1968 PLP 807 (PTD)

Clause 3(1) of the objects of the company expressly confers upon the assessee‑company "to traffic is land and house and other property of any ke.iure and any interest therein," "to sell and deal in freehold and leasehold ground rents" and generally to deal in, traffic by way of sale, lease, exchange or otherwise with land and house property." Clause 3(2) of the objects in the memorandum of association also gives power to the assessee company to acquire by purchase lands; buildings, etc., and to turn the same to account as may seem expedient. Lastly, clauses 3(26) and (31) give power to the assessee‑company to sell or dispose of or otherwise deal with all or any property and rights of the company. It follows, therefore, from the memorandum of association in this reference and on the facts of this case that this company has as its ordinary trading, activity sale of land, and house properties. What has happened in this case is the sale of four of its properties. Prima facie, therefore, this is within their ordinary declared trade activities. It is not a company as in Glasgow Heritable Trust case to "only" hold and realise properties and was not an investment company at all. The only relevant clause for investment in this memoran dum of association is clause 3(20), which gives power to the Company to invest moneys of the company not Immediately required upon such securities and in such manna as may from time to time be determined. This is an investment clause dealing only with surplus. That does not make it an investment company. In support of this construction reference may be made to Granvill Building Co. Ltd. v. Oxby (H. M. Inspector of Taxes) ((1954) 35 Tax Cas. 245), where Harman J., at page 249, after construing the words "turning to account" as not being indicative of an object of an investment at all, proceeds further to say that the only power to invest is a power to invest money not immediately required. That did not make the company an investment company either according to Harman, J. The Supreme Court in G. Venkataswami Naidu & Co. v. Commissioner of Income‑tax ((1959) 35 I T R 594) has laid down the guiding principles, with the caution, at page 609: " . . . it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the Courts in tax proceedings. It would be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the oases on the border line that cause difficulty." The second principle which the Supreme Court laid down in the same case at page 609 is: "The presence of all the relevant circumstances mentioned in any of them may help the Court to draw a similar inference ; but it is not a matter of merely counting the number of facts and circumstances pro and con ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circum stances that determines the character of the transaction." In that case the Supreme Court came to the conclusion that the transaction in question was an adventure in the nature of the trade. The property purchased and resold in that case was land. The contention there raised by the counsel for the assessee was that the four purchases made by the assessee represented nothing more than an investment and if resale had produced some pront that could not impress the transaction with the character and nature of trade. One of the facts that weighed with the supreme Court in that case in coming to the conclusion was that the assessee was a firm and that it was not a part of its business to make investment in land. Secondly, the Supreme Court in that case, on the facts, points out that a firm like the appellant was not acquiring land for the mere pride of possession and pro ceeds to observe at page 623: "It is really not one transaction of purchase and resale. It is a series of four transactions undertaken by the appellant in pursuance of a scheme and it was after the appellant had consolidated its holding that at a convenient time it sold the lands to the Janaradana Mills in two lots." Then again the Supreme Court at page 624 of the report comes to the conclusion: "Thus the appellant purchased the four plots during the two years with the sole intention to sell them to the mills at a profit and this intention raises a strong presumption in favour of the view taken by the Tribunal." The facts in this case are very much more against the ‑assessee than those of the Supreme Court. Here is a company dealing with and trafficking in real property and real estates. Not only its memorandum of objects and article of association but, also its actual conduct in selling one property within four years of its incorporation and four other properties with in three years thereafter show that this was not a company formed only to bold and realise properties or that it never built or acquired or developed any property as was said by Lord President Cooper in Glasgow Heritable Trust Ltd. nor can it be said to have been proved in this case that the proceeds of sale were used for repayment of debts as was said in Glasgow Heritable Trust case. On behalf of the Commissioner of Income‑tax reliance has been placed on the English decision in Commissioner of Inland Revenue v. Toll property v Co. Ltd ((1952) 35 Tax Cas: 13). There, the assessee company was formed in 1912 and soon after its formation bought one property consisting of shops and tenements. The purchase and the