(1.) THE two questions that were referred to this Court were:
1. Whether there are materials for the Tribunal to come to the conclusion that the sum of Rs. 3,00,000 received by Captain T. P. M. Alexander by the sale of Cottangady estate in excess of its purchase price was a revenue receipt.
 Whether in the circumstances of the case for the proper ascertainment of the profits and gains in respect of raising and selling coffee, tea and other produce of the estate, the Tribunal was right in upholding the decision of the Appellate Assistant Commissioner in taking into consideration the value of the produce which remained on hand unsold at the end of the year of account.
THE accounting year, was 1 -4 -1942 to 31 -3 -1943, and the year of assessment was 1943 -44.
(2.) IT is better to deal with each question separately, as the sets of facts necessary for answering each question are different.
The facts necessary for considering the points raised by the first question are as follows. Though the assessee, Captain T. P. M. Alexander, died in July 1946 - - the proceedings have been continued by his widow - - it should be easier to refer to him as the assessee in the rest of this judgment. The assessee was a planter in South India. He acquired estates where rubber, tea, coffee and cardamom were raised. We need not concern ourselves in this case with the Kailasam estate which the assessee owned and which he sold in 1938; nor with the Aruna group of estates which the assessee purchased in 1936 jointly with Sir James Deak; the assessee's interest in the Aruna group of estates appears to have been sold in March 1949. The assessee purchased the Sivalogam estate in Travancore State in 1929; he sold that in August 1942. That estate was managed by the agents Messrs. Harrison and Crossfield all through. Though the assessee was originally a planter himself, for a period of about 12 years i.e. between 1930 and January 1942, he was employed as a Labour Officer in Burmah Shell Company. After retiring from the service of the Burmah Shell Company in January 1942, he obtained employment as the agency manager of the South India Plantations Agency Ltd. at Coonoor. That company acted as agents and secretaries of various tea and coffee estates in South India. He occupied that post till February 1943, when he became the director of that company, the South India Plantations Agency Ltd. In the latter half of 1942, the assessee was also the Secretary of the Southern India Planters Association for about three months. He left India finally in January 1944. He died in England in July 1946.
When the assessee sold the Sivalogam estate in August 1942 the realised a sum of Rs. 4,46,000. That obviously provided the capital for his subsequent transactions. In September 1942 the assessee started negotiations for the purchase of four estates, comprehensively referred to as the Cottangady group of estates. One of these four belonged to one Mr. Hall, and the other three to his mother Mrs. Emily Hall. These estates were first offered for sale to the Southern India Planters Association at a time when the assesses was the Secretary of that association. The association declined the offer. On 2 -9 -1942, the assessee inspected the Cottangady group of estates with a view to purchase. Again on 6 -10 -1942, he inspected the estates along with Mr. Walker Leigh of Messrs. Davidson & Company. The company sold agricultural implements. The inspection of Mr. Leigh was to suggest improvements to the estate and the purchase of the necessary material including machinery. On 9 -10 -1942, Mr. Leigh drew up a report which he forwarded to Harrison and Crossfield, who, it should be remembered, had been managing the Sivalogam estate for the assessee, and Mr. Leigh requested Messrs. Harrison and Crossfield in that letter to furnish estimates to the assessee to give effect to the recommendations of Mr. Leigh. Though the estimate furnished by Messrs. Harrison and Crossfield was not on record, it would appear that their estimate came to Rs. 80,000. The assessee paid the purchase price of Rs. 2,50,000 for all the four estates and took possession of them on 11 -11 -1942. It was agreed between the vendors and the assessee that the purchase should take effect from 1 -7 -1942 i.e., the assessee became entitled to the crops that stood on the estates on 1 -7 -1942 or were grown thereafter. No sale deed however was executed then. Even before the purchase it would appear that the assessee arranged through Messrs. Shaw Wallace Company to supply manure for the estates: and the supply of manure was on a long range basis i.e. to improve the productivity of the estates on a long term plan. Though Mr. Hall and his mother Mrs. Emily Hall offered the estates for sale first to the Southern India Planters Association, they would appear to have been keen on the idea that the sale should be to a person who would keep the estates and satisfy their sentiment based on pride of ownership of a well -maintained estate. On 21 -9 -1342 Mr. Smith, Director of South India Plantations Agency Ltd., of which the assesses was then the Agency Manager, wrote to Mr. Hall:
"Glad that Alexander is pleased with the estate. I am sure that Mrs. Hall and you will be better pleased for the estate to be sold to a proprietor who will take the same interest in it as you have done in the past, rather than to a public company."
From the extracts of correspondence supplied by the assessee during the enquiry before the Income -tax authorities and appended to the printed record made available to us, it would appear that on 13 -11 -1942 - - it should be remembered that the assessee took possession of the estates on 11 -11 -1942 - - the assessee supplied his agent Velu Menon of Cottangady with sets of account books. There were also other letters to show that the assessee himself was managing the estates up to 5 -2 -1943. From a letter written on 8 -2 -1943 by the assessee to Davidson and Co., it would appear that the assessee placed an order with them for the supply of a Sirocco Drier and a 44" S. A. Roller. These were two items of machinery included in the improvements suggested by Mr. Leigh in his report dated 9 -10 -1942. The order itself was not put in evidence, and there was nothing to indicate on which date the order was placed with Davidson & Co. Davidson & company would appear to have supplied the 44" S. A. Roller, because in the letter dated 8 -2 -1943 the assessee asked for the erection of this plant. In the same letter, the assessee cancelled his order for the Sirocco Drier. It was represented during the arguments before us that the 44" S.A. Roller cost about Rs. 9,500. As the assessee himself explained in his letter dated 8 -2 -1943, he cancelled the order for the Sirocco Drier as he had already taken steps to sell the Cottangady group of estates. On 3 -2 -1943, the assessee entered into, an oral agreement with Mr. P. S. George to sell the Cottangady group of estates -to him for Rs. 5,50,000 and the assessee received an advance of Rs. 27,500. On 13 -2 -1943, the assessee executed the written agreement of sale. It was during the interval, on 8 -2 -1943, that the assessee informed David -son & Company that the order for the supply of the Sirocco Drier should stand cancelled.
