I. T. A. NO. 1136/KB OF 1980-81, DECIDED ON 19TH DECEMBER, 1983. Versus I. T. A. NO. 1136/KB OF 1980-81, DECIDED ON 19TH DECEMBER, 1983.
ORDER
This departmental appeal relating. to charge year 1976‑77 raises a short but important question, whether the transaction of sale of the plot of land bearing No. ST‑8 measuring 2,306 sq. yds., situated at M... D... Road, K... was an adventure, in the nature of trade. The relevant facts. of the case are these. The said plot was allotted to the assessee. respondent by the ex‑Chief Minister of Sind on 6‑6‑1975 for a consideration of Rs. 4,61,256, i. e. at a reserve price of Rs..200 per sq. yd. It was allotted for specific purpose of constructing a cinema house. Instead of constructing a cinema‑house, the assesses sold it out to one Messrs O. vide Agreement of sale dated 16th June, 1979 for a consideration of Its. 5,36,963. As Messrs O. could not pay the sale price it was re-sold to Messrs A‑1 for the same sale price as per agreement to sell dated 14th January, 1982, with the consent rather at the instant of Messrs O. The assesses had paid the cost of land, viz. Rs. 4,61,256 but obtaining a logo from the Bank of America. He paid interest on the said loan at Rs. 55,356. The Income‑tai Officer for reasons recorded in the assessment order reached the conclusion that it was an adventure its the nature of trade and not an investment of capital and, therefore, held the assessee liable to Income‑to on the profit earned out of this transaction. The total income of the assesses was determined at Rs. 20,20,34I in the following manner :‑
Total sale‑proceeds arose or accrued on16-6-1976 i e. relevant to assessment your 1976‑77,
Rs. 25,36,963
Less : Cost of land : Rs. 4,61,266
Add : Interest Paid to Bank of America Rs. 55,356 Rs. 05,16,622
Total Income : Rs. 20,20,341
2 Aggrieved by the assessment so made on him, the assessee filed an appeal before the learned Appellate Assistant Commissioner, Range. K., who, by his impugned order annulled the assessment by holding that "this isolated transaction cannot be treated as an adventure in the nature of trade and the Income‑tax Officer was wrong to hold otherwise . Hence this second appeal.
3. The question for determination is whether the respondent is assessable in respect of profit realised by him on the re‑sale of the plot of land, which he had purchased from Government. In our opinion, the answer most in the negative. The profit realised by the respondent is nothing but in the nature of a mere increase of price realised on the sale of plot of land. There is sufficient evidence on record to show that after the to of the purchase, the respondent took all possible steps to get sanction of construct ing a cinema house for which he had admittedly secured the plot in question. It is evident from the documents on record that the respondent did make an application dated 12‑6‑1975 to the Deputy Commissioner (South), paid the requsite fee, and submitted the site plan for obtaining the 'No Objection Certificate' to construct the cinema house. The Deputy Commissioner/South and A. D. M., K... vide their letters No. D. D. (South) J. B./Cinema/ 3335/1975 K... dated 14‑6‑1975 forwarded the applications of the assessee respondent to S. P., Civil Lines, K..., S. P., Traffic, K..., Chief Town Planner, K. D. A., K... and City Deputy Collector, K..., for necessary action and report. The D. C. (South) and A. D. M., K..., vide his Office Letter No. D. C. (South) J. B./Cinema/3386/75, dated 18‑6‑1975 invited objections, if any regarding the proposed construction of cinema house through various 'Dailies'. It is thus evident that the respondent in right earnest tried to get the requisite 'No‑Objection Certificate' for construction of the cinema house on the plot which he bad acquired for the purpose. It is also borne Out from the material on record that having failed in his attempts to secure the No Objection Certificate he decided to dispose of the plot. not by converting it into smaller plots or doing any activity so as to give an impression that he wanted to indulge in trading of the plots of land. On the basis of the material available on record it is difficult to arrive at a conclusion and record a finding that the assesses was interested in embarking upon the business of purchasing and selling land or that it constitutes a venture in the nature of trade. Equally difficult is to bold on the facts and circumstances of the case, that the purchase of the plot was made with the intention to re‑sell it at a profit. The Income‑tax. Officer has made no effort to bring any evidence on record either through cross‑examination of the assessee or in any other manner to establish that the assessee did not want to retain the plot for enjoying its fruits by constructing a cinema house thereon. The Income‑tax Officer has mainly based his decision on the more fact that the assesses did not possess sufficient funds for purchasing the plot and construct ing a cinema house thereon. But this fact of circumstances by itself would not lead to an irresistible conclusion that he could