vil Appeal No 308 of 1964
Appeal by special leave from the judgment and order dated September 10 1962 of the Calcutta High Court in Income tax Reference No 115 of 1957
AV Viswanatha Sastri B Sen Gupta and PK Ghosh for the appellant
ND Karkhanis and RN Sachthey for the respondent
The Judgment of the Court was delivered by Shah J
The appellant is a Hindu undivided family and carries on business as a dealer in iron scrap and hardware
Messrs Hoare Miller and Company Ltd hereinafter called the Company  were owners of a jute pressing factory installed on a piece of land belonging to the Company
Adjacent to that land were two pieces of land one was leasehold and the other held by the Company as a licensee from the Government of West 604 605 Bengal
On January 21 1941 the Company leased out to one Ramnath Bajoria the jute pressing factory together with the machinery standing on the land owned by the Company for ten months commencing from January 10 1941
Ramnath Bajoria failed to vacate and deliver up possession of the premises demised to him after the expiry of the period of the lease and the Company instituted a suit in ejectment against him
By an agreement dated October 31 1942 the appellant agreed to purchase all the rights of the Company in the factory and the appurtenant premises for Rs 245000
On November 14 1942 the Company delivered to the appellant possession of the property agreed to be sold save and except the factory demised under the lease to Ramnath Bajoria and the machinery included in the lease
On February 26 1943 the Company executed a conveyance in favour of the appellant conveying the factory and the appurtenant premises
On June 12 1943 the appellant agreed to sell to one Ranada Prasad Saha the property purchased from the Company for Rs 47336436 free from all encumbrances
On August 10
1943 the appellant was substituted as a plaintiff in the suit filed by the Company against Ramnath Bajoria and obtained possession of the factory premises
By a deed of conveyance dated September 30 1943 the appellant conveyed to Ranada Prasad Saha the factory and the appurtenant premises and delivered possession thereof
In the deed of conveyance the property sold was described in three separate Schedules
Schedule I Press House office residential buildings and three warehouses on land owned by the Company Schedule 11  leasehold land together with a warehouse known as Kalibari godown Schedule II1 two warehouses on land held as licensee by the Company from the Government of West Bengal
The Income tax Officer
District Ii1 CAlcutta
brought to tax in the hands of the appellant Rs 224864 bring the profit arising out of the sale of the property to Ranada Prasad Saha
The Income tax Appellate Tribunal partially modified the order and reduced the total income by Rs 7000
The Tribunal then drew up a statement of case and referred the following question to the High Court of Judicature at Calcutta Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the surplus of Rs 235211 received by the assessee as a result of the sale of the jute press referred to in the Appellate order arose out of an adventure in the nature of trade and was therefore rightly assessed to tax The High Court answered the question in the affirmative
With special leave granted by this Court the appellant has appealed to this Court
LPN4SCI 12 606 At the material time capital gains were not taxable and the only question failing to be determined is whether profit made by the appellant by sale of the property to Ranada Prasad Saha was taxabIe under section 10 of the Indian Income tax Act
The Tribunal found the following facts proved The appellant was carrying on business in iron scrap and hardware and never carried on any business in jute or in pressing jute
At the material time when the purchase of the Jute Press was made the appellant had because of abnormal conditions prevailing in the town of Calcutta closed its business in iron scrap and hardware
The appellant purchased the jute press and the premises appurtenant thereto subject to litigation pending in the High Court effected certain repairs and kept the factory in running condition but made no attempt to start or organise the business of pressing jute and his plea that he was not able to secure labour for working the press was not true
Soon after he bought the factory the appellant received an offer from Ranada Prasad Saha to buy the factory and he immediately accepted the offer to sell it to him
These facts in the view of the Tribunal indicated that the appellant purchased the jute press subject to litigation with the sole object of reselling at profit at the earliest opportunity and therefore the transaction was in the nature of a trading venture
The High Court substantially agreed with this view
Section 10 of the Indian Income tax Act 1922 makes profits and gains of business profession or vocation carried on by an assessee taxable
The expression business is defined in section 24 as inclusive of any trade commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture
It is common ground that the transaction of purchase and sale of the factory and appurtenant premises was an isolated venture
To reiterate the sequence of material events the appellant agreed to purchase the Jute Press from the Company on October 31 1942 subject to litigation pending in the High Court of Calcutta possession of the property except the premises in the occupation of the tenant was obtained on November 14 1942 and the sale deed was obtained on February 26 1943 on June 12 1943 the appellant agreed to sell the press to Ranada Prasad Saha on August 10 1943 the appellant was substituted as plaintiff in the suit flied by the Company against Ramnath Bajoria and after obtaining possession of the demised premises the appellant executed on September 30 1943 a sale deed conveying the property and delivered possession to Ranada Prasad Saha