It should be remembered that, though the assessee took possession of the Cottangady estates on 11 -11 -1942, no document of sale was executed by the vendors . It was subsequent to the agreement of sale between the assessee and Mr. P.S. George that the sale deeds were executed by Mr. Hail mid Mrs. Emily Hall. One sale deed was executed on 11 -2 -1943 covering the three estates that were situated in Cochin State. The second sale deed for the fourth estate, which was in British India, was executed on 26 -2 -1943. Though Mr. P.S. George negotiated the purchase of this group of estates, it was obviously his intention that the eventual purchaser should be the Chandramalai Estate Ltd., which company Mr. P.S. George promoted. The agreement of sale dated 13 -2 -1943 Provided for the sale to Mr. George or his nominee., Clause 7 of that agreement required the assessee to make out a good and clear title to the properties sold, and that was apparently why the assessee had to obtain the sale deeds from the previous owners, Mr. Hall and Mrs. Emily Hall, Rs. 27,500 of the agreed purchase price, it should be remembered, was paid to the assessee on 3 -2 -1943 itself. The agreement of 13 -2 -1943 provided for the payment of the balance before 31st March 1943; the balance was actually paid on 10th March 1943. On 19 -4 -1943 the assessee executed the sale deeds in favour of Chandramalai Estate Ltd.
Thus the position was that within about three months after his purchase of the Cottangady group of estates for Rs. 2,50,000, the assessee entered into an agreement to sell the estates for Rs. 5,50,000, and within a month thereafter, i.e., by the 10th March 1943, he received in full that Rs. 5,50,000. The Income -tax Officer treated the difference between the purchase price and the sale price in the hands of the assessee as income that accrued to the assessee during the year of account and assessed that sum to income -tax. The contention of the assessee was that he intended to keep the property as a source of income, that it was an investment, and that the excess of Rs. 3,00,000 of the sale price over the purchase price he had paid was a capital accretion. That contention was rejected by the Income -tax Officer and also on appeal by the Assistant Commissioner of Income -tax. A further appeal preferred by the assessee to the Tribunal also failed. It was subsequent to that that the first question was referred to this Court under Section 66 (1), Indian Income -tax Act.,
(3.) WHEN the matter came up for hearing first, the Court was of the opinion that the statement as drawn up by the Tribunal and submitted to the Court was defective, and the Court called upon the Tribunal to furnish a further and better statement of the case. That statement was furnished.
In paragraph 11 of the further statement submitted by the Tribunal it recorded "The tribunal held that almost simultaneously with the negotiations for the purchase of the estate and its improvement, negotiations for its sale were also being carried on by the assessee. The letters written to Harrison and Crossfield and Davidson & Co., dated 8th February 1943 suggested that the negotiations for sale were complete by that date and that in these circumstances, it was difficult to hold that the assessee's intention at the time of the purchase of the property was to keep it and improve it; that the idea at the time of the purchase in the mind of the assessee was to make a profit upon it; and that the interval of time that lapsed between the dates of purchase and sale also suggested that his intention was to make a profit by sale which he actually did. Under these circumstances, the tribunal came to the conclusion that the profit was received from a business transaction."
To complete the statement of the case, it is necessary to refer to the purchase and sale of the Umbhidikhan estate in Mysore. The assessee purchased it in October 1942 for Rs. 75,000 in partnership with Mr. H.S. Cameron, also an employee of the Southern India Plantations Agency Ltd. The partnership sold the estate in March 1943 for Rs. 1,05,000, thus making a profit of Rs. 30,000. In this case also, the original owner Mr. Mayer did not execute any sale deed in favour of the assessee and Mr. Cameron. Subsequent to the sale in March 1943 by the Assessee and Mr. Cameron to the Southern Plantations Ltd. Calicut, Mr. Mayer executed the sale deed under directions of the partnership directly in favour of the Southern Plantations Ltd., Calicut. The assessee's share of the profit of Rs. 30,000 was treated as income and was assessed to income -tax. The assessee appears to have accepted that decision.
It was as a receipt from business that the Rs. 3,00,000 was assessed to income -tax. That represented the profits of an "isolated" transaction, the purchase and sale of the Cottangady group of estates. It is well -established that if a person is engaged in the buying and selling of lands, he can be assessed to tax upon any surplus only if he is shown to have carried on a business of buying and selling lands. Business has been defined by Section 2 (4) of the Indian Income -tax Act. "Business includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture." Even a single venture may amount to business, and the profits of such a single venture may be taxable as income arising from business. An isolated transaction of purchase and sale of land, even if it is not business as it is normally understood, may be business within the scope of the definition, an adventure in the nature of trade. An isolated transaction of purchase and sale of land may be a speculation. Every speculation is an adventure; but unless it is an adventure in the nature of trade, the profits therefrom will not be income assessable to tax. In - - 'Balgownie Land Trust Ltd. v. The Commissioners of Inland Revenue', 14 T. C. 684 Lord President Clyde pointed out at page 691:
"A single plunge may be enough provided 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. Transactions of sale are characteristic of trade, but they are not necessarily distinctive of it; much depends on the circumstances.";