GUSTAD DINSHAW IRANI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a partner in several firms doing restaurant business in Bombay and on the 6th August, 1945, he applied for a plot of land in the Worli Scheme of the Bombay Municipality. His application was granted and under the terms of the grant the assessee had to construct a building on the plot at a cost of not less then Rs. 75,000. It was also a term of the grant that he had to pay an annual rent of Rs. 3,388 in respect of this plot. When the building was constructed the Municipal Corporation was to give him a lease for 999 years. On the 30th October, 1950, the assessee assigned his right under the grant for a consideration of Rs. 32,011. To bring about this transaction he had availed himself of the services of a broker and that broker was paid commission in the sum of Rs. 1,770. Two contentions arose for the consideration of the Appellate Tribunal. One was that the sum of Rs. 32,011 was not an assessable profit in the hands of the assessee, and the second contention was with regard to the amount at which the profit should be assessed, assuming the amount realised was profit. With regard to the first contention the Tribunal held that the transaction was a single venture in the nature of trade, that its decision was a question of fact, and no question of law arose on that decision. With regard to the second contention, a question has been submitted to us : 'Whether, in assessing the profit made by the assessee on the assignment of the plot, the assessee is entitled to any deduction in respect of the ground rent and taxes paid by him in the years prior to the year of account, viz., 1950 -51 ?'

(2.) WITH regard to the first contention a notice of motion has been taken out by the assessee, and perhaps it will be best to dispose of that notice of motion first. What is urged by Mr. Palkhivala before us is that the mere fact that the assessee entered into this agreement with regard to the plot and assigned his rights thereunder did not constitute the transaction a venture in the nature of trade. What is urged is that the mere intention to re -sell a property acquired does not make the transaction a business transaction; it may still be an investment; and if there is a profit made as a result of the sale the profit would be capital appreciation not liable to tax and not business profit. Now, the line that divides a transaction from being a business transaction as against a capital investment is always a very thin one and cases may fall on one side or the other side of the line. A question of law only arises when there are no materials which can justify the finding of the Tribunal. It is quite possible that one Tribunal may take one view of the matter and another may take a different view of the matter, but if the decision of the Tribunal is based on evidence, then the High Court on a reference cannot interfere, and therefore the only question that we have to consider as far as the notice of motion is concerned is whether there were materials before the Tribunal which justified their decision that the transaction in question was a venture in the nature of trade. In our opinion, there were ample materials before the Tribunal to justify their view. It is pointed out by the Tribunal in their order that when the assessee applied for the plot he must have known that building materials were not easily available, and therefore it was never the intention of the assessee to construct a building with the ultimate object of obtaining a lease for 999 years. It is further pointed out by the Tribunal that the assessee did not even have the means to construct a building on the plot at a cost of not less than Rs. 75,000. From these circumstances the Tribunal has come to the conclusion that what the assessee did in entering into this transaction was to have a venture in the nature of trade with the object of earning profit.

(3.) AND he also cites the observation of Lord Dunedin in the same case at page 423 : '.....The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments, but per se it leads to no conclusion whatever.'