Appeals Nos
708 to 710 of 1966
Appeals by special leave from the judgment and order dated July 23 1964 of the Andhra Pradesh High Court in Case Referred No 42 of 1962
Sukumar Mitra Y V Anjaneyulu Bhuvnesh Kumari J B Dadachanji and O C Mathur for the appellant in all the appeals
Niren De Solicitor General section K Aiyar R N Sachthey and section P Naya  for the respondent in all the appeals The Judgment of the Court was delivered by Ramaswami J
These appeals are brought by special leave from the judgment of the High Court of Andhra Pradesh dated 23rd July 1964 in referred case No 42 of 1962
The assessment years involved in these appeals are and 1954 55 the relevant accounting periods being the years ending 30 9 1948 30 9 1952 and 30 9 1953 respectively
The assessee firm Khan Bahadur Ahmed Alladin  Sons hereinafter referred to as the assessee firm  consists of three partners Khan Bahadur Ahmed Alladin and his two sons Khan Saheb Dost Mohammed Alladin and Noor Mohammed Alladin
The assessee firm purchased the Brengun Factory and the properties attached to it consisting of 403 acres of land 14 factory buildings about on hundred residential quarters and railway sidings furnitures etc in addition to the stores from the Government of India
The price of the Brengun Factory and the properties together with the furniture etc
was fixed at Rs 27 lakhs while the price of the stores was fixed at Rs 8 lakhs
During the relevant accounting years the assessee firm sold a part of the stores for Rs 953918 OS and 46 acres of land 14 factory buildings furniture railway siding etc
for Rs 2648215 OS
It was not disputed that the excess over the price realised for the re sale of 441 stores was Rs 226484 OS and for the re sale of part of the factory land building etc
was Rs 1046834 OS
It was admitted by the assessee firm before the Appellate Tribunal that the surplus realised by the resale of stores was not a capital accretion but an adventure in the nature of trade
With regard to the factory it was argued that it was an investment and not an adventure in the nature of trade and as such the excess amount realised represented a realisation of capital asset
The contention of he assessee firm was rejected by the Income tax Officer by the Appellate Assistant Commissioner and by the Appellate Tribunal in appeal
The view taken by the Appellate Tribunal was that the assessee firm had planned a well calculated scheme of profit making that it had the intention of exploiting the properties which it had purchased to its advantage that the transactions in question constitute an adventure in the nature of trade and any surplus which it got by sale of the portions of the properties was liable to tax
At the instance of the assessee firm the Appellate Tribunal stated a case to the High Court on the following question of law  Whether the purchase of the site and buildings known as Brengun Factory was in the course of a profit making scheme or an adventure in the nature of trade By its judgment dated 23rd July 1964 the High Court answered the question against the assessee firm
On behalf of the appellant Mr Sukumar Mitra argued that the assessee firm along with Abdullah Alladin brother of Khan Bahadur Ahmed Alladdin had been carrying on business as a partnership firm under the name of Khan Bahadur Ahmed Alladdin and Company hereinafter referred to Alladdin  Co
It had substantial interest in various joint stock companies and was the managing agent of several joint stock companies and possessed considerable financial resources
The assessee firm acquired the Brengun Factory with the intention of starting a bicycle factory or some other industry as an investment but not with the intention of resale
The argument was stressed that the purchase and sale of land and buildings was not in the line of business of the assessee firm
It was stated that the purchase was an isolated transaction and even after the sales a major portion of the factory remained with the assessee firm
It was contended that the assessee firm had not developed the land or parcelled it out with the view to sell it to purchasers as a residential area and make a profit
The submission made on behalf of the appellant was that the transaction of purchase was in the nature of investment and was not an adventure in the nature of trade and the sales represented the realisations of capital asset
442 The provision of law under which assessment was made for the assessment year 1358 F was section 313 of the Hyderabad Income Tax Act hereinafter referred to as the Hyderabad Act  which corresponds to section 23 3 of the Indian Income Tax Act 1922 hereinafter referred to as the Indian Act
The mnents for the subsequent years were made under the Indian Act
The charging section under the Hyderabad Act is section 3 which corresponds to section 4 of the Indian article The word business is defined in section 31 of the Hyderabad Act which is identical with the language of section 24 of the Indian Act
Section 8 of the Hyderabad Act states  Save as otherwise provided by this Act the following beads of income profits
and gains shall be chargeable to income tax in the manner hereinafter appearing namely iv Profits and gains of business profession or vocation
It corresponds to section 6 of the Indian Act
The question whether profit in a transaction is a capital accretion or has arisen out of an adventure in the nature of trade is a mixed question of law and fact
In Venkataswami Naidu  Co vs Commissioner of Income tax1 it was pointed out by this Court that the expression in the nature of trade in sub section 4 of section 2 of the Indian 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 the question whether a transaction is or is not an adventure in the nature of trade before arriving at its conclusion on the facts has
