\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
The assessee was assessed for the AY: 1956-57 on a total income of Rs. 8,400. The ITO later on came to know that the assessee\u2019s income from the sale of estates had escaped assessment. The ITO took action u\/s. 34(1)(a) of the 1922 Act for the AY: 1956-57 on 13-8-1959.<\/p>\n
Under an agreement dated 18th May, 1955, a company called Mundakayam Valley Rubber Co. Ltd. sold and delivered an estate called Kuttikal Estate to one Mr. A.V. George. The area of the estate was 477 acres and 71 cents. Mr. A.V. George had entered into the agreement in his own name and on behalf of another company called the Kailas Rubber Co. Ltd. It was agreed that the vendor would execute\u00a0\u00a0\u00a0 the necessary conveyance in favour of Mr. A.V. George or his\u00a0 nominees. On 15th August, 1955, the assessee entered into an agreement with Mr. A.V. George whereby the assessee agreed to purchase 447.71 acres forming part of Kuttikal Estate for Rs. 6 lakhs. An advance of\u00a0 Rs. 11,000 was paid by\u00a0 the assessee. The balance of Rs. 5,89,000 was to be paid by the assessee on or before 25th September, 1955. It was agreed that Mr. A.V. George should execute a sale deed himself or cause it to be executed by Kailas Rubber Co. Ltd. on whose behalf he\u00a0 was acting in favour of the assessee or his nominees. The assessee subsequently divided the area of 477.71 acres into 23 plots and found purchasers for 22 of\u00a0 these plots. The total extent of 22 plots for which he found purchasers was 373.58 acres, and the total price paid by the 22 purchasers was Rs. 5,18,500. A sale deed was executed by the Mundakayam Valley\u00a0 Rubber Co. Ltd. on 31st March, 1956.\u00a0\u00a0\u00a0\u00a0 It covered all the 23 plots. The 22 plots for which the assessee found purchasers were conveyed to the respective purchasers and the 23rd plot was conveyed to the assessee himself. Mr. A.V. George and the Kailas Rubber Co. Ltd. were parties to\u00a0 this document. The plot which the assessee had retained for himself was 104.13 acres in extent. Its value was estimated by the Income-tax Officer at Rs. 2,08,300. The Income-tax Officer worked out the profit from the transaction of purchase\u00a0\u00a0\u00a0 and sale of land asfollows :<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
Rs.<\/p>\n
\u201cSale price of \u00a0373 acres\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 5,18,500<\/p>\n
Value of 104 acres retained by the assessee at Rs. 2,000 per acre\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 2,08,000<\/p>\n
7,26,500<\/p>\n
Less cost\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 6,00,000<\/p>\n
1,26,500\u201d.<\/p>\n
\u00a0<\/p>\n
The Income-tax Officer held that a sum of Rs. 1,25,000 in round figures represented the assessee\u2019s profit from an adventure in the nature of trade and included this amount in\u00a0 his total income under section 34(1)(a) of the Act.\u00a0 The assessee appealed to the Appellate Assistant Commissioner who\u00a0 rejected the appeal. The assessee took the matter in further appeal to the AppellateTribunal which also rejected the appeal holding that the amount of Rs. 1,25,000 represented profit from an adventure in the nature of trade. On reference the\u00a0 High Court answered the question against the assessee. The Assessee preferred an appeal to the Supreme Court:<\/p>\n
\u00a0<\/p>\n
Whether, on the facts and in the circumstances of the case, the transactions constituted a venture in the nature of trade and the surplus of Rs. 1,25,000 was assessable to tax?\u201d<\/p>\n
\u00a0<\/p>\n
The question whether a transaction is an adventure in the nature of trade must\u00a0\u00a0\u00a0\u00a0 be decided on a consideration of all the relevant facts and circumstances which\u00a0\u00a0 are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule or principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case.<\/p>\n
But in judging the character of such transactions several factors have been treated as significant in decided cases. For instance, if a transaction related to the business which is normally carried on by the assessee, though not directly a part\u00a0\u00a0 of it, an intention to launch upon an adventure\u00a0 in the nature of trade\u00a0 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\u00a0\u00a0 the organisation employed by the assessee and the manner of disposal may be\u00a0\u00a0 such that the transaction may be stamped with the character of a trading nature.<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
