# Dnu 0nyal v. The Stnt~ of Uttar Pnidesh Venkatarama

- **Citation:** [1959] Supp. 1 S.C.R. 646
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Bench:** T. L. Venkatarama Aiyar, P. B. Gajendragadkar, A. Ic Sarkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dnu-0nyal-v-the-stnt-of-uttar-pnidesh-venkatarama-1583
- **Pages:** 38

## Headnote

luco111e 1"ax-l nconie froui isolated fransactt'ons--" Adventure
in the nature of trade~ "-Business incon:e· -Indian. l11co1n,~ 1'ax Act.
1922 (XI of r922), SS. 2(4), IO.
Reference to High Court-Transaction, whether ur not an advcn~
lure in the nature of trade-Mixed question of law and fact-lndia11
Income-tax Act, r922 (XI of 1922), s. 66(1).
The appellant, who was a firm acting as managing agents of
a limited company (the Mills), purchased four plots of land
adjoining the Mills on various dates between 1941 and 1942, and
about five years later sold them to the Mills, as a result of which
the appellant realised a sum of Rs. 43,887 in excess of the purchase price.
For the assessment year r948-49 the Income.tu
Officer treated the amount as the income of the appellant and
assessed it to income-iax under head 'business', on the grounrl
that there was no evidence to show that the appellant had purchased the said lands for agricultural purposes or that they were
acquired as an in\·estrnent. and that since the lands \Vere adjacent
to the Mills the appellant must have purchased them solely with a
view to sell them to the Mills with profit. He considered that
the transaction had all the elements of a business transaction
and was· thus an adventure in the nature of trade withins. 2(4)
of the Indian Income-tax Act, 1922. The Appellate Tribunal
rejected the explanation given by the appellant regarding the
object with which it had purchased the plots of land and agreed
(t) 8.C.R. SUPREME COUR'l' REPORTS
647
with the vjew taken by the Income-tax Officer.
At the instance
z95B
of the appellant the Tribunal referred to the High Court the
<.J.Uestion:
"whether there was material for the assessment of G. Venkataswa""
the sum of Rs. 43,887 being the difference between the purchase
Naidu cS- Co.
and sale price of the four plots of land as income from an
v. . .
adventure. in the nature of trade." The High Court held that Th• Commsssion1'
the transaction in question was an adventure in the nature of
01 lneomi-ta!f
trade and so the income-tax authorities were justified in taxing
the amount under the head ' business ' for the relevant year.
On appeal by special leave to the Supreme Court, it was contended for the appellant that on the facts and circumstances of the
case it was erroneous in law to hold that the transaction in
question was an adventure in the nature of trade. On the other
hand, it was urged for the respondent that the question as raised
before the High Court was one of fact not liable to be challenged
under s. 66( r) of the Act.
Held, (I) that the expression "adventure in the nature of
trade " in sub-s. (4) of s. 2 of the Indian Income-tax i\ct, 1922,
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 as to
whether a transaction is or is not an adventure in the nature of
trade, before arriving at its final condusion on facts, has to
address itself to the legal requirements associated with the
c.oncept 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 s. 66(1) of the Act.
Meenakshi Mills, Madurai v. Commissioner of Income-tax,
Madras, [1956) S.C.R. 691 and Oriental Investment Co., Ltd. v.
Commissioner of Income-tax, Bombay, [1958) S.C.R. 49, relied on.
Edwards v. Bairstow, [1956) A.C. 14, considered and helcl not
inconsistent with the abovesaid decisions.
(2) that in the circumstances of this case it would be more
appropriate to frame the question in this from: "whether, on
the facts and circumstances proved in the case, the inference
that the transaction in question is an adventure in the nature of
trade is in law justified."
Held, further, that even an isoiated transaction might be
regarded as an adventure in the nature of trade within s. 2(4) of
the Act, if it is characterised by some of the essential features
that make

## Text

_Characters 0–39,850 of 88,737. This is a partial read: ask again with offset=39850 for what follows._

Dnu 0nyal
v.
