- (1.) These appeals are brought by special leave from the judgment of the High Court of Andhra Pradesh dated 23rd July, 1964 in referred case No 42 of 1962.
(2.) The assessment years involved in these appeals are 1358 F., 1953-54 and 1954-55, the relevant accounting periods being the years ending 30th September 1948, 30th September 1952 and 30th September 1953, respectively. The assessee firm Khan Bahadur Ahmed Alladin and Sons (hereinafter referred to as the assessee firm) consists of three partners, Khan Bahadur Ahmed Alladin, and his two sons, Khan Saheb Dost Mohammed Alladin and Noor Mohammed Alladin. The assessee firm purchased the Brengun factory and the properties attached it to consisting of 403 acres of land 14 factory buildings, about one hundred residential quarters and railway sidings furniture, etc., in addition to the stores from the Government of India. The price of the Brengun Factory and the properties together with the furniture etc., was fixed at Rupees 27 lakes while the price of the stores was fixed at Rs. 8 lakhs. During the relevant accounting years, the assessee firm sold a part of the stores for Rs. 9,53,918 o. s. and 46 acres of land, 14 factory buildings furniture, railway siding, etc., for Rs. 26,48,215 o. s. It was not disputed that the excess over the price realised for the re-sale of stores was Rs. 2,26,484 o. s. and for the resale of part of the factory land, building etc. was Rs. 10,46,834 o. s. It was admitted by the assessee firm before the Appellate Tribunal that the surplus realised by the resale of stores was not a capital accretion but an adventure in the nature of trade. With regard to the factory it was argued that it was an investment and not an adventure in the nature of trade and as such the excess amount realised represented a realisation of capital asset. The contention of the assessee firm was rejected by the Income-tax Officer, by the Appellate Assistant Commissioner and by the Appellate Tribunal in appeal. The view taken by the Appellate Tribunal was that the assessee firm had planned a well calculated scheme of profit making, that it had the intention of exploiting the properties which it had purchased to it advantage, that the transactions in question constitute an adventure in the nature of trade, and any surplus which it got by sale of the portions of the properties was liable to tax. At the instance of the assessee firm, the Appellate Tribunal stated a case to the High Court on the following question of law : "Whether the purchase of the site and buildings known as "Brengun factory" was in the course of a profit-making scheme or an adventure in the nature of trade - By its judgment dated 23rd July, 1964 the High Court answered the question against the assessee firm.
(3.) On behalf of the appellant, Mr. Sukumar Mitra argued that the assessee firm along with Abdullah Alladin, brother of Khan Bahadur Ahmed Alladdin had been carrying on business as a partnership firm under the name of Khan Bahadur Ahmed Alladdin and Company (hereinafter referred to Alladin and Co.). It has substantial interest in various joint stock companies, and was the managing agent of several joint stock companies, and possessed considerable financial resources. The assessee firm acquired the Brengun Factory with the intention of starting a bicycle factory or some other industry as an investment: but not with the intention of resale. The argument was stressed that the purchase and sale of land and buildings was not in the line of business of the assessee firm. It was stated that the purchase was an isolated transaction and even after the sales, a major portion of the factory remained with the assessee firm. It was contended that the assessee firm had not developed the land or parcelled it out with the view to sell it to purchasers as a residential area, and make a profit. The submission made on behalf of the appellant was that the transaction of purchase was in the nature of investment and was not an adventure in the nature of trade and the sales represented the realisations of capital asset.;