not have been in a position to construct a cinema house on the said plot and run it either by rising loans or in collaboration with some affluent person. It is, however, evidently borne out from the facts and circumstances present on record that the assessee is an influential man and has good connections with persons of position. It was because of this fact that he could manage to get the plot from the Government and also arrange its payment by securing a loan from the bank. The possibility of his being in a position to retain the plot and construct a cinema house thereon despite his being not in a possession of large funds of his own cannot completely be ruled out. Having failed in his genuine efforts to get requisite permission for constructing a cinema house on the plot, the assessee could reasonably decide to re‑sell the plot without indulging himself in parceling the land in question in smaller plots and selling them or undertaking a housing project etc. Be that as it may, from the facts and circumstances of the case as referred to above, we have not the least hesitation in reaching the conclusion that the transaction in question does not appear to have all the features of a venture in the nature of trade. The re‑sale of the plot under the circumstances could be with the object of liquidating the large amount of loan taken from the bank for the purchase thereof and also to make profit but it is difficult to conclusively infer that the intention of the assesses at the time of purchase was nothing but to earn a substantial profit by re‑sale.
4. For the foregoing reasons, we would hold that the transaction in question eras not a venture in the nature of trade and the profits earned by the respondent are not liable to tax as a business income or profits.
5. Before parting with the case we would like to refer to some of the decisions of superior Courts which we have kept in view while deciding this appeal. In Californian Copper Syndicate (Ltd. & Reduced) v. Harris 5 T C 159 Lord Justice Clerk, held : "It is quite a well‑settled principle in dealing with questions of assessment of Income‑tax, that where the owner of an ordinary investment chooses to realise it. and obtains a greater price for it then he originally acquired it at, the enhanced price is not profit in the sense of Schedule‑D of the Income‑tax Act of 1842 assessable to Income‑tax. But is equally well‑established that enhanced values obtained from realisation or conversion of securities tray be so assessable where what is done is not merely a realisation or change of investment, but an act done in what is truly the car rying on, or carrying out, of a business." In Commissioner of Inland Revenue v. Ligingston and others 11 T C 538 the Lord President (Clyde) observed : "If the venture was one consisting simply in an isolated purchase of some articles against and expected rise in price and a subsequent sale it might be impossible to say that the venture was "in the nature of Trade"; because the only trade in the nature of which it could participate would be the trade of a dealer in such sartiols and a single transaction falls as far short of constituting a dealer's trade as the appearance of a single swallow does of making a summer. The trade of a dealer necessarily consists of a course of dealing, either actually engaged in or at any rate contemplated and intended to continue." In 14 Tax Cases, at page 648‑691 Lord Clyde L. P. again observed : "A single plunge may be enough prov9Jed it is shown to the satisfaction of the Court that the plunge is made in the waters of trade ; but the sale of a piece of property if that is all, that is involved in the plunge may easily fall short of anything in the nature of trade. Transaction of sale are characteristic of trade, but they are not necessarily distinctive of its; much depends on the circumstances".
6. We would now like to reproduce in extenso a paragraph from the judgment of Supreme Court of India at page 610, (1959) 35 1 T R 594 as it throws sufficient light on the issue in hand. It runs as under :‑
"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 re‑sell it at a profit? It is often said that a transaction of purchase followed by re‑sale 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 the initial intention to re‑sell in distinguishing adventures in the nature of trade from transaction of investment. Even in the application of this test distinction will have to be made between initial intention to re‑sell 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 re‑sell may in cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to re‑sell 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 consider ing 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. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances."
And lastly, in 37 I T R 242 (S C) it is held, "it is also a well‑settled proposition of law that the onus of proof that an isolated transaction cons titutes an adventure in the nature of trade is on the Department".
In the result, the appeal stands dismissed.
M. A. K. Appeal dismissed.