The Stnt~ of
Uttar Pnidesh
Venkatarama
Aiyor j.
646
SUPREME COURT REPORTS [1959] Supp.
the question which we have got to decide here, and
on the language of s. 15 of the Act, which is what we
are concerned with in this appeal, all that is required
is that. a private prosecutor should prefer his complaint within one year of the discovery of the offence,
and if that is done, the bar under that section cannot
apply.
We agree with the decision of the learned
Judges of the Court below that the proceedings are
not barred by s. 15 of the Act.
This appeal is accordingly dismissed.
Appeal dismissed.
G. VEKKATASWAMI NAIDU. & CO.
v.
THE COMMISSIONER OJ!' INCOME-TAX
(T. L. VENKATARAMA AIYAR, P. B. GAJENDRAGADKAR
and A. IC SARKAR, JJ.)
luco111e 1"ax-l nconie froui isolated fransactt'ons--" Adventure
in the nature of trade~ "-Business incon:e· -Indian. l11co1n,~ 1'ax Act.
1922 (XI of r922), SS. 2(4), IO.
Reference to High Court-Transaction, whether ur not an advcn~
lure in the nature of trade-Mixed question of law and fact-lndia11
Income-tax Act, r922 (XI of 1922), s. 66(1).
The appellant, who was a firm acting as managing agents of
a limited company (the Mills), purchased four plots of land
adjoining the Mills on various dates between 1941 and 1942, and
about five years later sold them to the Mills, as a result of which
the appellant realised a sum of Rs. 43,887 in excess of the purchase price.
For the assessment year r948-49 the Income.tu
Officer treated the amount as the income of the appellant and
assessed it to income-iax under head 'business', on the grounrl
that there was no evidence to show that the appellant had purchased the said lands for agricultural purposes or that they were
acquired as an in\·estrnent. and that since the lands \Vere adjacent
to the Mills the appellant must have purchased them solely with a
view to sell them to the Mills with profit. He considered that
the transaction had all the elements of a business transaction
and was· thus an adventure in the nature of trade withins. 2(4)
of the Indian Income-tax Act, 1922. The Appellate Tribunal
rejected the explanation given by the appellant regarding the
object with which it had purchased the plots of land and agreed
(t) 8.C.R. SUPREME COUR'l' REPORTS
647
with the vjew taken by the Income-tax Officer.
At the instance
z95B
of the appellant the Tribunal referred to the High Court the
<.J.Uestion:
"whether there was material for the assessment of G. Venkataswa""
the sum of Rs. 43,887 being the difference between the purchase
Naidu cS- Co.
and sale price of the four plots of land as income from an
v. . .
adventure. in the nature of trade." The High Court held that Th• Commsssion1'
the transaction in question was an adventure in the nature of
01 lneomi-ta!f
trade and so the income-tax authorities were justified in taxing
the amount under the head ' business ' for the relevant year.
On appeal by special leave to the Supreme Court, it was contended for the appellant that on the facts and circumstances of the
case it was erroneous in law to hold that the transaction in
question was an adventure in the nature of trade. On the other
hand, it was urged for the respondent that the question as raised
before the High Court was one of fact not liable to be challenged
under s. 66( r) of the Act.
Held, (I) that the expression "adventure in the nature of
trade " in sub-s. (4) of s. 2 of the Indian Income-tax i\ct, 1922,
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 as to
whether a transaction is or is not an adventure in the nature of
trade, before arriving at its final condusion on facts, has to
address itself to the legal requirements associated with the
c.oncept 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 s. 66(1) of the Act.
Meenakshi Mills, Madurai v. Commissioner of Income-tax,
Madras, [1956) S.C.R. 691 and Oriental Investment Co., Ltd. v.
Commissioner of Income-tax, Bombay, [1958) S.C.R. 49, relied on.
Edwards v. Bairstow, [1956) A.C. 14, considered and helcl not
inconsistent with the abovesaid decisions.
(2) that in the circumstances of this case it would be more
appropriate to frame the question in this from: "whether, on
the facts and circumstances proved in the case, the inference
that the transaction in question is an adventure in the nature of
trade is in law justified."
