TMI Blog1973 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... Tiles and Marbles and the other subsidiary businesses carried on under the names and styles of Modern Concrete Art Industries and Hima Spun Pipes Co., as going concerns along with the goodwill and other assets of the vendor including the tenancy rights of premises. By a further agreement dated 29th September, 1956, the businesses carried on by H. L. Gupta under the names and styles of Himalayan Food Products and Agarwal Overseas Trading Corporation together with the goodwill were also acquired by the assessee-company. The consideration for such acquisition was Rs. 20,000. The said agreement dated 29th September, 1956, provided : " The vendor shall pay, satisfy, discharge and fulfil all the debts or liabilities in relation to the said business and shall keep the company indemnified against all proceedings, claims and demands in respect thereof and the vendor shall also similarly be entitled to all the outstandings of the said business. " The result of such provision was that the outstandings and liabilities of these two concerns, viz., Himalayan Food Products and Agarwal Over-seas Trading Corporation, were not transferred to the assessee-company under the agreement but were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bruptly decided to break the negotiations and refused to enter into a formal agreement. It was the contention of the said H. L. Gupta that he had already incurred substantial expenditure for the purchase of lorries and other items and he accordingly filed a suit against the Government to recover the sum of Rs. 48,706 for the work done ; in the said suit he also claimed damages for wrongful breach of contract. The claim in the said suit was referred for arbitration to Mr. M. V. Desai, Bar-at-law. During the previous year relevant for the assessment year in question the arbitrator gave an award under which the assessee was to receive a sum of Rs. 1,20,000 from the Government. Clause 4 of the agreement of assignment (dated 31st July, 1957) provided as follows : " 4. It is hereby agreed if in spite of the due and diligent prosecution of the claim no decree or award is passed in favour of the assignor the company shall not hold the assignor responsible for the same. On the other hand, if the assignor receives in respect of the said claims a larger amount than what is paid by the company to the assignor hereunder, the assignor will not claim the said amount but will pay the same fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claims taken over under the agreement of assignment dated 31st July, 1927, were of a casual and non-recurring nature. The alternative argument raised earlier before both the Income-tax Officer and the Appellate Assistant Commissioner was repeated and it was contended that the excess could not be worked out only on the realization of one outstanding claim whilst the other claim remained outstanding and unrealised. The Tribunal accepted the contention of the assessee, holding that the amount of excess was not assessable as profit in the hands of the assessee and could not be considered as having arisen from an adventure in the nature of trade. In view of this decision, it further held that the other contention raised by the assessee need not be adjudicated upon. In this reference the following question has been referred to us : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 60,940 could be assessed in the hands of the assessee-company as income from an adventure in the nature of trade ? " Mr. Joshi, on behalf of the Commissioner, has urged that the amount was sought to be charged to tax under the head " Profit and gains of business " and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improve the quality of the commodity purchased and thereby made it more readily resaleable ? What were the incidents associated with the purchase and resale ? Were they similar to the operations usually associated with trade or business ? Are the transactions of purchase and sale repeated ? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture ? " These factors were culled from judicial decisions, but a note of caution was added and it was observed that in considering these factors it would be necessary to remember that they did not purport to lay down any general or universal test, and that it is the total effect of all the relevant factors and circumstances that determined the character of the transaction. It may be mentioned that in G. Venkataswami Naidu's case the assessee-firm had purchased four contiguous plots of land adjacent to the place where the mills of the company managed by it were situate. It was found by the Tribunal that they had purchased the four plots of land with the sole intention of selling them to the mills at a profit. It was decided by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not decisive, for an accretion to capital does not become taxable income merely because an asset was acquired in the expectation that it may be sold at a profit. " The conclusion of the court was that barring the expectation of profit and realization of profit by sale of the property, there was no evidence bearing on the intention with which the property was purchased, and it was held that these could not without other circumstances justify an inference that the assessee intended by purchasing the property to undertake a venture in the nature of trade. The Income-tax Appellate Tribunal in its order has very strongly relied upon Reynolds and Gibson v. Crompton. Although the facts before the House of Lords were quite different and somewhat complicated, on behalf of the assessee reliance was placed on a passage to be found on page 313 of the report where Lord Reid has observed that " something more would have to be proved than the mere fact that the entity sought to be charged with the payment of tax took over the debts and received the sums due ". It was contended on behalf of the assessee that in the case before us also there was nothing more on the record than the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company against the Union of India, in respect whereof an arbitration is pending before Shri M. V. Desai, Barrister-at-Law. " In my view these two circumstances can be considered to be additional material which might prove decisive for the point under consideration, viz., whether it was an adventure in the nature of trade. It is pertinent to note that in the minutes of the meeting of the board of directors of the assessee-company held on 30th July, 1957 (annexure " C "), and the agreement of assignment dated 31st July, 1957 (annexure " D "), no reason or motive is indicated why ten months after the initial acquisition of the two running businesses the offer of purchase was made or accepted in respect of these two claims. We were referred by the learned counsel for the assessee to para. 9 of the order of the Appellate Assistant Commissioner where such reason has been indicated why these two claims were not taken over in September, 1956. The reason indicated does not appear to me to be at all sound, but it is unnecessary to go into the same as what we are concerned with is not the position in September, 1956, but in July, 1957. Different considerations would come into play if such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave already noted how in the facts and circumstances of the case it would be proper to come to the conclusion that such acquisition was with a view to or in the expectation of making a profit. I have already emphasized in this connection the lack of compulsion in July, 1957, on the part of the assessee to acquire these two claims. I have further emphasized the fairly close proximity between the acquisition of the claims and the realisation of surplus in respect of the second claim. It was submitted, however, that something more than mere expectation of making a profit was required and that the onus of establishing such additional fact or circumstance was on the revenue, which onus has not been discharged by the revenue. I have in the earlier part of this judgment referred to two circumstances, which must in my opinion be regarded as additional circumstances having a bearing on our conclusion on this aspect of the matter. As stated earlier, very strong reliance was placed on behalf of the assessee on Jankiram's case. It must be pointed out, however, that the Supreme Court in that case was considering the acquisition of land, an asset which normally is regarded as of a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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