- (1.) THE Income-tax Appellate Tribunal having declined the application of Messrs Delhi Beopar Mandal, New Delhi (hereafter referred to as the assessee) under Section 66 (1) of the Indian Income-tax Act, 1922, this Court by order dated 9th January, 1962, directed the Tribunal under Section 6)6 (2) of the said Act to refer the following three questions:- " (1) Whether on a true construction of the agreement dated the 27th October, 1936, it was rightly held as a partnership agreement? (2) Whether on a true construction of the agreement dated the 27th October, 1936 and the subsequent resolutions which were to be read as a part of the agreement, the land in question was to be held as stock-in-trade by the Beopar Mandal and continued to be so held as stock-in-trade? (3) If the answer to questions 1 and 2 is in the affirmative, whether on the facts and in the circumstances of this case the alleged business of the assessee was not sterilised as a result of the passing of the scheme and in view of the relevant mandatory provisions of the United Provinces Town Improvement Act (VIII of 1919)?" The assessment relates to the assessment year 1948-49, the relevant accounting year being the financial year ended on 31-3-1948. No application having been filed by the assessee for registration of the firm, the assessment was completed by the Income-tax Officer by applying the provisions of Section 23 (5) (b) of the said Act. Between 8th April, 1936 and 8th May, 1936, Deshbandhu Gupta and Vidya Dhar purchased various plots of land totalling in all about 94 bighas. Between 8th May, 1936 and 13th May, 1936, 44 bighas more were purchased in the joint names of Deshbandhu Gupta and Ramkishan Dass. Again between 13th May 1936 and 5th June, 1936, further plots of land measuring in all 45 were purchased in the joint names of Deshbandhu Gupta and Vidya Dhar. The total purchases made, as mentioned above, were of 189 bighas and 5 biswas by 13 different transactions. On 27th October, 1936, an agreement was entered into between Deshbandhu Gupta, Vidya Dhar, Ramkishan Dass, Narain Datt and Harish Chandra, which was described as a deed of partnership and the firm was given the name, "the Delhi Beopar Mandal. " According to the said document, the land belonging to the parties was divided into 45 shares, the said five parties being entitled to 15, 15, 5, 5 and 5 shares each respectively. The duration of the partnership was fixed as "until this plot of land or any other plots of land purchased are not disposed of after development or the partnership is dissolved by mutual agreement. " A provision was made to avoid dissolution of partnership on the death of a partner and a restriction was placed on the right of a partner to alienate his share to any stranger. Clause 4 reads-"that it would always be open to the parties to this agreement to have such specified shares in all other purchases as are mutually agreed to by the parties. " I have quoted this clause because of the emphasis laid by the learned counsel for the assessee on the same. The partners met on various occasions and passed resolutions regarding the affairs and business of the assessee. From the resolution passed on 20th April, 1937, it appears that a plot of land belonging to one Qabul adjoined the lands already purchased and with a view to making a composite unit the partners decided to purchase the same. They borrowed Rs. 30,000/- for the purpose Inter alia on the security of the said plot of land. By another resolution, being resolution No. 6 of the same date, it was resolved that "a lay-out of the land be got prepared and the land be developed in such a way that It could be converted into a good colony". The resolution further provided that "since the land has been purchased in the name of L. Deshbandhu, L. Vaidya Dhar and L. Ramkishan Dass, it should be mutated in the name of Beopar Mandal Society". Subsequently, another resolution appears to have been passed in August 1937 inter alia suggesting an enquiry to be made whether the land had come under the Improvement Trust and also deciding "that no other land should be purchased except the piece of land belonging to Qabul since it is lying in the middle of the Beopar Mandal's lands". On 29th August, 1937, it was decided by another resolution that "a co-operative so-society should be formed with the remaining amount and the friends and relatives should be co-opted so that a good colony should belong to our own men". From the resolution dated 10th February, 1938, which referred to the discussion between the Chairman of the Delhi Improvement Trust and Vidya Dhar and others, it appears that at one stage a proposal was made that the Trust should take over all the sanitary arrangements at the cost of assessee leaving it to