High Court Of Madhya Pradesh
CIT vs. Smt. Saraswati Jaiswal
Sections 256(2)
Asst. Year 1991-92
Dipak Misra & A.K. Shrivastava, JJ.
IT Ref. No. 123 of 1998
5th February, 2003
Counsel Appeared
Rohit Arya, for the Petitioner : Sumeet Nema, for the Respondent
JUDGMENT
Dipak Misra, J. :
This is an application under s. 256(2) of the IT Act, 1961. In this application, following questions are proposed by the Revenue calling for statement of facts from the Tribunal : “(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the learned CIT(A) that the income of the assessee should be assessed under the head ‘Capital gains’ and not under the head ‘profit arising from the adventure in the nature of trade’ as assessed by the AO. (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law that the case record reported in CIT vs. Shahsi Kumar Agrawal (1992) 195 ITR 767 (All) is distinguishable as in the above said case agricultural land has been sold in pieces whereas in the case of the assessee developed plots are sold with intention to earn more profit as mentioned in the statement of facts ?”
This Court had issued notice to the assessee on whose behalf Mr. Sumit Nema, learned counsel has entered appearance. In support of the application, it is submitted by Mr. Rohit Arya, learned counsel for the Revenue, that the Tribunal has erred in law by rejecting the application forming the subject-matter of RA No. 24/Jab/1998 contained in Annexure P-4 by refusing to refer the aforesaid questions to this Court. It is submitted by him that on scrutiny of facts in entirety, it is graphically clear that the assessee had inherited some agricultural land and there was a compulsory acquisition by the Jabalpur Development Authority and the assessee instead of accepting compensation accepted the offer of the Jabalpur Development Authority for acceptance of certain plots and later on sold them phase-wise basis and, therefore, the said transaction conducted by her would come within the ambit and sweep of speculative transaction and by no stretch of imagination categorised as capital gain. It is put forth by him that when the total number of plots have been 58 and in the relevant assessment year i.e., 1991-92 she has sold 10 plots, there remains no iota of doubt that the income would squarely come in the head of profit arising from the adventure in the nature of trade. In support of his contention, he has placed reliance on the decisions rendered in the case of G. Venkataswami Naidu & Co. vs. CIT AIR 1959 SC 359 and Kanwarlal Manoharwal vs. CIT (1975) 101 ITR 439 (Mad).
Mr. Sumit Nema, learned counsel appearing for the assessee-respondent, per contra contended that the Tribunal while deciding the appeal has discussed in detail in para 5 of its order how there is absence of speculative transaction and the whole action of the assessee evolves around the centre of M.P. Nagar Tatha Gram Nivesh Adhiniyam, 1973 (hereinafter referred to as ‘the 1973 Adhiniyam’). It is urged by him that the offer was given by the Jabalpur Development Authority under s. 56 of the Act and it was accepted by the assessee and hence, there was no element of speculation to get the enhanced compensation. It is urged by him that when the factum of compulsory acquisition is involved, it would be disastrous to hold that there is speculation by the assessee. In support of his contention, he has placed reliance on a Division Bench decision of this Court rendered in the case of
CIT vs. Smt. Bilkish Bai (1997) 225 ITR 570 (MP). To appreciate the rival submissions raised at the Bar, we have carefully gone through the assessment order, the order passed by the first appellate authority as well as the order passed by the Tribunal on the first occasion. Before we dwell upon the same, we would like to refer to few paragraphs of the decision rendered in the case of G. Venkataswami Naidu (supra) which have been pressed into service by Mr. Rohit Arya with vehemence. In paras 15, 16 & 17 of G. Venkataswami Naidu vs. CIT (supra), their Lordships have held as under : “(15) This question has been the subject-matter of several judicial decisions; and in dealing with it all the Judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. When s. 2, sub-s. (4) refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade. Sometimes it is said that a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction. On the other hand, it is sometimes said that the appearance of one swallow does not make a summer. This may be true if, in the metaphor, summer represents trade; but it may not be true if summer represents an adventure in the nature of trade because, when the section refers to an adventure in the nature of trade, it is obviously referring to transactions which individually cannot themselves be described as trade or business but are essentially of such a similar character that they are treated as in the nature of trade. It was faintly argued for the appellant that it would be difficult to regard a single or an isolated transaction as one in the nature of trade because income resulting from it would inevitably lack the characteristics attributed to it by Sir George Loundes in CIT vs. Shaw Wallace & Co. 59 Ind App 206 : AIR 1932 PC 138. Income, their Lordships think, observed Sir George Loundes, ‘in this Act connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources’. Then the learned Judge proceeded to observe that ‘income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as capital’. In our opinion, it would be unreasonable to apply the test involved in the use of this pictorial language to the decision of the question as to whether a single or an isolated transaction can be regarded as an adventure in the nature of trade. In this connection we may, with respect, refer to the comment made by Lord Wright in Kamakshya Narain Singh vs. CIT B & O, 70 Ind App 180 at p. 193 : AIR 1943 PC 153 at p. 158 that ‘it is clear that such picturesque similes cannot be used to limit the true character of income in general’. We are inclined to think that, in dealing with the very prosaic and sometimes complex questions arising under the IT Act, use of metaphors, however poetic and picturesque may not help to clarify the position but may instead introduce an unnecessary element of confusion or doubt. (16) As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the Courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade of business or incidental to it ? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold ? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? What were the incidents associated with the purchase and resale ? Were the similar to the operations usually associated with trade or business ? Are the transactions of purchase and sale repeated ? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture ? A person may purchase a piece of art, hold it for some time and if a profitable offer is received may sell it. During the time that the purchaser had its possession he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld that would be a factor against the contention that the transaction is in the nature of trade. These and other considerations are set out and discussed in judicial decisions which deal with the character of transactions alleged to be in the nature of trade. In considering these decisions it would be necessary to remember that they do not purport to lay down any general or universal test. The presence of all the relevant circumstances mentioned in any of them may help the Court to draw a similar inference; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us. (17) In this connection it would be relevant to refer to another test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell it at a profit ? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true; and so some judicial decisions apply the test of the initial intention to resell in distinguishing adventures in the nature of trade from transactions of investment. Even in the application of this test distinction will have to be made between initial intention to resell at a profit which is present but not dominant or sole; in other words, cases do often arise where the purchaser may be willing and may intend to sell the property purchased at profit, but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to resell may in such cases be coupled with the intention to hold the property. Cases may however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case, the Court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.”
5. We may remind ourselves at this juncture that we are deliberating on the issue whether a statement of facts in the case of the present nature should be called for from the Tribunal. As the learned counsel for the Revenue very strenuously urged before us that even in the obtaining factual matrix a question of law arises, and a statement of fact should be called for from the Tribunal, we have referred to the aforesaid paragraphs. In this context, we may profitably refer to the law laid down in the case of Smt. Bilkish Bai (supra) wherein the Division Bench took note of the facts, namely, during the asst. yr. 1983-84, the ITO had noticed that the assessee had sold agricultural land for a particular sum which she had purchased earlier. The ITO on enquiry found that the assessee had been dealing in purchase and sale of lands in the past also. He catalogued many a transaction. Taking stock of the fact situation, the Division Bench expressed the view as under : ‘The Tribunal, in its order dt. 24th July, 1991, inter alia, observed : ‘She has purchased agricultural lands situated outside the urban area. She also sold these lands as agricultural lands. The assessee did not undertake herself either in conversion of agricultural land into non- agricultural land or engaged in division of the lands into plots. The lands in question were assessed to land revenue and according to the certificate of the patwari, the lands were used as agricultural lands, the assessee raised crops thereon. The finding of the ITO that the lands in question have never been used as agricultural lands is, therefore, incorrect. The assessee did not establish any business in land. The material placed by the Department does not support the contention of the Department that the assessee was engaged in the business of lands.’ The Tribunal thus concluded : ‘the assessee never engaged herself in any systematic business activity in land’. This finding of the Tribunal is obviously based on the appreciation of facts as unfolded by the material on record. It is well-settled that findings of fact based on appreciation of evidence do not give rise to any referable question of law. In the instant case also, we are satisfied that the findings of the Tribunal are findings of fact and do not, therefore, give rise to any referable question of law.”
