1962-VIL-148-AP-DT

Equivalent Citation: [1964] 51 ITR 304 (AP)

ANDHRA PRADESH HIGH COURT

Case Referred No 29 of 1961

Dated:13.11.1962

VADLAMANI KAMESWARA RAO

Vs

COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH

T. Venkatappa, for the Appellant

C. Kondaiah, for the Respondent

Bench

JAGANMOHAN REDDY and ANANTANARAYANA AYYAR, JJ.

JUDGMENT

The Income-tax Appellate Tribunal, Hyderabad Bench, has referred this case under sub-section (2) of section 66 of the Indian Income-tax Act, 1922 (XI of 1922), for the decision of this court on the question: "Whether, in the circumstances of the case, the Tribunal was justified in treating the sum of Rs. 5,000 realised by the sale of property which was purchased in court auction by the assessee on November 22, 1951, as a transaction liable to be assessed?"

This question arose in the following circumstances stated by the Tribunal in its statement of the case. The assessee, who is a money-lender, submitted his return for the assessment year 1954-55 for which the accounting year was the Telugu year ending with April 3, 1954. During the course of his money-lending business, it was the practice of the assessee to take over lands in satisfaction of the money-lending debts, on the debtor being unable to pay the principal or interest or both. During the accounting year, the assessee sold five pieces of land for a total sum of Rs. 58,500 four of which had been so acquired during the course of the money-lending business while the fifth was unconnected with the money-lending business and was purchased in a court auction on October 22, 1951, but was sold in June-July, 1953. For the purposes of answering the above question referred to us, it is not necessary to deal with the transactions relating to the money-lending business or the profits or losses those four sales brought in to the assessee. The fifth transaction, which resulted in a profit of Rs. 5,000, was purchased at a court auction as aforesaid for a sum of Rs. 4,000 and was sold two or three years later for Rs. 9,500. The assessee claimed exemption in respect of the whole of the net profits, not only in respect of the purchase made at the court auction but also in respect of the transactions relating to the money-lending business. The Income-tax Officer rejected this contention and assessed him on the profits earned on all the five sales including the sale of land purchased in the court auction. As against that decision the assessee appealed and the Appellate Assistant Commissioner, during the course of his order, observed that "it is usual for money-lenders particularly in the rural areas to go to court auctions to purchase lands, buildings, etc., and it is also a part of their usual business activities to purchase decrees and to try to make some income out of them". In that view, he dismissed the appeal so far as this transaction was concerned. The Income-tax Appellate Tribunal also took the same view, namely, that all the five transactions are of the same category and consequently dismissed the appeal. During the course of its order, the Tribunal, though it noted that the departmental representative had pointed out that the sum of Rs. 5,000 represented the surplus on sale of land which was purchased in court action sale on October 22, 1951, and that the said sale transaction did not have its origin in any money- lending business of the assessee, none the less merely because the assessee's representative did not make any distinction in regard to the sum of Rs. 5,000, treated this amount of Rs. 5,000 along with the other transactions as if they are of the same category. What the assessee's representative was trying to do was to get an exemption for all the five transactions and in doing so he was utilising the court sale transaction as supporting his contention with respect to the other four. But the Tribunal, without making any distinction which was no doubt quite properly and fairly pointed out by the departmental representative, treated all the five transactions as arising out of money-lending business. Further it also observed that the assessability of the sum of Rs. 5,000 can be upheld on the ground that in the course of the assessee carrying on his money-lending business that particular transaction also amounted to an adventure in the nature of business. How this conclusion has been arrived at is not evident from the Tribunal's order.