Held, further, that even an isoiated transaction might be
regarded as an adventure in the nature of trade within s. 2(4) of
the Act, if it is characterised by some of the essential features
that make up trade or business.
Though judicial decisions which deal with the character ot
transactions alleged tu be in the nature of trade do net purport
to lay down any general or universal test, the presence of all the
relevant circumstances mentioned by 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
it is the total effect of all the relevant factors and circumstances
that determine the distinctive character of the transactions.
"
'
648
SUPREME COURT REPORTS (1959) Supp.
1958
If a person invests money in land intending to hold it,
enjoys its income for some time, and then sells it at a profit,
G.
Veukataswami then it is a case of capital accretion and not profit derived from
Naidu & Co.
an adventure in the nature of trade. But where a purchase has
v.
been made solely and exclusively with the intention to resell at
Thi Cotn~nissiotur a profit and the purchaser had no intention of holding the
of lncome~ta~
property for himself or otherwise enjoying or using it, there
would be a strong presumption that the transaction is an
adventure in the nature of trade; but this may be rebutted by
the other facts or circumstances of the case.
The Californian Copper Syndicate (Limited and Reduced) v.
Harris (Surveyor of Taxes), (1904) 5 Tax Cas. 159; T. Beynon &
Co., Ltd. v. Ogg, (1918) 7 Tax Cas. 125; Commissioners of Inland
Revenue v. Livingston, (1926) II Tax Cas. 538; Martin v. Lowry,
(1926) II Tax Cas. 297; Rutledge v. Commissioners of Inland
Revenue, (1929) 14 Tax Cas. 4go; Balgownie Land Trust, Ltd. v.
The Commissioners of Inland Revenue, (1929) 14 Tax Cas. 684;
F. A. Lindsay, A. E. Woodward and W. Hiscox v. Commissioners
of Inland Revenue, (1932) 18 Tax Cas. 43 and Cayzer, Irvine and
Co., Ltd. v. Commissioners of Inland Revenue, (1942) 24 Tax Cas.
491, considered.
Commissioners of Inland Revenue v. Reinhold, (1953) 34 Tax
Cas. 389, distinguished and considered as not laying down any
general proposition of law.
In the present case, the circumstances showed that the
appellant whose ordinary business was not to make investment
in lands had purchased the plots of land with the sole intention
of selling them to the Mills at a profit and this intention raised
a strong presumption that the purchase and the subsequent sale
were an adventure in the nature of trade; and, it was held that
in the absence of any rebutting evidence, the Income-tax
authorities were justified in taxing the amount in question as
income from business.
CIVIL APPELLATE JuRISDIOTION: Civil Appeal No.
709of 1957.
Appeal by special leave from the judgment and
order dated April 18, 1955, of the Madras High Court
in,Case Referred No. 25 of 1952.
A. V. Viswanatha Sastri and M. S. K. Sastri, for
the appellant.
M. 0. Setalvad, Attorney-General for India, R.
Ganapathy Iyer, R.H. Dhebar and D. Gupta, for the
respondent.
1958. November 24. The Judgment of the Court
was delivered by
(1) S.C.R.
SUPREME COURT REPORTS
649
GA.JENDRAGADKAR, J.-The appellant is a firm actx95B
ing as managing agents of the Janardana Mills Ltd.,
.
C · b
I
h
d c
•
l
f G. Venkataswami
mm a tore.
~ pure ase
1our contiguous p ots o
Naidu &- co.
land admeasurmg 5 acres 26 cents under four sale
v.
deeds executed on October 25, 1941, November 15, The Commission,.
1941, June 29, 1942, and November 19, 1942, respecof Income-tax
tively for a total consideration of Rs. 8, 712-15-6. After
.
-
about five years these properties were sold by the Ga;•ndragadkar J.
appellant in two lots to the Janardana Mills Ltd. The
first lot was sold on September I, 1947, and the second
on November 10, 1947, the total consideration for the
two sales being Rs. 52,600. These two sales realised
for the appellant a sum of Rs. 43,887 -0-6 in excess of
the purchase price.