6. On the anvil of the aforesaid law, we have to analyse the present fact situation. On a perusal of the assessment order, it is quite luminescent that she had inherited the land from Smt. Kamla Jaiswal, her mother, who expired on 18th Jan., 1976. Her name was duly mutated in revenue records in respect of the land in question. The land was acquired by Jabalpur Development Authority which had issued a letter on 15th July, 1985, to the assessee proposing allotment of certain plots in consideration of the acquisition of agricultural land. This action is purported to be taken under s. 56 of the 1973 Adhiniyam. Thus, it is a compulsory acquisition. The Tribunal in para 6 of its original order has held as under : “6. We have carefully considered the arguments of both the sides and have perused the material placed before us. When a transaction is entered into with the primary or the sole intention of making profit, it would amount to adventure in the nature of the trade. To ascertain the intention of the party, one has to look into the facts and the surrounding circumstances. If on the consideration of all the facts, it appears that the sole intention of the party in purchasing the particular land and selling thereof, was to make profit, it may be termed as adventure in the nature of trade. However, in this case, we find that the assessee had not purchased the land, but it was received by her as per the will of her late mother. Moreover, she did not sell this land, but it was compulsorily acquired by the Jabalpur Development Authority by way of Notification dt. 29th April, 1983. Thus, the assessee had neither purchased the land under consideration nor sold the same on her own violation. However, when her land was compulsorily acquired by the Government, she did try to maximise the compensation by way of opting to accept the developed plots as against cash compensation. It is only the realization of the value of the land and it cannot be said to be an activity carried on for profit, so as to term it as adventure in the nature of trade. For any adventure or the trade, purchase and sale are two necessary ingredients. Since in the case under consideration before us the first ingredient, that is, purchase of the land is missing. It cannot be said that the transaction under consideration is adventure in the nature of trade. The decision of Hon’ble Allahabad High Court in the case of Shashi Kumar Agrawal (supra) is directly on the point and their Lordships have held as under : ‘that the Tribunal had found that the land in question was not purchased by the assessee but was received by him from his father under a deal of gift. Since the assessee was staying in a different place in connection with his official duties and was not in a position to carry on agricultural operations, he sold the land. The Tribunal found that he had sold the land after plotting it out in order to secure a better price and that he had not embarked on an adventure in the nature of trade. This was essentially a question of fact. The gain arising on sale of land was not, therefore, assessable as income from business.’
The ratio of the above decision would be squarely applicable in the case under consideration before us. The various decisions relied upon by the learned Departmental Representative are on different facts and, therefore, will not be applicable. In view of totality of the above facts and the legal position, we entirely agree with the CIT(A) that the profit arising from the sale of plot has to be taxed as capital gains and not as profit arising from the adventure in the nature of trade.”
7. When the application for reference was filed by the Revenue for referring the matter to this Court, the Tribunal in para 2 has expressed the view as under : “2. We have heard both the parties. We find that the Tribunal has considered this matter at length. The conclusion of the Tribunal is recorded in para 6 of its order. From the perusal of the same, it is seen that the Tribunal has recorded the finding that in this case, the assessee had not purchased the land, but it was received by her as per the will of her late mother. It was further found that the assessee has not sold the land by her own violation, but it was compulsorily acquired by the Jabalpur Development Authority. When the land was compulsorily acquired by the Government, the assessee did try to maximise the compensation by way of opting to accept the developed plot as against the cash compensation. On these facts, the Tribunal concluded that it is a case of realization of the value of the land received by the assessee as per her mother’s will and there was no adventure in the nature of trade. The finding of the Tribunal is based upon the appreciation of the relevant facts. Therefore, no question of law arises therefrom.”
8. Taking into consideration the totality of facts and circumstances of the case, we are of the considered view that in the case at hand, the Tribunal has addressed itself to the factual situation and arrived at the conclusion that the assessee was entitled to be assessed under the head of “Capital gain” and not under the head of “profit arising from adventure”. We are disposed to think that the whole analysis is based on appreciation of facts and it has been clearly held by the apex Court in G. Venkataswami Naidu vs. CIT (supra) that it would depend upon all the relevant facts and circumstances. In the case at hand, principally as questions of fact are involved, we are not inclined to call for the statement of facts from the Tribunal.
9. Resultantly, the IT reference stands dismissed.
[Citation : 264 ITR 358]