to address itself to the legal requirements associated with the concept of trade and business
In other words in reaching the conclusion that the transaction is an adventure in the nature of trade the Appellate Tribunal has to find the primary evidentiary facts and then apply the legal principle involved in the statutory expression adventure in the nature of trade used by section 24 of the Indian Act
A question of this description is a mixed question of law and fact and the decision of the Appellate Tribunal thereon is open to challenge under section 66 1  of the Indian Act
The question whether the transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case
The answer to the question does not depend upon the application of any abstract rule principle or formula but must 1 443 depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case
In Californian I Copper Syndicate vs Harris1 Lord Justice Clerk observed It is quite a well settled principle in dealing with questions of assessment of income tax that where the owner of an ordinary investment chooses to realise it and obtains a greater price for it than he originally acquired it at the enhanced price is not profit  assessable to income tax
But it is equally well established that enhanced values
obtained from realisation or conversion of securities may be so assessable where what is done is not merely a realisation or change of investment but an act done in what is truly the carrying on or carrying out of a business
What is the line which separates the two classes of cases may be difficult to define and each case must be considered according to its facts the question to be determined being Is the sum of gain that has been made a mere enhancement of value by realising a security or is it a gain made in the operation of business in carrying out a scheme for profit making  But in judging the character of such transactions several factors have been treated as significant in decided cases
For instance if 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
The magnitude of the transaction of purchase the nature of the commodity the subsequent dealings of the assessee the nature of the organisation employed by the assessee and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture In Martin  vs Lowry2 the assessee purchased a large quantity of aeroplane linen and sold it in different lots and for the purpose of selling it started an advertising campaign rented offices engaged an advertising manager a linen expert and a staff of clerks maintained account books normally used by a trader and passed receipts and payment in connection with the linen through a separate banking account
It was held that the assessee carried an adventure in the nature of trade and so the profit was liable to be taxed
The same view was taken in Rutledge vs Commissioners of Inland Revenue3 in regard to an assessee who purchased very cheaply a vast quantity of toilet paper and within a short time thereafter sold the whole consignment at a considerable profit
Similarly in Commissioners of Inland Revenue vs Fraser the assessee 4 a woodcutter bought for resale whisky in bond in three lots
He 1 TC 159165 6
2 11 Tax Cases 297
3 14 Tax Cases 490
4 24 Tax Cases 498
444 sold it later on at considerable profit
The assessee had never dealt in whisky before he had no special knowledge of the trade he did not take delivery of the whisky nor did he have it blended and advertised
Even so it was held that the transaction was not an adventure in the nature of trade
Lord President Normend observed in the course of the judgment  It is in general
more easy to hold that a single transaction entered into by an individual in the line of his own trade although not part and parcel of his ordinary business is an adventure in the nature of trade than to hold that a transaction entered into by an individual outside the line of his own trade or occupation is an adventure in the nature of trade
But what is a good deal more important is the nature of the transaction with reference to the commodity dealt in
The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit and yet it may be that that is not the only purpose for which he purchased the article or the commodity nor the only purpose to which he might turn it if favourable opportunity of sale does not occur
In some of the cases the purchase of a picture has been given as an illustration
An amateur may purchase a picture with a view to its resale at a profit and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if lie is unable ultimately or at his chosen time to realise it at a profit
A man may purchase stocks and shares with a view to selling them at an early date at a profit but if he does so he is _purchasing something which is itself an investment a potential source of revenue to him while he holds it
A man may purchase land with a view to realising it at a profit but it also may yield him an income while he continues to hold it
If be continues to hold it there may be also a certain pride of possession
But the purchaser of a large quantity of commodity like whisky greatly in excess of what could be used by himself his family and friends a commodity which yields no pride of possession which cannot be turned to account except by a process of realisation I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade and I can find no single fact among those stated by the Commissioners which in any way traverses that view
