1990 PLP 345 (PTD)

VIMADALAL, J.‑‑This is a reference made at the instance of the Commissioner which relates to the assessment year 1960‑61, the accounting year being November 12, 1958, to October 31, 1959. The assessee‑firm consisted of 13 partners, and was doing the business of purchase and sale of jewellery and precious stones. On the 26th of November, 1952, the said firm purchased a plot of land admeasuring 5,034 sq. yards at Ghatkopar at the price of Rs. 10 per sq. yard. On the 16th of February, 1959, that land was sold by the firm at a price which resulted in a profit of Rs. 40,

876. Shortly thereafter, it purchased a plot of land at Rajkot for an amount a little less than the price at which it had sold the Ghatkopar land. The assessee‑firm's case was that its object in purchasing the land at Ghatkopar was to construct houses for the partners themselves, but later on it was realised that the locality was unhealthy, and the firm, therefore, sold the Ghatkopar land and purchased the land at Rajkot, which was the native place of the partners, in order that they should construct their own houses there. The Income‑tax Officer rejected that contention of the assessee and held that the purchase and sale of the land at Ghatkopar was an adventure in the nature of trade, as he found no evidence of the partners' intention to construct residential houses thereon. He was further of opinion that the investment of funds in buying land at Rajkot indicated that the firm had started dealing m the purchase and sale of land as a business venture. He, therefore, assessed the sum of Rs. 46,876 as a revenue profit, and that assessment was confirmed by the Appellate Assistant Commissioner on appeal. On a further appeal by the assessee‑firm to the Tribunal, the Tribunal decided in favour of the assessee‑firm on the ground that there was nothing improbable in the version given by it that the land was purchased for constructing residential houses and not for re‑sale at a profit. It further took the view that, in the absence of any indicia of trade, the profit motive alone would not be sufficient to make the transaction an adventure in the nature of trade. The Tribunal relied on the principles laid down by the Supreme Court in the case of G. Venkataswami Naidu & Co. v. Commissioner of Income tax (1959) 35 ITR 594 (SC). It is from that order of the Tribunal that the present reference has arisen m which the following question has been submitted for our opinion "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the surplus of Rs. 46,876 from the sale of land was not assessable as profits arising from an adventure in the nature of trade?" In G. Venkataswami's case (1959) 35 ITR 594 (SC) which has been cited by the Tribunal, Gajendragadkar, J., speaking for the Court, laid down (at page 609) that in deciding the character of such transactions, several factors are treated as relevant, viz.: (1) Whether the purchaser was a trader and whether the purchase of the commodity and its resale were allied to his usual trade or business, or an activity incidental to it; (2) The nature and quantity of the commodity purchased and resold; (3) Whether the purchaser had, by any act subsequent to the purchase, improved the quality of the commodity in order to make it more readily re‑saleable; (4) The incidents associated with the purchase and resale; (5) Whether they were similar to the operations usually associated with trade of business; (6) Whether the transactions of purchase and sale were repeated; and (7) Whether the element of pride of possession had come into the picture. It was further observed in the said case (at page 610) that it is the total effect of all relevant factors and circumstances that determines the character of the transaction. These principles were applied by the Supreme Court itself in its later decision in the case of Janki Ram Bahadur Ram v. Commissioner of Income‑tax (1965) 57 ITR 21 (SC) which, on facts, was, however, more akin to the present case, in so far as it related to the purchase and sale of immovable property. In that connection, it was laid down (at pages 26‑28) that cases of commercial commodities were on a different footing from a transaction of purchase of land which cannot be assumed, without more, to be a venture in the nature of trade, and that a profit motive in entering into a transaction is not decisive because an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit, for a person may well have, when he purchased the property, a desire to sell it, if a favourable offer was forthcoming. The Supreme Court held that that circumstance, without other circumstances, would not justify an inference that the assessee intended, by purchasing the property, to start a venture in the nature of trade. Turning to the facts of the present case, in the light of these principles laid down by the highest Court, there can, in my opinion, be no doubt that the Tribunal's view is correct. First and foremost, it must be borne in mind that the property in question in the present case is land which, as observed by the Supreme Court in Janki Ram's case (1965) 57 TTR 21 (SC), is not ordinarily a commercial commodity. Secondly, the resale of the said land took place a little over six years after the purchase which would militate against any inference being drawn that the purchase itself had been made with the intention of embarking on a venture in the nature of trade. Thirdly, the purchase of the Rajkot property must be viewed in the context of the fact that Rajkot was the native place of the partners, and there is, therefore, no reason, as observed by the Tribunal, to reject the explanation given by the assessee firm. The mere fact that some profit was made in the transaction, would not, as stated by the Supreme Court in Janki Ram's case (1965) 57 ITR 21 (SC), without anything more, indicate that the intention of 'the parties was to trade in landed property, and, indeed, there is nothing more to indicate the same. In the result, in my opinion, the question referred to us in this reference must be answered in favour of the assessee‑firm.

‑‑I agree, and have nothing to add. BY THE COURT

‑‑The question referred to us is answered as follows: The Tribunal was justified in holding that the surplus of Rs. 46,876 from the sale of land was not assessable as profits arising from an adventure in the nature of trade. Each party to bear its own costs of the reference, as the assessee has not seriously pressed for the same. Z.S./852/T Reference answered accordingly.