The principle that governs the determination of the question of what is an adventure in the nature of trade has been stated in several cases though the distinction in determining a single transaction as an adventure in the nature of trade is dependent upon the facts and circumstances of each case and in many cases is a thin one. The cases, in which it has been held that a single transaction is an adventure in the nature of trade, are all cases where the nature of the business itself is such that even a single transaction is within the contemplation of the assessee to deal with it as an adventure. It is unnecessary to refer to the many cases having regard to the authoritative pronouncement of the Supreme Court in Saroj Kumar Mazumdar v. Commissioner of Income-tax [1959] 37 I.T.R. 242; [1959] Suppl. 2 S.C.R. 846, which in turn approved the statement of law of the same court in Venkataswami Naidu and Co. v. Commissioner of Incometax [1959] 35 I.T.R. 594; [1959] Suppl. 1 S. C. R. 646. In the former case, it was held, firstly, that where a transaction was not in the line of the business of the assessee but was an isolated or single instance of a transaction, the onus was on the department to prove that the transaction was an adventure in the nature of trade and, secondly, that at the time he entered into an agreement with the society, the appellant was doing good business, as was shown by the large amounts on which he was assessed to tax, and it was not unnatural for him to look forward to continue his business in as prosperous a way as he had been doing in the recent past, and to raise sufficient funds to build his engineering business and that, therefore, the probability that the site might appreciate in value did not necessarily lend itself to the inference that the transaction was an adventure in the nature of trade as distinguished from a capital investment. Their Lordships considered the case-law exhaustively and observed [1959] 37 I.T.R. 242, 251 that "the line of demarcation between cases of isolated transactions of purchase and sale being ventures in the nature of trade, and those which are not such ventures, if any, is very thin." Thereafter they examined all the cases which held that a single transaction was a venture in the nature of trade and referred to the observations of their Lordships in the previous case of Venkataswami Naidu & Co. v. Commissioner of Income-tax [1959] 35 I.T.R. 594 as follows [1959] 37 I.T.R. 242, 253:

"When section 2, sub-section (4), refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade."

Their Lordships formulated the question***, "Can it be said, in the setting of the facts and circumstances of the present case, set out above, that the transaction in question has such characteristics as to point to the conclusion that it was a venture in the nature of trade?" and finally concluded as follows [1959] 37 I.T.R. 242, 254

"In all the circumstances of this case, the total impression created on our mind is that it had not been made out by the department that the dominant intention of the appellant was to embark on a venture in the nature of trade, when he entered into the agreement which resulted in the profits sought to be taxed."

It is obvious in this case that the department, upon whom the onus rested, was unable to prove any facts or circumstances from which it could be inferred that the transaction is one of a venture in the nature of trade. Merely because the assessee was doing money-lending business and, where the debtors were unable to pay, was accepting the land in payment of the principal or interest or both, it did not prohibit him from entering into a single venture which was not in the nature of trade. It is quite possible that he may have thought that it was a good investment at the time when he purchased it or may have entertained an idea that if prices go up, he may sell it. But that is far from saying that at the time when he purchased the property, he purchased it with a view to selling the same and making a profit and it is only in such circumstances that that transaction would have had the character of an adventure in the nature of trade. It is pertinent to note the observations of Lord Dunedin in the case of Jones v. Leeming [1930] A.C. 415, 423, to which their Lordships of the Supreme Court have also referred in Saroj Kumar Mazumdar v. Commissioner of Income-tax [1959] 37 I.T.R. 242, 250 as follows:

"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."

Again, the same Law Lord in the course of his opinion referred to with approval the dictum in Ryall v. Hoare [1923] 2 K.B. 447, 454, namely, "...a casual profit made on an isolated purchase and sale, unless merged with similar transactions in the carrying on of a trade or business is not liable to tax" and also the following dictum of Lawrence L.J. in Leeming v. Jones [1930] 1 K.B. 279, 362:

"It seems to me in the case of an isolated transaction of purchase and re-sale of property there is really no middle course open. It is either an adventure in the nature of trade, or else it is simply a case of sale and re-sale of property."

In the light of these decisions and the authoritative pronouncement of their Lordships of the Supreme Court in Saroj Kumar Muzumdar v. Commissioner of Income-tax [1959] 37 I.T.R. 242., we have no hesitation in answering the question referred to us in the negative with costs. Advocate's fee Rs. 100.

Question answered in the negative.