P M MOHAMMAD MEERAKHAN Vs. COMMISSIONER OF INCOME TAX KERALA ERNAKULAM

JUDGEMENT

(1.) THE Judgment of the court was delivered by

(2.) IN this case. the appellant (hereinafter called the assessee) was assessed for the assessment year 1956-57 on a total income of Rs. 8,400.00. The INcome Tax Officer later on came to know that the assessee's income from the .sale of estates had escaped assessment. The INcome Tax Officer took action under Section 34(1) (a) of the INcome Tax Act, 1922 (hereinafter called the Act) for the assessment year 1956-57 oil 13/08/1959.

(3.) BUT in judging the character of such transactions several factors have been treated as significant in decided cases. For instance, if a transaction related to the business which is normally carried on by the assessee, though not directly a part of it, as intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold or is converted into a different commodity and then sold. The magnitude of the transaction of purchase, the nature of the commodity, the subsequent dealings of the assessee, the nature of the organisation employed by the assessee and the manner of disposal may be such that the transaction may be stamped with the character of a trading nature. In Martin v. Lowry the assessee purchased a large quantity of aeroplane linen and sold it in different lots, and for the purpose of selling it started an advertising campaign, rented offices, engaged an advertising manager, a linen expert and a staff of clerks, maintained account books normally used by a trader, and <PG>29</PG> passed receipts and payment in connection' with the linen through a separate banking account. It was held that the assessee carried on an adventure in the nature of trade and so the profit was liable to be taxed. The same view was taken in Rutledge v. Commissioners of inland Revenue in regard to an assessee who purchased very cheaply a vast quantity of toilet paper and within a short time thereafter sold the whole consignment at a considerable profit. Similarly, in Commissioner of Inland Revenue v. Fraser , the assessee, a woodcutter, bought for resale, whisky in bond, in three lots. He sold it later on at considerable profit. The assessee had never dealt in whisky before, he had no special knowledge of the trade, he did not take delivery of the whisky nor did he have it blended and advertised. Even so it was held that the transaction was an adventure in the nature of trade. Lord President Normand observed in the course of the judgment :