In my opinion the fact that the transaction was not in the way of business whatever it was of the respondent in no way alters the character which almost necessarily belongs to a transaction like this
These are cases of commercial commodities but a transaction of purchase of land cannot be assumed without more to be an adventure in the nature of trade
In Leeming vs Jones syndicate was formed to acquire an option over a rubber estate with a view to resell it at a profit and finding the estate too small the 1 15 Tax Cases 333
445 syndicate acquired  another estate and sold the two estates on profit
It was held that the transaction was not in the nature of trade and the profit was not liable to be assessed to tax
The same view was expressed in Saroj Kumar Mazumdar vs Commissioner of Income tax West Bengal1 in which the assessee who carried on business of engineering works purchased land which was tinder requisition by the Government negotiated a sale before the land was de requisitioned and sold it after the land was released
Again in Commissioners of Inland Revenue vs Reinhold2 the respondent who carried on business of wharehousemen bought four houses in January 1945 and sold them at a profit in December 1947
He admitted that he had bought the property with a view to resale and had instructed his agents to sell whenever a suitable opportunity arose
On behalf of the Crown it was contended that the purchase and sale constituted an adventure in the nature of trade and the profits arising therefrom were chargeable to income tax
It was held by the Court of Sessions that the initial intention of the respondent to purchase the property with a view to resell did not per se establish that the transaction was an adventure in the nature of trade and the Com missioners were justified in treating the profit as not assessable to income tax
But the circumstance of a particular case may lead to the conclusion that the purchase or resale of land is in the nature of trade
In Venkataswami Naidu s 3  case the appellant firm which acted as managing agents purchased for a total consideration of Rs 8713 four contiguous plots of land adjacent to the place where the mills of the company managed by it were situated
The first purchase was made in October 1941 and the second and subsequent purchases were made in November 1941 June 1942 and November
1942
As long as the appellant was in possession of the land it made no effort to cultivate it or erect any superstructure on it but allowed the land to remain unutilised except for the rent received from the house which existed on one of the plots
The appellant sold the land to the company managed by it in two lots in September and November 1947 for a total consideration of Rs 52600
The question was whether the sum of Rs 43887 being the excess realised by the appellant by the two sales over its purchase price was assessable to income tax
The Appellate Tribunal rejected the contention of the appellant that the properties were bought as an investment and that the plots were acquired for building tenements for the labourers of the mills but came to the conclusion that the transaction was an adventure in the nature of trade
On a reference the High Court expressed the same view
It was held by this Court in appeal that the Appellate Tribunal was right in inferring that the appellant knew that it would be able 1 37 Tax Cases 242
3 supc168 14 2 34 Tax Cases 189
446 to sell the lands to the managed company whenever it thought it profitable so to do that the appellant purchased the four plots of land with the sole intention of selling them to the mills at a profit and that the High Court was right in holding that the transaction was an adventure in the nature of trade
As we have already said it is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not
The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction
What then are the material facts found in the present case  Alladin  Co was the managing agent of several joint stock companies viz Hyderabad Asbestos Cement Products Limited hereinafter referred to as the Asbestos Co Hyderabad Laminated Products Limited hereinafter referred to as the Laminated Products Hyderabad Allwyn Metal Works Limited hereinafter referred to as the Allwyn Co and others
Alladdin  Co started Asbestos Co in 1946 and the Laminated Products in 1947
The Government of Hyderabad had 50 share holding in both these companies
Negotiations for the purchase of Brengun Factory situate in the out skirts of Hyderabad commenced in December 1946
On 18th December 1946 there took place a meeting between Khan Saheb Dost Mohammed Alladin and Noor Mohammed Alladin on behalf of Alladin  Co and Khan Bahadur Obaidullah the then Additional Financial Adviser to the Government of India
The latter informed the two Alladin brothers that the Government of India had decided to sell the Brengun Factory as the war had ended and it was going cheap
It was agreed that the price of the factory building should be fixed at Rs 27 lakhs and of the stores at Rs 9 lakhs
Alladdin  Co asked for six months  time for making the payment but finally it was agreed that the price should be paid in four equal monthly installments commencing from 1st January 1947
The contract of sale was made subject to the condition that the Hyderabad Government was no longer interested in the factory and also subject to the confirmation by the Board of Directors
By its letter dated December 24 1946 Alladdin  Co accepted the proposal and informed the Additional Financial Adviser that the Board had agreed to purchase the Brengun Factory and the first payment would be made on 1st or 2nd January 1947
