surplus represented capital gain, the charge of income-tax would be much lighter than what it would be, if it represented business profit. The Income-tax Officer took the view that the transaction of purchase and sale of land was an adventure in the nature of trade and the surplus realised on the sale of land was, therefore, revenue profit and not capital gain. Each of the assessees contested this view taken by the Income-tax Officer in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the contention of the assessees that so far as the assessees other than D. S. Virani were concerned, the transaction of purchase of 1/4th share in the land by each of them was by way of investment and when they sold their respective 1/4th share in the land to Bhagwanji Khataubhai and his three colleagues, they merely realised the enhanced value of their investment and the surplus realised by them was, therefore, capital gain and not business profit, but so far as D. S. Virani was concerned, the Appellate Assistant Commissioner took the view that though 1/4th share in the land was originally purchased by D. S. Virani as an investment, D. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of law and fact. It was pointed out by the Supreme Court, in what may properly be regarded as the leading case on the subject, namely, G. Venkatswami Naidu and Co. v. Commissioner of Income-tax that the expression "adventure in the nature of trade" in sub-section (4) of section 2 postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business and a Tribunal while considering the question whether a transaction is or is not an adventure in the nature of trade, before arriving at its final conclusion, has to address itself to the legal requirements associated with the concept of trade or business. Such a question is one of mixed law and fact and the decision of the Tribunal on it is open to challenge under section 66(1) of the Act. See Saroj Kumar Majumdar v. Commissioner of Income-tax and Janki Ram Bahadur Ram v. Commissioner of Income-tax. It is, therefore, competent to this court to examine the facts and circumstances of the present case in order to see whether the Tribunal has properly applied the legal principles in reaching a finding that the transaction of purchase and sale of land by the assessees was an adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is related to the business normally carried on by the assessee, though not directly part of it, an intention to engage in an adventure in the nature of trade may be readily inferred; there would be no difficulty in such a case in concluding that it is a trading transaction. But, where it is not related to the business of the assessee, there would have to be clear and positive evidence of facts and circumstances to show that the transaction was an adventure in the nature of trade. The nature of the commodity which forms the subject-matter of the transaction may also throw light on the true legal character of the transaction. If the commodity is a commercial commodity, the transaction may lend itself more easily to the inference that it is an adventure in the nature of trade than in a case where the commodity is not a commercial commodity. So far as land is concerned, it is now clear from the decisions of the Supreme Court in G. Venkataswami Naidu and Company's case and Janki Ram Bahadur Ram's case that land is not a commercial commodity. Gajendragadkar J. pointed out in G. Venkataswami Naidu and Company's case : "Normally the purchase of land represents investment of money in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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, 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. The Supreme Court pointed out in G. Venkataswami Naidu and Company's case, at page 610 of the report; "Cases may, however, arise 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 no doubt 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." It is in the light of these gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land was an isolated transaction so far as these assessees were concerned. It would, therefore, appear, on the application of the general criteria discussed above, that the transaction of purchase and sale of the land would not be regarded as an adventure in the nature of trade unless the revenue would point to facts and circumstances which would show that such was its true character. The revenue contended that the land was acquired by the three assessees with the sole and exclusive intention to resell it at a profit and it must, therefore, be presumed, unless there are circumstances which offset such presumption, that the transaction was an adventure in the nature of trade. Three circumstances were strongly relied upon by the revenue in support of this contention. The revenue pointed out that the area of the land purchased by each of the three assessees was 25,000 square yards and this was a large area which could not possibly have been intended to be used or enjoyed by any one of the three assessees for himself. Nor was it possible to say, urged the revenue, that this area of land was purchased as an investment with a view to earning return on the investment. The land purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who belonged to Rajkot might have thought that it would be desirable to invest some moneys in the purchase of land near or around the city of Rajkot. The land which might be purchased might come in useful at any time in the future and the assessees might be able to make use of it for themselves and the members of their respective families or they might be able to earn rent out of it, if there was future development of that area. We do not think that the revenue is right when it says that there could be no intention of earning return from the investment in the purchase of the land. It is true that there was no immediate prospect of earning return on the amount invested, but the possibility of earning return, if the area developed in the future, could not be ruled out. Moreover, it must be remembered that the amount that was being invested by each of the three assessees was a trifling amount having regard to the large wealth possessed by each of them and even if there was no possibility of obtaining return, that would not be a circumstance which would suggest that the intention of the three assessees was not to purchase the land by way of investment but to purchase it only with a vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of 1/4th share in the land in the present case. The transaction of purchase and sale of 1/4th share in the land by D.S Virani was, therefore, clearly in the ordinary line of his business and must be regarded as part of his business activity. It is true that the land was purchased by D.S. Virani jointly with the other three assessees but that cannot militate against the inference that he did it as a trading activity. Merely because the transaction of purchase and sale of the land. so far as the 1/4th share of each of the other three assessees was concerned, was by way of investment does not mean that the transaction in so far as it related to 1/4th share of D.S. Virani was also by way of investment. It is not at all impossible that four persons may jointly purchase a piece of land in specified shares and out of them, three persons may do so by way of investment while the fourth may do it with a view to trading in his share. It must be remembered in this connection that the other three assessees were residing out of India and the entire transaction of purchase of the land on their behalf was handled by D.S. Virani and, therefore, whatever might have been the intention of the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o outside parties and the purchase price for the sale of the land was to be received by the assessees from the purchasers of the plots at the rate of Re. 1 per square yard. It would thus appear that the assessees by entering into such an arrangement, received the benefit of a higher price which would ordinarily follow from laying out roads, dividing the land into plots and selling the plots. This arrangement also indicates that D.S. Virani who entered into the transaction of sale did it by way of trading activity so far as his 1/4th share in the land was concerned. The Tribunal was, therefore, right in taking the view that the surplus realised by D.S. Virani by sale of his 1/4th share in the land was business profit.
Our answers to the questions referred to us, therefore, are :-Question in Reference No. 11 of 1970, in the affirmative and question in each of the three References Nos. 12, 13 and 14 of 1970, in the negative. The assessee in Reference No. 11 of 1970 will pay the costs of the reference to the Commissioner while in each of References Nos. 12, 13 and 14 of 1970, the Commissioner will pay the costs of the reference to the assessee. X X X X Extracts X X X X X X X X Extracts X X X X
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