TMI Blog1988 (11) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... dilapidated building. In the assessment proceedings for the assessment year 1970-71, the question arose whether the excess realisation from the sale of the property would be assessable as revenue profits from an adventure in the nature of trade or merely as capital accretion assessable as capital gains. In the course of the assessment proceedings for the earlier assessment year, the assessee took up the stand that the profits realised were from an adventure in the nature of trade, but the correct profits could be ascertained only after all the plots were sold and the entire amount was realised. However, in the next year, the assessee changed his stand and contended that the entire realisation from the sale of plots represented capital receipt assessable to capital gains in the respective assessment years. The Income-tax Officer, while examining the claim of the assessee, found that the assessee had advertised for the sale of the property in the year 1964, though the advertisement also offered the property for lease. Before the Income-tax Officer, the assessee contended that the property was purchased as an investment either to be used by his family members who were in India or, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits could not be the criterion for holding that the assessee indulged in any business activity. The Appellate Assistant Commissioner rejected the contentions raised on behalf of the assessee and held that the assessee was engaged in an adventure in the nature of trade giving rise to revenue profits. The Appellate Assistant Commissioner also distinguished the decision of this court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578, while upholding the assessment made by the Income-tax Officer. Being aggrieved by the order of the Appellate Assistant Commissioner, the assessee preferred a second appeal to the Income-tax Appellate Tribunal wherein also the assessee raised similar contentions that the purchase of the property was made with a view to derive income from it and when it was found that no satisfactory arrangement could be made for letting out the property, it was decided to sell it in small plots and since the sale of the property in small plots was only with a view to realise the best price, there was no intention on the part of the assessee to venture in any trading activity. It was further pointed out that neither in the past, nor subsequently, the assessee ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re when he converted the total area of the property into housing sites and sold the plots giving rise to profits. It was pointed out that even at the time when the assessee purchased the property, he was fully aware of the condition of the property which consisted of 22 grounds with a dilapidated building and which could not have yielded any income. Great stress was laid by learned counsel for the Revenue on the fact that the assessee is a non-resident and hence could not have invested so much of money on a property which is not likely to yield any income immediately. Learned counsel also pointed out that the assessee, except for putting some advertisements in papers, did not take any step to repair the building to make it habitable. It was further contended that the assessee, immediately after purchase of the property, advertised it for sale and at no point of time, the assessee made any attempt to let out the property for rent and after four years, the assessee converted the area into house sites and sold the plots over a period of years. According to learned counsel, all the materials on record clearly indicate that the assessee, even from the inception, wanted to indulge in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of the issue is such that no decision even on similar facts could be taken as a binding precedent. The Supreme Court explained the position thus (at page 609) : "As we have already observed, it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would, besides, be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions, several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legal position thus (at page 610) : "In this connection, it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit ? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true ; and so some judicial decisions apply the test of initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test, distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole ; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." Reference may also be made to the observations of Lord Denning in Griffiths (Inspector of Taxes) v. J. P. Harrison (Watford) Ltd. [1965] 58 ITR 328 (PC). Bearing in mind the principles laid down by the Supreme Court, it is necessary to examine the facts of the present case. Already we have noticed the contentions urged for the Revenue. The first contention is that the Tribunal is in error in holding that the Department has not established by evidence that the intention of the assessee in purchasing the property was not by way of investment, but to trade in house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials to prove that the assessee intended to trade in such an activity and, in the absence of evidence, the sale of immovable property consisting of land could give rise only to capital accretions. As pointed out by courts, the normal inference to be drawn in cases of purchase of land is that it is intended to be an investment, whether it yields income or not. Numerous authorities were brought to our notice. But it is not necessary to examine all the decisions of the various courts, as the central theme in all these cases is one and the same, We will, however, mention the cases that are brought to our notice by learned counsel for the Revenue. Raja J. Rameshwar Rao v. CIT [1961] 42 ITR 179 (SC) ; P. M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC); CIT V. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) ; CIT v. MLM. Mahalingam Chettiar [1977] 107 ITR 236 (Mad); CIT V. R. Ramaiah [1984] 146 ITR 39 (Kar) ; CIT v. Minal Rameshchandra (Smt.),[1987] 167 ITR 507 (Guj) and CIT v. Trivedi (V. A.) [1988] 172 ITR 95 (Bom). This court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 explained the test to be applied to such cases thus (at page 600) "A sale of imm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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