Not having ready cash to pay the first instalment the firm borrowed the sum from the State Bank and the Central Bank pledging the shares of the partners valued at about Rs 20 lakhs for Rs 9 lakhs
It is significant that the assessee firm invested very little of its own money in the purchase of the factory and the stores
It got six months 447 time from the Government of India to pay the price in instalments and paid it by pledging its shares with the Banks by obtaining further loan from the Banks on over drafts and by selling portions of the factory to the Asbestos Co and Laminated Products and the Allwyn Co The balance sheet of the assessee firm as on 31 9 1948 disclosed that the assessee firm owed about Rs 7 lakhs to Government of India though by that time it had sold properties valued over Rs 30 lakhs
It is a significant circumstance that on 23rd December 1946 a meeting of the Board of Directors of the Asbestos Co was held and in that meeting a resolution was passed that the Government should be approached in the matter of the valuation of the site and building in tile establishment of the Asbestos Works in the premises of the Brengun Factory purchased by the assessee firm and that the managing agents be authorised to address Nawab Medhi Nawaz Jung Bahadur in that behalf
The notice convening the meeting was issued on the 23rd December 1946 on which date the assessee firm had not even intimated their acceptance of offer made by the Government of India for the sale of Brengun Factory
Pursuant to the resolution of 28th December 1946 the Asbestos Co resolved to purchase 14 acres of land buildings etc
for Rs 5 lakhs
It should be noticed that the valuation by the PWD which was considered necessary on the 28th December 1946 was given up and the price of Rs 5 lakhs was accepted by the Board of Directors
In the circumstances the inference that that resolution was passed at the instance of the assessee firm is not unreasonable
Pursuant to the resolution a sale deed appears to have been executed in favour of the Asbestos Company on 31st March 1947
It is apparent that the interval of time between the purchase of the factory and the sale was about 3 months and this is hardly consistent with the contention of the assessee firm that it had purchased the property as an investment
It is also admitted that the sale deed in favour of the Asbestos Co as well as the Laminated Products and Allwyn Co were executed by the Government of India in their favour direct
The sale was in favour of the Laminated Products pursuant to a resolution passed on 17th September 1947
On that day the company resolved that in view of the special facilities for power water and railway siding at the Alladin Industrial Estate Sanathnagar sanction should be accorded for the acquisition of the proposed area of 8 acres of land for the location of the company s factory as per the rate offered to the company ie at OS Rs 5000 per acre and a sum of Rs 40000 was agreed to be paid towards the price
A sale deed was executed pursuant to the resolution in June 1948
The next transaction relates to the purchase by the Allwyn Co
The Board of Directors at its meeting on October 29 1947 resolved to sell away their existing factory buildings at Azamabad to the Nizam s State Railway and purchase the new factory 448 land and buildings as Sanathagar for Rs 25 lakhs
The property purchased consisted of 24 acres of land factory buildings Ind furniture and the sale deed was executed on February 11 1948
It is manifest that within one year of the purchase of the Brengun Factory the assessee firm realised Rs 1399753 by the sale of stores and Rs 3390908 by the sale of 46 acres of land and buildings in all making a profit of Rs 1190661
It appears from the balance sheet as on September 30 1948 that even after the extended date it still owed Rs 7 lakhs to the Government though by that time it had sold over Rs 30 lakhs worth of property
The assessee firm was thus paying off the dues to the Government and also discharging its debts by selling fractions of the property
In other words the assessee firm was purchasing selling and liquidating the loans which would all show the commercial nature of the transaction
These facts establish that the assessee firm had not enough financial resources to invest Rs 36 lakhs on the
Bren Gun Factory and that the transaction was launched upon with a view to make profit and not as a permanent investment
There is another aspect of the matter to be taken into account
The property income from Bren Gun fac tory during the year 1953 54 as would appear from the Assessment Orders of the years 1953 54 1954 55 was about Rs 22000 IG
The interest on loans on over drafts is paid to be 41 per cent
on 27 lakhs the balance of price payable to the Government the annual interest would be about Rs 121500
It is manifest that the assessee firm could not have borrowed the money to purchase the property as an investment when the income was about 16 of the interest payable on the amount borrowed
Mr Sukumar Mitra suggested that the assessee firm intended to develop the Bren Gun Factory as an Industrial Estate and referred to certain correspondence in this connection
But the correspondence does not establish that any of the foreign companies agreed to start a cycle factory of their own or in collaboration with the assessee firm
The correspondence between the parties admittedly ended in February 1946
Mr Sukumar Mitra also referred to the correspondence between January 8 1947 to March 10 1947 but this also does not show that there was any prospect of the assessee firm starting a cycle industry or any other industry either solely or in collaboration with a foreign company