Do these facts make out the case that the transaction was an adventure in the nature of trade It is for the revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income
The nature of the transaction must 607 be determined on a consideration of all the facts and circumstances which are brought on the record of the income tax authorities
It has consistently been held by this Court that the question whether profit in a transaction has arisen out of an adventure in the nature of trade is a mixed question of law and fact see G Venkataswami Naidu  Company vs The Commissioner of Income tax1 in which case this Court held that the expression adventure in the nature of trade in sub section
4 of section 2 of the Act postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business and that a tribunal while considering a question whether a transaction is or is not an adventure in the nature of trade before arriving at its final conclusion on facts has to address itself to the legal requirements associated with the concept of trade or business
Such a question is one of mixed law and fact and the decision of the tribunal thereon is open to consideration under section 661 of the Act
See also Saroj Kumar Maiumdar vs Commissioner of Income tax West Bengal2
A large number of cases were cited at the Bar in support of the respective contentions of the Commissioner and the assessee
Passages from judgments in the same case were often cited claiming support for the respective contentions
No useful purpose would be served by entering upon a detailed analysis and review of the observations made in the light of the relevant facts for no single fact has decisive significance and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record
But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases
If for instance a transaction is related to the business which is normally carried on by the assessee though not directly part of it an intention to launch upon an adventure in the nature of trade may readily be inferred
A similar inference would arise where a commodity is purchased and sub divided altered treated or repaired and sold or is converted into a different commodity and then sold
Magnitude of the transaction of purchase the nature of the commodity subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture for instance a man who purchases a large quantity of aeroplane linen and sells it in different lots and for the purpose of selling starts an advertising campaign rents offices engages an advertising manager a linen expert and a staff of clerks maintains account books normally used by a trader and passes receipts and payments in connection with the linen through a separate banking account Martin vs Lowry3 a person who carries on a money lending business purchases very cheaply a 2 1959 Supp 1 SCR 640
2 3 608 vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit Rutledge vs The Commissioner of Inland Revenue1 a person even though he has no special knowledge of the trade in wines and spirits purchases a large quantity of whisky sells it without taking delivery of it at a considerable profit Commissioners of Inland Revenue vs Fraser2 may be presumed having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances to be carrying on an adventure in the nature of trade
These are cases of commercial commodities
But a transaction of purchase of land cannot be assumed without more to  be a venture in the nature of trade
A director of a company carrying on the business of ware houseman purchasing a number of houses with a view to resale and selling them at a profit some years after the purchase Commissioners of Inland Revenue vs Reinhold3 a person carrying on business in various lines including an Engineering Works purchasing land which was under requisition by the Government negotiating sale thereof before the land was derequisitioned and selling it after the land was released Saroj Kumar Mazumdar vs Commissioner of Income tax West Bengal4 and a syndicate formed to acquire an option over a rubber estate with a view to earn profit and finding the estate acquired too small acquiring another estate and selling the two estates at a profit Leeming vs Jones3 may not be regarded as commencing a venture in the nature of trade
These are cases in which the commodity purchased and sold is not Ordinarily commercial and the manner of dealing with the commodity does not stamp the transaction as a trading venture
It may be emphasized from an analysis of these cases that a profit motive in entering a transaction is not decisive for 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
Purchase of the property by the appellant was an isolated transaction not related to the business of the appellant
The Tribunal and the High Court were in our judgment in error in holding that the right of the Company was not sold to the appellant in the lands in Sch
II and Sch
III properties
The land in Sch
II was leasehold and on it was constructed a warehouse and the land in Sch
III was held as a licensee and two warehouses were standing thereon
The conveyance by the Company to the appellant is not on the record but the recitals in the deed dated September 30 1943 definitely indicate that the rights of the Company without any reservation were purchased by the appellant and the appellant sold its entire rights in the properties in Schs
I 1 2 3 4 11 TC297
5 15 TC333
609 II and III without any reservation