sale of property were within .the objects of the company, as set in its memorandum of association. In 1946, part of this property was sold at a profit which was assessed to income‑tax. Three years later, in 1949 the remain der of the property was sold at a profit and in 1951 the company went into liquidation having owned only the one pro perty. Whilst it had the property the company derived an income from it. The General Commissioners considered that the profit in 1949 was an appreciation of a capital asset and decided that the purchase and sale were not in the nature of trade. But the Court of Session held that the purchase aid sale of the property were an adventure in the nature of the trade the profit on which was assessable to income tax. The objects in the memo randum of association of that company permitted purchase, sale and traffic in property almost in the same way as the objects of the assessee‑company here. before us. Lord President Cooper at page 18 of that report rejected the two reasons given by the Commissioners in the following terms: "The majority of the Commissioners have given the reasons for their view in two propositions, first, that the company was a distinct legal per ona, and second, that the company had derived an income from this isolated property transac tion for a number of years; and from this they conclude that the transaction was an investment. For myself, I cannot see the necessary relevance of either of the factors founded upon, an If am certain that they are not conclusive in favour 'of the result which the majority of the Commis sioners have reached. The question is of course a question of circumstances and of degree, and there is no justification for revel sing the opinion of the majority of the Commis sioners if they did not misdirect themselves its law, or misapprehend the effect of the terms of the statute, or proceed without evidence sufficient in lave to justify their conclusion." This partially meets the argument advanced by Dr. Pal that here in this case also four properties which were sold were supposed to fetch income for seven years prior to the sale by way of lent and as pointed out by Lord , President Cooper that this factor is not conclusive in favour of the assessee. In that case also the company spent money on alteration and repairs of that property and demolished some portion of this property which bad been condemned before as dangerous. Speaking again at pages 18‑19 of the report, Lord President Cooper observed: "Keeping 'in view the nature of the transaction, the purpose with which the company, was floated and the objects which were prescribed in the memorandum, of association, and the whole of the other circumstances which I have briefly summarised, it seems to me that the maturity of the Commissioners were not entitled to reach the conclusion which they did, that they must have misdirected themselves in law, and the true and only reasonable conclusion, n the facts found is the conclusion reached by the dissenting Commissioner." Lord Carmont at page 19 of the report said: "Notwithstanding that it was only a single transaction, having regard to the purpose of, the formation of the company as stated by Mr. Allison, I think it was the inevitable conclusion that the, transaction was an adventure in the nature of trade . . . " Here this is not a case of a singly transaction at all but sale of as many as four houses producing air income of Rs. 2,40,000 and a surplus income of Its. 1,0063. The number of sales in this case and the frequency with which they have taken place read with the declared objects of the memorandum of association leave little room for doubt‑ that this surplus of Rs. 1,00,673. is a trading and not a capital receipt on the facts of this case before us. It will be appropriate here also to deal with another Supreme Court decision cited at the Bar, namely, Saroj Kumar Muzomdar v. Commissioner Income‑tax ((1959) 37 I T R 242) .It was held there that .one single transaction was, on the facts of that case, not an adventure in the nature of trade. Bhagwati and Sinha, JJ., who delivered the majority judgment, emphasized that, "where a transaction was not in the line of the business of the assessee but was an isolated or a single instance of a transaction, the onus was on the Department to prove that that transaction was an adventure in the nature of trade". Kupur, J. gave a dissenting judgment. There are many dis tinguishing feature of that case which will be clear from a perusal of the report at page

249. The assessee there was engaged in various types of business, as a shareholder and a director in limited liability concerns,, as also in building con tracts, but dealing in landed estates was not in the line of his business at all. Admittedly, there, the transaction in question was the only one of its kind, out of which the assessee made a considerable profit which was found by the .Supreme Court to have been "in the nature of a wind‑fall". It was also found as a fact by the Supreme Court that there was no clear evidence to support the infe rence that the land in that case was purchased with the sole intention of selling it later at a profit. These facts distinguish the present reference before us. The assessee's business and its declared object is to sell immovable property in the present case before ‑ us. Secondly, the assessee had done it before in 1939 and was assessed to income‑tax on the profit of that sale in 1939 and although be had objected to that assessment his objection was overruled. Now, in the present assessment in the question before us, for the year 1943‑44, admittedly, a large, profit had been made. In Saroj Kumar Muramdar's cage also at page 248, the Supreme Court reite rated the view that each case must be determined on the total impression created on the mind of the Court by all the facts and circumstances disclosed in the particular case and went so far as to say, "Hence no decided case can, strictly speak ing, be a precedent which 'could govern the decision of a later case, involving similar question." We weed not notice the case of Commissioners of Inland Revenue v. Reinhold ((1953) 34 Tax Cas. 389) as the Supreme Court in Venkataswami Naido & Co. v. Commissioner of Income‑tax ((1959) 35 I T R 591, 622) observed: "This case was no doubt a case on the border line; and if we may say so with respect it was perhaps nearer an adventure in the nature of trade than otherwise." There are, however, one or two other English cases to which reference may be made and which were cited by the learned counsel for the Commissioner of Income‑tax. In Emro Investments Ltd. v. Alter (H. M. Inspector of Taxes) ((1954) 35 Tax Cas. 305), somewhat similar questions arose out of formation of certain companies , by an estate agent. Two assessee‑companies were formed in 1943 and 1944 of which the estate agent became the managing director. The two companies followed his advice regarding sales and purchases of property. In the case of the second company moneys realised from the sale of capital assets in excess of their price in the books were required by the articles of the company to be carried to a capital reserve fund which was not available for dividend and in the case of the first company such receipts were in practice dealt with in the same way. All profits on the sale of property were used to buy further properties or invested in mortgages or other securities. A number of purchase and sales took place between 1943 and 1951. The main contention of the companies was that they a ere investment companies and bad never carried on a trade. The Commissioners, on the other hand, found as a fact in each case that the company was carrying on the trade or business of buying and selling properties with a view to profit. The Chancery Division trench of the High Court in London upheld the Commissioners' decision. Wynn‑Parry, J., at page 310 of that report, noticed the number of sales during the period of years and observed : "Figures such as those must at once lead The enquiring mind to wonder whe ther or not a business of dealing in properties is going on..." That therefore is a relevant factor. Here the number of sales and their frequency, although do not in any 'way equal the number of sales their frequency found in Emro Investments case nevertheless we halve found them fairly‑ large and frequent in the present case before us. In Mitchell Bros. v. Tomlinson (H. M. Inspector of Taxes) ((1957) 37 Tax Cas. 224). Danckwerts, J. at page 230 observed: "There are ample facts, upon which the Commissioners could infer an intention to depart from their policy of investment and retaining the houses for purposes of investment, but instead to take advantage of the opportunities provided for making profit in the conditions which existed after the termination of the war and indulge in an adventure in the nature of a trade by making profits out of the purchase and sale of land. It seems to me impossible for me to say there was no evidence on which the Com missioners could reach that conclusion . . . " Lord Goddard, C. J. in appeal upheld this decision. The only importance of this decision lies in the fact that the company also was to let their houses and not to sell them but even then that was not regarded as a conclusive factor and it was found that the company as a matter of fact had changed its policy by reason of the events and facts found. The last case which was cited on behalf of the Commis sioner of Income‑tax was James Hobson & Sons Ltd. v. Newall (H. M. Inspector of Taxes) ((1957) 37 Tax Cas. 609). There also the sale proceeds of an immovable property. were assessed to income‑tax and the assessee‑company contended that they did not form part of its trading assets. The Commissioners' decision was upheld by the High Court in London in its Chancery Division. Harman, J., at page 617, made the following observations, which are relevant for the purposes of our reference : "In this case the memorandum would entitle the company to buy houses as an investment, but I do not think it would entitle it to build house as an investment. It entitled the company to build houses in order to turn them to account, and that is what it did. It would be a misuse of language to suggest that, simply because it did not intend to sell houses when it built them, therefore they were any different from any other houses which the company built. They were all treated in the same way in the accounts, and although this is not decisive it is a straw in the wind. They show what the intention of the company was. These were part of the stock‑in‑trade of this company, and no less its stock‑in‑trade because it was not intended to