Having regard to total effect of all the relevant facts and circumstances established in this case we are of the opinion that the High Court was right in its conclusion that the purchase of the site and the buildings of the Bren Gun Factory was an adventure in
the nature of trade and was in the course of a profit making scheme and the question was rightly answered by the High Court against the assessee firm
449 We consider it necessary to add that the statement of the case made by the Appellate Tribunal is unsatisfactory and gives no information whatever about the arguments respectively advanced by the parties or the findings recorded by the Appellate Tribunal
The statement of the case is not intended to be mere copy of the order sheet in a litigation but it must set out the points raised by the aggrieved party the reply thereto if any and the authorities or statutory provisions relied upon for the view taken by the Appellate Tribunal together with an intelligible summary of the facts found by the Appellate Tribunal
A statement of the case should fully clearly and precisely set out all the relevant facts or if the facts have been fully set out in the judgment of the Tribunal they may be incorporated in the statement of the case by a reference to particular paragraphs of the judgment in which the facts are so set out
In any event it is important that the Appellate Tribunal should state clearly its conclusions and findings of fact and should not leave it to the High Court or this Court to deduce the findings or to collect the facts from a large number of documents which are part of the record of the case
A statement of the case which does not set out precisely the findings of the Appellate Tribunal on the questions of law and fact serves no useful purpose
It merely gives an opportunity to the parties to put forward arguments at the stage of reference which are often untenable For the reasons already expressed we hold that these appeals must be dismissed with costs
There will be one hearing fee
GC Appeals dismissed


Summary:
The assessee firm purchased a Brengun factory from the Government of India and sold the stores and part of the lands and buildings shortly afterwards At a higher price
It admitted before the Income tax authorities that the purchase and sale in respect of the stores constituted an adventure in the nature of trade but in respect of the land and buildings sold it contended that they had been purchased by way of investment and the sale of a part of them did not result in assessable profit
The claim was rejected by the Income tax Officer by the Appellate Commissioner and by the Appellate Tribunal
The High Court in a reference under a 661 also rejected it
The firm appealed to this Court by special leave
HELD  i In reaching the conclusion that a transaction is an adventure in the nature of trade the Appellate Tribunal has to find the primary evidentiary facts and then apply the legal principle involved in the statutory expression adventure in the nature of trade used in section 24 of the Indian Income tax Act
A question of this description is a mixed question of law and fact and the decision of the Appellate Tribunal thereon is open to challenge under section 661 of the Act
442 F G ii The question whether the transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case
The answer to the question does not depend on the application of any abstract rule principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case
442 H iii In the present case the appellant firm purchased the Brengun factory from borrowed money
The income from the property was only about 16 of the interest payable by the company on the money borrowed
The first sale was effected by the firm within three months of the purchase
and the sums received from sale were utilised for paying off the debts as also the dues to the Government
The firm had not enough financial resources to invest the money required to purchase the factory and the transaction could not therefore be with a view to making a permanent investment but only for making profit
It had not been established by evidence that the appellant firm purchased the Brengun factory for purpose of establishing a cycle factory
Having regard to the total effect of all the relevant facts and circumstances established in the case it was rightly held by the High Court that the transaction was an adventure in the nature of trade and part of a profit making scheme
448 B H iv The statement of case is not intended to be a mere copy of the order sheet in a litigation but it must set out the points raised by the aggrieved party the reply thereto if any and the authorities or statutory 440 provisions relied upon for the view taken by the Appellate Tribunal together with an intelligible summary of the facts found by the Appellate Tribunal
The Tribunal should clearly state its conclusions and findings of fact and should not leave it to the High Court or this Court to deduce the findings or to collect facts from a large number of documents which are part of the record of the case
449 A D Vankataswami Naidu  Co vs Commissioner of Income tax  Californian Copper Syndicate vs Harris 5 TC 159 Martin vs Lowry I I TC 297 Rutledge vs Commissioners of Inland Revenue 14 Tax Cases 490 Commissioners of Inland Revenue vs Fraser the assessee
24 Tax Cases 498 Leeming vs Jones 15 Tax Cases 333 Saroj Kumar Mazumdar vs Commissioner Income tax West Bengal and Commissioners of Inland Revenue vs Reinhold 34 Tax Cases 389 referred to