B.P.SINHA - (1.) J. : The only question for determination in this appeal by special leave, is whether the solitary transaction in respect of about three quarters of an 'acre' of land in the suburbs of Calcutta, was an adventure in the nature of trade and, therefore, liable to income-tax. The assessee is the appellant. He challenges the correctness of the order of the Income-tax Appellate Tribunal, Calcutta Bench, Calcutta, dated 26-3-1954, passed in I. T. A. 5263 of 1953-54, in respect of the Assessment year 1948-49, reversing that of the Appellate Assistant Commissioner of Income-tax, Range "C", Calcutta, dated 5-9-1953.
(2.) THE facts of this case leading up to this appeal are as follows: THE appellant is engaged in various types of business activities, being a share-holder and Director or Managing Director of several limited liability concerns, and is also a partner in the firm known as ''Pioneer Engineering Works". In respect of his income during the previous two assessment years, the appellant was assessed to income-tax on the sums of Rs. 53,000 (1946-47) and Rs.59,000 (1947-48). THE appellant holds investments in shares of the value of Rs. 2,45,000, out of which, according to the assessee, shares of the value of Rs. 1,95,000, though standing in his name, belong to other members of his family, including his father and his wife. The Hindusthan Co-operative Insurance Society Limited, of Calcutta, (hereinafter referred to as "the Society"), acquired a block of about 578 'bighas' of land lying between Diamond Harbour Road and Tolly's Nullah, within the Municipal limits of the Corporation of Calcutta, between the years 1940 and 1942. The Society decided to level the land thus acquired and to open out roads; and after developing the same, it sub-divided it into small plots and sites in different blocks suitable for residential purposes under its scheme called ''The New Alipore Land Development Scheme No. XV". The Society offered such plots for sale. One such plot, being plot No. 77 in block "E" of the said Scheme, was agreed, by an agreement dated 10-1-1946, to be sold to the assessee at the rate of Rs. 2,550 per 'katha'. In pursuance of the said agreement, the assessee paid to the Society, a sum of Rs. 13,099 being 10 per cent. of the estimated price of the plot with an approximate area of 51 'kathas', which subsequently, on exact measurement, was found to be 45. 56 'kathas'. Subsequently, on the acceptance of his offer, the appellant paid another sum of Rs. 19,649 (omitting annas), being 15 per cent. of the estimated price. Thus, in all, a sum of Rs. 32,748 being 25 per cent. of the estimated total price of the land, was paid by the assessee to the Society. All this area which the Society had undertaken to develop and sell to different purchasers in small plots, was in occupation of the Government, which had requisitioned it for purposes connected with the prosecution of the Second World War. Hence, one of the terms of the transaction between the assessee and the Society, was that the transaction of purchase would be completed within six months of the lands being released from Government occupation. It was further stipulated that the assessee would be entitled to apply, within three months of the receipt of the notice of de-requisition, for extension of time not exceeding one year, for the completion of the transaction on the condition that he paid interest at the rate of 7 per cent. per annum on the outstanding amount, during the extended period. If the assessee, as purchaser, paid to the Society another sum which, together with Rs. 32,748, already paid, would amount to 50 per cent of the total price of the plot in question (within six months of the notice of de-requisition), he could get a conveyance of the property on his executing an English Mortgage for the remaining 50 per cent. of the price carrying interest at the rate of 7 per cent. on the expiry of these aforesaid six months. As there was an apprehension that the Government might acquire the whole property for its own purpose it was further stipulated that in the event of such an acquisition by Government, the agreement for sale would stand rescinded, and the assessee, in that event would be entitled to re-payment of the amounts paid by him to the Society by way of advance for the completion of the transaction. The assessee's case is that as the terms of the payment of purchase-price in several instalments, as aforesaid, were convenient to him, he agreed to take the plot on the conditions aforesaid, with a view to building a residential house for himself and constructing a workshop in connection with his business activity. At the end of the Second World War, the assessee's construction activities began to decline, and there was no immediate prospect of the land in question being de-requisitioned by Government. In those circumstances, the assessee negotiated for the assignment of his rights under the agreement with the Society, to Rani Yuddha Rajya Devi of Nepal. The Rani appeared to have taken a fancy to the plot and to have made an attractive offer to the appellant. Hence, after exchange of letters between the parties, it was agreed between them that a sum of Rs. 1,07,000 odd would be deposited by the Rani with the assessee on suspense account until the transaction of sale between the Society as the vendor and the Rani or her nominee, as the vendee, would be executed and the transaction of purchase finalised upon her undertaking to pay the sum of Rs. 98,000 odd to the Society, which was the outstanding amount of the sale-price in respect of the plot agreed by the assessee to be purchased by him from the Society. After a good deal of correspondence, on 27-12-1950, the Society executed a deed of conveyance in respect