-The Income-tax Officer treated the said amount of
Rs. 43,887 as the income of the appellant for the assessment year 1948-49, and assessed it to income-tax
under the head " business ". The officer held that
there was no evidence to show that the appellant had
purchased the said lands for agricultural purposes or
that it had acquired them as an investment.
He also
found that, since the lands were adjacent to the Janardana Mills, the appellant must have purchased them
solely with a view to sell them to the said mills with a
profit. That is why, though the transaction was in
the nature of a. solitary transaction, it was held that
it had all the elements of a business transaction and
was thus an adventure in the nature of trade.
Against this order of assessment the appellant preferred an appeal to the Appellate Assistant Commissioner. The appellate authority upheld the appellant's
contention that the amount in question was not assessable as it cannot be held to be income or profit resulting from a profit-making scheme, and set aside the
order under appeal.
The respondent challenged the correctness of this
order by taking an appeal against it to the Incometax Appellate Tribunal. The tribunal agreed with the
view taken by the Income-tax Officer and held that
the amount in question was not a capital accretion but
a gain made in an adventure in the nature of business
82
650 · SUPREME COURT REPORTS [1959] Supp.
r95B
in carrying out a scheme of profit-making.
The
G v ;;.,.swam· tribunal rejected the explanations given by the appel-
·N;:du .i;. co. ' !ant as to why it had purchased the properties and
v.
held that the purchase had been made by the appelThe Commission" !ant solely with a view to sell the said properties at
of Income-tax
profit to the .J anardana Mills.
G . d-dk. 1
At the instance of the appellant the tribunal then
•Jen rnga "' ·referred to the High Court of Madras the question
suggested by it in these words: "whether there was
material for the assessment of the sum of Rs. 43,887
being the difference between the purchase and sale
price of the four plots of land as income from an
adventure in the nature of trade".
This reference was heard by Rajagopalan and Rajagopala Ayyangar, JJ., and the question referred has
been answered against the appellant. The High Court
has held that the transaction in question was an
ad venture in the nature of trade and so the respondent
was justified in taxing the amount in question under
the head " business " for the relevant vear.
The
application for leave made by the appellant was rejected by the High Court.
Thereupon the appellant
applied for, au<l obtltined, special leave to appeal to
this Court. That is how the appeal has been admitted
in this Court; au<l the only question which it raises for
our decision is whether the High Court was right in
holding that the transaction in question was an adventure in the nature of trade.
\Ve may at this stage briefly indicate the material
facts and circumstances found by the tribunal and the
inference drawn by it in regard to the character of the
transaction in question. The appellant pur-chased the
four plots under four different sale deeds. The first
purchase was for Rs. 521 and it covered a piece of land
admeasuring 28~ cents; the second purchase related
to 2 acres 79k cents and the price paid was Rs. 1,250;
while the third and the fourth purchases were for
Rs. 1,942 and Rs. 5,000 and they covered 28l cents
and l acre and 90 cents respectively. The property
purchased under the first sale deed was sold on
November 10, 1947, for Rs. 2,825 whereas the three
remaining properties were sold on September l, 1947,
(1) S.C.R. SUPREME COURT REPORTS
651
for Rs. 49,775, the purchaser in both cases being the
r95B
J anardana Mills Ltd. The purcha:;e of the first item G. Venkataswami
of property by the appellant had been made in the
Naid" &·co.
name of l\ir. V. G. Raja, assistant manager of the
v.
Janardana Mills Ltd., who is the son-in-law
of The Commissioner
G. Venkataswami Naidu, one of the partners -of the of Income-tax
appellant firm.
Naturally when this property was
. -
sold to the mills the document w~s executed by the Ga;cndrngadkar f.
o:;tcn:;ible owner V. G. Raja. It is not disputed that
the purchase in the name of V. G. Raja was benami
for the appellant.