develop the land. On 30th April, 1938, a notice was issued under Section 36 of the United Provinces Town Improvement Act, 1910, as extended to the Province of Delhi, notifying the framing of an improvement scheme which covered the land of the assessee as well. There was a long correspondence in respect of the land in question with the Chairman of the Delhi Improvement Trust and by letter dated 2nd May, 1938, Vidya Dhar called for a plan of the land which the Trust proposed to acquire in connection with the Shadipur Town Expansion Scheme. He was informed that there was no proposal to acquire any land and by letter dated 28th July, 1938, Vidya Dhar made a proposal "to build according to the lay-out of the Trust" and wanted further to know what arrangements would be made for the supply of filtered water and electricity etc. The request to provide facilities for developing the area was repeated by Deshbandhu Gupta by letter dated 10th June, 1939. In the meantime, however, the assessee was engaged in disposing of some of its holdings and during the year 1938-39 it sold 15 bighas of land for about Rs. 18,000/ -. Again in the year 1942-43, 13 bighas of land were sold for Rs. 25,500/ -. Ultimately, it was decided to acquire some of the land belonging to the assessee and by an award dated 4th February, 1948, the special Land Acquisition Col lector determined the compensation for the land acquired at Rs. 18,536/ -. After allowing a deduction of Rs. 3,867/- out of the said amount of Rs. 18,536/-, the balance of Rs. 14,669/- was brought to tax as business income in the hands of the assessee for the said assessment year 1948-49. This assessment was challenged before the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal, but the assessee did not succeed. Three contentions were raised by the assessee before the Income-tax Appellate Tribunal- (1) The land was purchased by the three original purchasers with a view to build their own houses and gardens and only such land as was not required by the said three persons was to be allotted to friends and relations at cost. The excess realised as a result of the compensation awarded was, therefore, an accretion to the capital. (2) The compulsory acquisition of land did not amount to sale but was a compensation for the loss of an asset and, therefore, not a trading receipt. (3) The assessee did not own any land which continued to be held in the names of the three original purchasers and, therefore, it could not be taxed on the surplus. The Tribunal decided- (1) The intention of the parties clearly appeared from the deed of partnership and various other circumstances, including the number of transactions of sale and purchase entered into by the assessee, and the purchase of land was in the course of carrying on business. Order in other words, the transactions of purchase and sale of land were a part of the trading activity of the assessee; (2) the land was held by the assessee as a stock-in-trade; (3) the acquisition of the plots was made with a view to selling them and realising profits; and (4) the fact that the money was received as a result of compulsory acquisition did not make any difference.
(2.) IT is in the light of the above circumstances and findings that we have been called upon to answer the three questions referred to us.
(3.) SO far as the first question is concerned, the perusal of the document dated 27th October, 1936, clearly shows that it was a partnership. 'partnership' is defined by section 4 of the Indian Partnership Act as ". . . . the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all". The document shows that the partnership was constituted with a view to disposing of the plots of land mentioned therein and, as a matter of fact, the duration of the partnership was fixed as "until this plot of land or any other plots of land purchased are not disposed of after development. . . . . . ". The learned counsel for the assessee laid emphasis on the fact that the share of profits or losses was not fixed, which according to him, was a necessary condition of a partnership. I regret I am unable to agree because the interest of each partner in the partnership property was fixed, as mentioned already, and that would determine the interest of the partners in profits and losses. The learned counsel then contended that Clause 4 of the document permitted the acquisition of future properties with different interests therein. That may, at the most, be an agreement to enter into furture partnerships with respect of the properties acquired subsequently, but Clause 4 is certainly not destructive of the existence of a partnership with respect to the property in question. This question, therefore, must be answered in the affirmative and against the assessee.;