of the said plot, to the daughter of the said Rani as the vendee. The aforesaid vendee executed a deed of mortgage in favour of the Society for the outstanding amount of Rs. 50,900, after payment of Rs. 32,700 odd to the Society. In the result, the assessee received, on 3-4-1947, a sum of Rs. 1,07,000 odd from the Rani, in pursuance of the agreement between her and the assessee. Until the execution of the sale-deed between the Society and the Rani's nominee, as aforesaid, the assessee continued to be liable to the Society in respect of the agreement of 10-1-1946. The assessee, thus, received from the Rani a sum of Rs. 74,000 odd in excess of the amount paid by him to the Society. The property, including the plot in question, was not de-requisitioned until some time in 1949. In respect of the assessment year 1948-49, the assessee filed a return of his income to the Income-tax Department, showing a loss of Rs. 2,000 odd for the financial year1947-48. In pursuance of the notice under S. 23 (2) of the Income-tax Act, the assessee appeared before the Income-tax Officer, Calcutta, and produced all his books of account, including his bank accounts. The Income-tax Officer, on an examination of the accounts, and after questioning the assessee, came to the conclusion that the assessee had made a profit of Rs. 74,000 odd from the transaction in question, which, according to him, was an adventure in the nature of trade. Hence, on an examination of the assessee's accounts, the Income-tax Officer included the sum of Rs. 74,485 as profit from an "adventure in the nature of trade" - taxable under S. 10 of the Income-tax Act - as one of the items of income accrued to the assessee during the assessment year 1948-49.
(3.) THE assessee went up in appeal to the Appellate Assistant Commissioner of Income-tax, and challenged the conclusion of the Income-tax Officer that the sum of Rs. 74,000 odd was profit from an adventure in the nature of trade. It was also taken as one of the grounds of appeal by him that in any event, the receipt accrued to the assessee only in 1950, after the transaction of sale had been completed as between the Rani's nominee and the Society. THE Appellate Assistant Commissioner did not agree with the Income-tax Officer that the assessee was not in a position either to complete the transaction of purchase by paying the full amount of consideration, or to erect a building thereon, or to use the land in any other way. He pointed out that under the Scheme, the Society had offered terms of purchase on installments and on execution of a mortgage in respect of the vended property to the extent of 50 per cent of the consideration money. He also pointed out that the assessee had considerable investments to the extent of Rs. 2,45,000 in shares of different limited concerns. He, therefore, came to the conclusion that the assessee was a man of means, and that it could not be said that he had not intended to purchase the plot for his own use. He further held that the motive of making a profit at the time of the purchase, had not been established by the Department, and that it was a "solitary transaction." On these findings, he found himself unable to confirm the finding of the Income-tax Officer that the profit was from an adventure in the nature of trade. He took the view that the appellant had made an investment which had appreciated considerably in value, and that it was undoubtedly a case of appreciation of capital. Treating it as a "Capital Gain", he came to the conclusion that as the payment had been made in 1947, the gain accrued in that year and not in the year 1950, as contended on behalf of the assessee. In the result, he made him liable to pay Capital Gains tax. The Department went up in appeal to the Income-tax Appellate Tribunal, which, by its judgment dated 26-3-1954 allowed the appeal. The Tribunal pointed out that the assessee was not a man of such large means as to think of acquiring the plot for his own residential or business purposes. The admitted shares worth Rs. 2,45 ,000 standing in his name, the Tribunal pointed out, were held by the assessee, in respect of the major portion, on behalf of other members of his. family. The Tribunal also observed that Rs. 32,748 paid by the assessee to the Society had been paid out of borrowed money. This conclusion does not appear to have been well-founded in fact. The accounts do show credits in favour of the assessee of a larger amount. The Tribunal also pointed out that undoubtedly the "assessee is a keen businessman and has a number of varied business interests. Admittedly, he is a director of about a dozen concerns and managing director of two or three. He is -/8/- annas partner in an Engineering concern which is carrying out a number of construction and other contract works. He is an Engineer by profession and a resident of Calcutta." The Tribunal based its conclusion that the sale was an adventure in the nature of trade, and that the profits, thus made, were assessable to income-tax, on the following grounds: 1. That the payment by the assessee to the Co-operative Society, of Rs. 32,748, came out of a loan taken for the purpose from a company (which conclusion, as already pointed out, is not borne out by the entries in the books of account of that company); 2. That the assessee could not have paid the balance of Rs. 98,000 odd, the outstanding amount of the purchase-money, to the Insurance Company; 3. That the assessee had no means to construct a house on the land, and lastly, 4. That the site itself fetched no income, thus, showing that it could not be an investment but only an excursion into the realm of trade. Against this decision of the Appellate Tribunal, the assessee moved this Court and obtained special leave to appeal.;