turn them to account by selling them." In this case, Harman J. noticed the many cases that crop ped up in England about builders by making the observation at page 615 of the report : "There seems of recent years to have been a series of them. The question is always same, whether houses owned by people carrying on or having carried on the trade of builder and realised by them are part of their trading as sets, so that the profits are part of their trade, or whether they are something different, a so‑called investment, that being a word of rather vague import but meaning something in which money is locked up so as to be outside the trad ing activities of the company." Harman, J. points ‑out again at page 616 on the facts of that case : ‑ "No attempt was made to sell them when built they were retained and let. The company also had at least three other ventures, and may be more, in building houses for prompt sale, and those ventures ended in leaving on their bands what apparently are called in the trace `builders' `remainders', that is to say, houses put up with the rest of the estate for sale and not sold." Each case must, however, be decided on its own facts. No case is a real precedent for another on this vexed ques tion. It will, therefore, be unnecessary to notice any further cases on the point except the case of Commissioners of Inland Revenue v. Hyndland Investment Company Ltd. ((1919) 14 Tax Cas. 694) on which much reliance was placed by Dr. Pal. There, a company was formed in 1899 to purchase certain lands on a which, under contracts entered into by the vendors, five blocks of flats comprising forty flats were id the process of erection. The company completed the building of the flats and let them to tenants. It acquired no other land: An offer to buy one block of flats was made to the company in 1902 but the negotiations fell through. Between 1920 and 1926 sixteen flats were sold separately. The memorandum of association of the company stated as one of its objects the acquisition of land etc., to hold as an investment, and as another object, the building of tenements, etc, with power to realise any of its property, The Commissioners took the view that the company had not traded but were merely realising capital. The Crown appealed and the appeal of the Crown was dismissed. Lord President. Clyde, at page 699, emphasized the fact that the memorandum of association described its objects, as being the acquisition of lard and oilier heritable property, and the holding of the property as an investment and the division of .the income thereof, but proceeded to observe "That is not, however, conclusive, because the question is .not what business does the taxpayer profess to carry on but what business does he actually carry .on. At the same time it is not irrelevant. to observe that, so far as the con stituent documents of this particular company go, its objects were not concerned with speculation in real property, but with the acquisition and management of permanent investments in house property and similar subjects.". The facts in this case are very different from the facts in Hyndland Investment Co. Ltd. case. Here there is no question of any, investment as such ; here not only the objects declare sale of property as one of the objects but actual sales took place and the taxpayer was carrying on the business of selling property as part of its trade. It therefore follows from the authorities, on the facts of the particular case before us, that Dr. Pal's last argument that only a small portion of the real estate was sold in this case car not, on the facts arid records of the present reference take the sales either outside the objects‑ of the memorandum of association or outside the ordinary trading for making profit. The proportion of sale is not, however, merely nominal in this case. It ,must be pointed out that the whole Mayfair Block was purchased for Rs. 5,85,264‑4‑

0. The value of the four properties sold fetched as much as Rs. 2,40,

000. The total municipal valuation of the properties included in the Mayfair. Block was Rs. 50,111 at the time of purchase, whereas at the time of sale the total municipal valuation of the four properties sold alone amounted to Rs. 11,420, which is about 25 per cent. Of the total municipal valuation. Lastly, Dr. Pal's argument that the' company in this case only sold properties but did not purchase any, cannot, in our view, take this sum out of revenue. To be a trade it is not necessary that there must be simultaneous sales and pur chases. If a real estate company such as the assessee com pany here sells' a portion of its properties to make a profit in a rising market it cannot be said that these profits were not part of their trading when they are justified by their memorandum of association simply because they had made no corresponding purchases of properties also at the same time or contemporaneously. For these reasons we are of opinion that on a true construction of the memorandum of association of the company as well as the facts and circumstances of the case the sutra of Rs. 1,00,673 , was .liable to assessment under section 10 of the Act as income under the. head "business" and we answer the question in the affirmative. The assessee will pay the costs of this reference. NIYOGI ,J.‑

I agree. Questions answered in the affirmative.