It was clear from the recital of the agreement, that the intention of the assessee\u00a0\u00a0\u00a0\u00a0\u00a0 in purchasing the estate was to re-sell it at a profit. An advance was paid by the assessee on date of agreement, the balance was agreed to be paid on a taken\u00a0 date\u00a0\u00a0\u00a0 it was open of the terms of the agreement that Mr.\u00a0 A.V.\u00a0 George to execute the\u00a0\u00a0 sale deed either in favour of the assessee or his nominees. It was also found that\u00a0 the assessee did not have the resources to buy any estate worth a lakh of rupees when he entered into the agreement for the purchase of the Estate for an amount \u00a0of Rs. 6 lakhs. In the intervening period the assessee divided the estate into 23\u00a0 plots and arranged for the sale of 22 plots to different purchasers. The division of the land into 23 plots and the sale of the various purchasers indicated that there was scheming and organization on the part of the assessee. It was found that the assessee did not have the means and resources to cultivate land himself and that\u00a0 he had arranged for the sale of 22 plots to different purchasers.<\/p>\n
Further the court observed that it was not a correct proposition to say that the profits of the assessee could not be ascertained even on the assumption that the transaction of the adventure of trade was not completed. Under the Act of 1922\u00a0\u00a0\u00a0 for the purpose of assessment each year is a self-contained unit and in the case\u00a0\u00a0\u00a0\u00a0\u00a0 of trading adventure the profits have to be\u00a0 computed in\u00a0 the\u00a0 manner provided by the statute. It is true that the Act of 1922 makes no express provision with regard to the value of stock. It charges for payment of tax the income, profits and gains which have to be computed in the manner provided by the Act of 1922. In\u00a0 the case of a trading adventure the profits have to be calculated and adjusted in\u00a0\u00a0 the light of the provisions of the Act of 1922 permitting allowances prescribed thereby. For that purpose it was the duty of the ITO to find out what profit the business has made according to the true accountancy practice. As a normal rule, the profit should be ascertained by valuing\u00a0 the stock-in-trade at the beginning\u00a0 and at the end of the accounting year.<\/p>\n
\u00a0<\/p>\n
Having regard to the total effect of all the circumstances, High Court was right in\u00a0 its conclusion that the transactions of the assessee constituted an adventure in the nature-of-trade and were in the course of a profit-making scheme and the question was rightly answered bythe High Court against the assessee.<\/p>\n
Therefore, it was to be held that the income-tax authorities had correctly estimated the profit of the assessee by treating the land as stock-in-trade and valuing it according to the normal accountancy practice. It was held that the decision of the High Court was correct and appeal of assessee was dismissed. (AY.1956-57) (CA No. 1230 of 1967 dt. 12-2-1969)<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
Editorial: <\/em><\/strong>It is impossible to evolve any legal test or formula which can be applied in determining whether a transaction is in the nature of trade or not. The answer will depend on various factors and the total effect and impression of all\u00a0\u00a0 the facts. The SupremeCourt decision in Khan Bahadur Ahmed Alladin & Sons<\/em><\/strong><\/p>\n The SC also held that the profits of an adventure can be determined even if the adventure is not complete.<\/p>\n The above judgement is under the Indian Income-tax Act, 1922. However, the principals of the judgement is applicable even in Income-tax Act, 1961. Refer Anil <\/em><\/strong>Jain v. CIT (2007) 294 ITR 435\/164 Taxman 319\/212 CTR 347(SC); Tushar\u00a0 Tanna\u00a0 & Ors. v.CIT (2006) 284 ITR 453\/203 CTR 426\/153 Taxman 345 (Bom.)(HC);<\/em><\/strong><\/p>\n \u00a0\u00a0<\/em><\/strong><\/p>\n \u201cKnowledge gained through experience is far superior and many times more useful than bookish knowledge.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n","protected":false},"excerpt":{"rendered":" .S.28(i): Business income \u2013 Adventure in nature-of-trade – Division of land into plots and sale to various purchasers – Test to be applied for considering the nature of trade [S.2(13), Indian Income-tax 1922, S. 10(1)] <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13298","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3su","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13298","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13298"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13298\/revisions"}],"predecessor-version":[{"id":13299,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13298\/revisions\/13299"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13298"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13298"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13298"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
CIT v. Mohakampur Ice & Cold Storage (2005) 149 Taxman 593 (All.)(HC));\u00a0 CIT v. Amrit Food (P.) Ltd. (2005)147 Taxman 289\/199 CTR 28 (All.)(HC); CIT<\/h4>\n
\n