The transaction in question is an adventure in the nature of trade.

Judgement

P. B. GAJENDRAGADKAR, J. : The appellant is a firm acting as managing agents of the Janardana Mills Ltd., Coimbatore. It purchased four contiguous plots of land admeasuring 5 acres 26 cents under four sale deeds executed on 25th October 1941, 15th November 1941, 29th June 1942, and 19th November 1942, respectively for a total consideration of Rs. 8712-15-6. After-about five years these properties were sold by the appellant in two lots to the Janardana Mills Ltd. The first lot was sold on 1st September 1947, and the second on 10th November 1947, the total consideration for the two sales being Rs. 52,600. These two sales realised for the appellant a sum of Rs. 43,887-0-6 in excess of the purchase price.

2. The Income-tax Officer treated the said amount of Rs. 43,887 as the income of the appellant for the assessment year 1948-49, and assessed it to income-tax under the head "business". The officer held that there was no evidence to show that the appellant had purchased the said lands for agricultural purposes or that it had acquired them as an investment. He also found that, since the lands were adjacent to the Janardana Mills, the appellant must have purchased them solely with a view to sell them to the said mills with a profit. That is why, though the transaction was in the nature of a solitary transaction, it was held that it had all the elements of a business transaction and was thus an adventure in the nature of trade.

3. Against this order of assessment the appellant preferred an appeal to the Appellate Assistant Commissioner. The appellate authority upheld the appellant s contention that the amount in question was not assessable as it cannot be held to be income or profit resulting from a profit-making scheme, and set aside the order under appeal.

4. The respondent challenged the correctness of this order by taking an appeal against it to the Income-tax Appellate Tribunal. The tribunal agreed with the view taken by the Income-tax Officer and held that the amount in question was not a capital accretion but a gain made in an adventure in the nature of business in carrying out a scheme of profit-making. The tribunal rejected the explanations given by the appellant as to why it had purchased the properties and held that the purchase had been made by the appellant solely with a view to sell the said properties at profit to the Janardana Mills.

5. At the instance of the appellant the tribunal then referred to the High Court of Madras the question suggested by it in these words : "whether there was material for the assessment of the sum of Rs. 43,887 being the difference between the purchase and sale price of the four plots of land as income from an adventure in the nature of trade".

6. This reference was heard by Rajagopalan and Rajagopala Ayyangar JJ. and the question referred has been answered against the appellant. The High Court has held that the transaction in question was an adventure in the nature of trade and so the respondent was justified in taxing the amount in question under the head "business" for the relevant year. The application for leave made by the appellant was rejected by the High Court. Thereupon the appellant applied for, and obtained, special leave to appeal to this Court. That is how the appeal has been admitted in this Court; and the only question which it raises for our decision is whether the High Court was right in holding that the transaction in question was an adventure in the nature of trade.

7. We may at this stage briefly indicate the material facts and circumstances found by the tribunal and the inference drawn by it in regard to the character of the transaction in question. The appellant purchased the four plots under four different sale deeds. The first purchase was for Rs. 521 and it covered a piece of land admeasuring 28 - 1/4 cents; the second purchase related to 2 acres 79 -1/2 cents and the price paid was Rs. 1,250 ; while the third and the fourth purchases were for Rs. 1,942 and Rs. 5