D S VIRANI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE short question that arises for determination in these references is whether a certain transaction of purchase and sale of land effected by the assessees was by way of realisation of investment or was an adventure in the nature of trade. The assessees in these four references are brothers. D. S. Virani, one of the four brothers, is the assessee in Ref. No. 11 of 1970, while each of the other three brothers is the assessee in Refs. Nos. 12, 13 and 14 of 1970. It is common ground between the parties that D. S. Virani was at all material times resident in Rajkot but the other three brothers were residing outside India. By a sale deed dt. 18th April, 1951, D. S. Virani and his three brothers, whom we shall collectively refer as the assessees, jointly purchased certain land admeasuring 1,00,000 square yards situate in village Kotharia on the outskirts of the city of Rajkot for the price of Rs. 10,000 from Thakoreshri Shivsinhji Pratapsinhji and Prince Shri Ajitsinhji Shivsinhji. Each of the assessees contributed an equal sum of Rs. 2,500 towards the purchase price and was entitled to an equal 1/4th share in the land. Nothing was done on the land by the assessees by way of development or plotting or laying out roads; the land remained in the same condition in which it was when purchased. On 2nd Oct., 1959, the assessees entered into an agreement with one Bhagwanji Khataubhai and three others for sale of 91,571 square yards out of this land at the price of Rs. 1 per sq. yd. This agreement is not on the record of the case.

(2.) THE assessments of the assessees having been made under the Indian IT Act, 1922, the decision of the controversy here would be governed by the provisions of that Act. Sec. 10 of the Indian IT Act, 1922, makes profits and gains of business, profession or vocation carried on by an assessee, taxable. The definition of "business" given in S. 2, Sub S. (4), is an inclusive definition which defines "business" as including " any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". Since the transaction of purchase and sale of land was admittedly an isolated transaction so far as assessees other than D.S. Virani are concerned, the question which falls for consideration is whether it could be said to be an adventure in the nature of trade. Now the law is well settled that the question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact. It was pointed out by the Supreme Court, in what may properly be regarded as the leading case on the subject, namely, G. Venkataswami Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC) : TC12R.297 that the expression " adventure in the nature of trade " in Sub S. (4) of S. 2 postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business and a Tribunal while considering the question whether a transaction is or is not an adventure in the nature of trade, before arriving at its final conclusion, has to address itself to the legal requirements associated with the concept of trade or business. Such a question is one of mixed law and fact and the decision of the Tribunal on it is open to challenge under S. 66(1) of the Act. See Saroj Kumar Majumdar vs. CIT (1959) 37 ITR 242 (SC) : TC12R.335 and Janki Ram Bahadur Ram vs. CIT (1965) 57 ITR 21 (SC) : TC12R.356.

(3.) EACH case must be determined on the total impression created on the mind of the Court by all the facts and circumstances disclosed in that particular case. But even so "general criteria indicating that certain facts have dominant significance in the context of other facts" are to be found in decided cases and these serve as guides in determining the true nature of the transaction. If for instance a transaction is related to the business normally carried on by the assessee, though not directly part of it, an intention to engage in an adventure in the nature of trade may be readily inferred; there would be no difficulty in such a case in concluding that it is a trading transaction. But, where it is not related to the business of the assessee, there would have to be clear and positive evidence of facts and circumstances to show that the transaction was an adventure in the nature of trade. The nature of the commodity which forms the subject matter of the transaction may also throw light on the true legal character of the transaction. If the commodity is a commercial commodity, the transaction may lend itself more easily to the inference that it is an adventure in the nature of trade than in a case where the commodity is not a commercial commodity. So far as land is concerned, it is now clear from the decisions of the Supreme Court in G. Venkataswami Naidu and Co.'s case (supra) and Janki Ram Bahadur Ram's case (supra) that land is not a commercial commodity. Gajendragadkar, J. pointed out in G. Venkataswami Naidu and Co.'s case (supra): "Normally the purchase of land represents investment of money in land "; and to the same effect we find the following observation of Shah J. in Janki Ram Bahadur Ram's case (supra) "..a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade ". It is also now well settled that merely because the original purchase was made with the intention to resell, if an enhanced price could be obtained, is by itself not enough to raise the inference that the transaction is an adventure in the nature of trade. The decision of the House of Lords in IRC vs. Reinhold (supra) is a direct authority on the point. There, a director of a company carrying on business of warehousemen, purchased a number of houses with a view to resale. He had actually at the time of purchase instructed his agents to sell, whenever a suitable opportunity arose. The houses were subsequently sold by him at a profit and the question was whether it represented revenue gain. The Court of Session held that the transaction of purchase and sale of houses was not an adventure in the nature of trade; it was merely realisation of the enhanced value of the investment. The Court of Session relied on the following observations of Lord Buckmaster in the case of Jones vs. Leeming (1930) AC 415 (HL) :