It is true that the appellant had put the factory in a working condition but had not organized a jute pressing business had not obtained a licence for working the factory had not attempted to secure orders for pressing jute and had not employed labourers The appellant s claim that it was not s9 done because the appellant could not secure labourers has not been accepted
But that is not a decisive circumstance
The factory was in the occupation of the lessee Ramnath Bajoria and possession was obtained after August 10 1943
But before the 10th of August an agreement of sale was executed by the appellant in favour of Ranada Prasad Saha
In the light of the sequence of events the inference that the appellant had no intention to commence doing jute pressing business does not necessarily follow
Even if that inference be regarded as binding upon the Court it cannot be presumed that the sole intention of the appellant was to start a venture in the nature of trade
Barring the expectation of profit and realization of profit by sale of the property there is no evidence bearing on the intention with which the property was purchased
In the deed of conveyance dated September 30 1943 there is a reference to delivery of joists girders fabricated steel CI roofs bolts nuts hooks and ceiling planks being portions of the materials of the godowns and structures standing on the land described in the third schedule
It was submitted that after purchasing the factory and the appurtenant premises the appellant demolished certain godowns in Sch
III land and sold the material as scrap
This it was claimed was if not part of the business  a venture similar to the normal business of the appellant
But there is no evidence on the record as to how many warehouses stood originally on Sch
III land
The sale deed dated September 30 1943 clearly states that there were two warehouses on steel frames on the land held as licensee by the Company and possession of these was given to the purchaser Ranada Prasad Saha
Beside these warehouses there were three warehouses on the land described in Sch
I and one warehouse on the land described in Sch
It is not claimed that these warehouses were insufficient for carrying on the business of jute pressing nor is there any evidence that the warehouse or warehouses which were demolished were in a serviceable condition
The only fact which may be taken to be established is that a warehouse or warehouses were demolished by the appellant and the materials were sold as part of the property sold under the deed dated September 30
From this circumstance an inference that the entire property was purchased with intent to demolish and dispose of as scrap cannot be raised
Granting that the appellant made a profitable bargain when he purchased the property
and granting further that the appellant had when he purchased it a desire to sell the property if a favourable offer was forthcoming
these could not without other 610 circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade
Absence of advertisement inviting offers for purchasing the property and absence of brokers in the negotiations for sale between the appellant and Ranada Prasad Saha are circurmtances which lead to no positive inference
There is nothing to show that the appellant desired to convert the property to some other use
No brokers were employed for entering into a transaction of sale
It appears that Ranada Prasad Saha on coming to learn that the factory was for sale approached the Company after the sale deed was executed in favour of the appellant and he was informed that it had already been sold to the appellant
Thereafter Saha contacted the appellant and agreed to purchase the property
The property purchased was not sudh that an inference that a venture in the nature of trade must have been intended by the appellant in respect thereof may be raised
A person purchasing a jute press may intend to start his own business even if he is not already in that business or he may let it out on favourable terms
The property purchased by the appellant was capable of being let out and it had in fact been let out by the Company before the date of sale in favour of the appellant
It was capable of fetching annual income and there is no evidence that at the material time it could not be reasonably let out
We therefore discharge the answer given by the High Court in respect of the question submitted by the Tribunal and record a negative answer
The appeal is allowed
The Commissioner to pay the costs in this Court and the High Court
Appeal allowed


Summary:
The assessee who was dealing in iron scrap and hardware had purchased a jute press and sold it at a profit
The Income tax Officer brought to tax in the hands of the assessee the profit arising out of this sale
The Appellate Tribunal modified the order and reduced the total income
At the instance of assessee the Tribunal referred to the High Court the question whether the surplus received by the assessee as a result of the sale of the jute press arose out of an adventure in the nature of trade and was therefore liable to tax
The High Court answered the question in affirmative
In appeal HELD The question must be answered in the negative
Granting that the assessee made a profitable bargain when he purchased the property and granting further that the assessee had when he purchased it a desire to sell the property if a favourable offer was forthcoming these could not without other circumstances justify an inference that the assessee intended by purchasing the property to start a venture in the nature of trade
609H 610A A profit motive in entering a transact on is no decisive for an accretion to capital does not become taxable income merely because an asset was acquired in the expectation that it may be sold at a profit
608F Purchase of the property by the assessee was an isolated transaction not related to the business of the assessee
608G Case law referred to