Case: Janki Ram Bahadur Ram Vs. Commissioner Of Income Tax, Calcutta

1. 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 lease-hold, and the other held by the Company as a licensee from the Government of West 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.    2. 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. 2,45,000. 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.    3. On June 12, 1943 the appellant agreed to sell to one Ranada Prasad Saha the property purchased from the Company for Rs. 4,73,364/3/6 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 II; leasehold land together with a warehouse known as Kalibari godown; Schedule III; two warehouses on land held as licensee by the Company from the Government of West Bengal.    4. The Income-tax officer, District II(1), Calcutta, brought to tax in the hands of the appellant Rs. 2,24,864 being 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. 7,000. 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. 2,35,211 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.

Reasoning:
12. 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 was purchased by the appellant, and the appellant sold its entire rights in the properties in Schs. I, 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 appellants claim that it was not so 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 purchased13. In the deed of conveyance dated September 30, 1943 there is a reference to delivery. of "joists, girders, fabricated steel C.I. 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. Besides these warehouses, there were three warehouses on the land described in Sch. I and one warehouse on the land described in Sch. II. 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, 1943. From this circumstance, an inference that the entire property was purchased with intent to demolish, and dispose of as scrap cannot be raised14. 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 circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of rade. 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 circumstances which lead to no positive inference. There is nothing to show that the appellant desired to convert the property to some other use. No workers 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 such 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.