1982 PLP 175 (PTD)

Income‑tax‑ ‑‑‑‑ Business‑Adventure in nature of trade‑Assessee‑Company carrying on business in financing of motor vehicles on hire‑purchase basis Memorandum of Association empowering assessee‑Company to deal with property of all kinds including land, farms, building, etc.‑Purchase of land in area likely to be declared an industrial area‑Transactions of sale of land within close proximity of time indicating that property was purchased with intention to make profit‑Transactions, held, adventure in nature of trade and liable to tax. Santosh Jain for the Assessee. P. N. Misra for the Commissioner. . JUDGMENT S. RANGANATHAN, J.‑The question raised in the reference is whether a surplus realisation by the assessee‑Company is taxable as income arising from an adventure in the nature of trade. The facts are a little unusual but we have come to the conclusion that the Tribunal was right in holding that the surplus constituted taxable income under the I.‑T. Act. The facts may now be briefly stated. The assessee‑Company, Messrs Joint Financiers (Pvt.), Ltd., is a Company now in liquidation. We are concerned with the assessment year 1961‑62, for which the accounting year ended on October 31, 1960. On May 21, 1960, a sale‑deed was executed by one Rajinder Kumar in respect of certain lands in village, Ballabgarh, and got registered in the office of the Sub‑Registrar on May 24, 1960. The sale‑deed was in favour of the assessee‑Company and the sale price was stated to be Rs. 1,28,

084. Earlier, on April 28, 1960, the board of directors of the assessee‑Company had passed a resolution in respect of this land which read as follows : "Further, resolved that a sum of Rs. 1,35,000 approximately be invested jointly, with Shri B. K. Bedi in purchase of land situated at the Mathura Road, near Ballabgarh (Punj.), Mr. B. K. Bedi's share being 50 % in, the shape of investment and profit. The advance paid to the seller in this respect be and is hereby confirmed." It will be seen from the above resolution that though the land had been purchased in the name of the assessee‑Company, it had been agreed between the assessee‑Company and Shri B. K. Bedi each was to be entitled to a 50 % share in the investment and profit. On October 31, 1960, the assessee entered into an agreement with Shri B. K. Bedi agreeing to sell its half share in the land in favour of Shri B. K. Bedi for Rs. 1,03,

625. This was only an agreement to sell but it is common ground that the sum a Rs. 1,03,624 was received by the assessee‑Company. It has bean found as fact by the authorities that the difference between the sale price (Rs. 1,03,625) and the total cost price pertaining to the half share (Rs. 66,588) was taken by the assessee‑Company as profit on sale of land to the credit of the profit and loss account and thn to the appropriation account and subsequently even dividends were declared out of it. It may be mentioned by way of narration that subsequently Shri B. K. Bedi appears to have agreed to sell the entire land to two companies but since the land stood in the name of the assessee‑Company those vendees had insisted that the sale‑deed in their favour should be executed by the assessee Company. Shri B. K. Bedi, therefore, wrote to the assessee‑Company on January 28, 1961, requesting it to execute the necessary agreement of sale in favour of the said two companies on his behalf. Though the officer mentions that the land was sold to the two Companies, Mrs. Jain, appearing for the official liquidator, states that no sale‑deed was at all executed in pursuance of the above agreements and that the lands were acquired by the Government at some point of time but it is not known whether any com pensation was paid and if so to whom. The short question for consideration is whether the difference between the sums of Rs. 1,03,625 and Rs. 66,588 could be treated as profit from an adventure in the nature of trade in the hands of the assessee. Apparently, the position has been looked at by the assessee as well as the authorities on the same footing as if there had been sale by the assessee of the land in favour of Shri Bedi but as will be clear from the narration of facts set out earlier there was no actual sale of any such interest. The assessee had not executed any sale‑deed and all it had done was to execute an agreement to sell in favour of Shri Bedi. The question is whether notwithstanding this, the profit would be taxable in the hands of the assessee, because, admittedly, the assessee had received from Shri Bedi the sum of Rs. 1,03,625 and this is in excess of the cost price of the land which fell, to the share of the assessee Company, surplus has accrued to the assessee. We think that though there has actually been no sale of the land, the circumstances clearly show that the assessee has made a profit and that this profit was derived from an adventure in the nature of trade. It is true that the onus is on the revenue to establish that a particular transaction is in the nature of adventure and that in the case of a transaction pertaining to agricultural land, the conclusion is not easily drawn that it is in the nature of adventure because agricultural lands normally are purchased by way of investment. However, in the present case, the cumulative effect of all the circumstances is to show that the assessee intended to and did make a profit on a transaction in the nature of business put through by it within a very short span of time. The first and foremost point to note is that the assessee is a Private Limited Company and though it was actually carrying on a business in the financing of motor vehicles on hire‑purchase basis, its memorandum of association was wide enough to include, among others, "the power to sell, dispose of, turn to account, and otherwise deal with property of all kinds and in particular, land, farms, buildings, etc." Secondly, at the time of the purchase of the lands, the Company had passed a resolution which shows that it was a joint purchase along with Shri Bedi. The terms of the re solution clearly show that the parties contemplated the realisation of a profit therefrom. Thirdly, the area. of location of the land is suite significant. The A. A. C. has pointed out that the lands were situate in Ballabgarh which was likely to be declared as an industrial area. The fourth relevant circumstance is that soon after the purchase was effected by it the assessee purported to transfer its interest in the land in favour of Shri Bedi and within a very short time thereafter, Shri Bedi also agreed to sell the land to two other companies. The close proximity of time among the several tran sactions also throws a light on the intention with which the land was pur chased by the Company and Mr. Bedi together. Finally, it array be pointed out that though the assessee had not yet executed a sale‑deed in favour of Shri Bedi, it was able to realise the entire sum of Rs. 1,03,

625. This amount was also treated as a profit of the company and distributed as dividend to its shareholders. Considering all these circumstances cumulatively, we are in agreement with the conclusion of the Tribunal that the amount of Rs. 37,037 was taxable income under the I. T. Act. This question referred to us is, therefore, answered in the affirmative and in favour of the revenue. Since the Company is already in liquidation we see no purpose in mulcting it with costs. There will, therefore be no order as to costs. Question answered in the affirmative.