All the plots which were thus purchased by the appellant piecemeal are contiguous and
they adjoin the mills. On the plot purchased on June
29, Hl42, there stood a house of six rooms which fetched an annual rent of about Rs. 100; and after deduction of taxes, it left a net income of Hs. 80 per year to
the appellant. The other plots arc vacant sites and
they brought no income to the appellant. During the
time th~t the appellant was in possession of these
plots it made no effort to put up any structures on
them or to cultivate them.; and so it was clear that
the only object with which the appellant had purchased these plots was to sell them to the mills at a profit.
It was, however, urged by the appellant that the properties had been bought as an investment. This plea
was rejected by the tribunal. The tribunal likewise
rejected the appellant's case that it had purchased the
plots for building tenements for the labourers working
in the J anardana )!ills. _.\lternatively it was urged by
the appellant that the Janardana :Mills decided to
purchase the plots because an award passed by an
industrial tribunal in June 1947 had recommended that
the mills should provide tenements for its labourers.
Thus the appellant's case was that it had not purchased the properties with a Yicw to sell them to the mills
and the mills in fact would not have purchased them
but for the recommendation made by the award which
made it necessary for the mills to purchase the a.cljoining plots for the purpose of building tenements for its
employees. The tribunal was not impressed even by
this plea; and so it ultimately held that the plots had
been purchased by the appell~nt wholly and solely
652
SUPREME COURT REPORTS [1959) Supp.
'958
with the idea of selling them at profit to the mills.
The tribunal thou 0"'ht that since the appellant was the
G. Venkalaswami
Naidu & Co.
managing agent of the mills it was in a position to
v.
influence the decision of the mills to purchase the proThe Commis;ion" perties from it and that was the sole basis for its initial
of Income-tax
purehase of the plots. On these findings the tribunal
reached the conclusion that the sum of Rs. 43,887 was
Gajendragadkar J. not a capital accretion but was a gain made in the
adventure in the nature of business in carrying out the
scheme of profit-making. The appellant contends that,
on the facts and circumstances found in the case, it is
erroneous in law to hold that the transaction in question is an adventure in the nature of trade.
There is no doubt that the jurisdiction conferred on
the High Court by s. 66(1) is limited to entertaining
references involving questions of law. If the point
raised on reference relates to the construction of a
document of title or to the interpretation of the relevant provisions of the statute, it is a pure question of
law ; and in dealing with it, though the High Court
may have due regard for the view taken by the tribunal, its decision would not be fettered by the said view.
It is free to adopt such construction of the document
or the statute as appears to it reasonable. In some
cases, the point sought to be raised on reference may
turn out to be a pure question of fact; and if that be
so, the finding of fact recorded by the tribunal must
be regarded as conclusive in proceedings under s. 66(1).
If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in
the case, its correctness or validity is open to challenge
in reference proceedings within narrow limits.
The
asc-..ssee or the revenue can contend that the inference
has been drawn on considering inadmissible evidence
or after excluding admissible and relevant evidence;
and, if the High Court is satisfied that the inference is
the result of improper admission or exclusion of evidence, it would be justified in examining the correctness
of the conclusion. It may also be open to the party
to challenge a conclusion of fact drawn by the tribunal
on the grol!nd that it is not supported by any legal
evidence; or that the impugned conclusion drawn
(1) S.C.R. SUPREME COURT REPORTS
653
from the relevant facts is not rationally possible; and
'958
if such a plea is established, the court may consider G. ve,./wlaswami
whether the conclusion in question is not perverse and
Naidu & co.
should not, therefore, be set aside. It is within these
v.
narrow limits that the conclusions of fact recorded by The Commissioner
the tribunal can be challenged under s. 66(1).
Such
01 I>icomc111
-~
conclusions can never be challenged on the ground G . d -dk 1
h
b
d
.
. .
f
"d
a1en rng11 '"
•
that t ey are
ase
on m1sapprec1at.10n o ev1 ence.
There is yet a third class of cases in which the assessee
or the revenue may seek to challenge the correctness
of the conclusion reached by the tribunal on the
ground that it is a conclusion on a question of mixed
law and fact.
Such a conclusion is no doubt based
upon the primary evidentiary facts, but its ultimate
for.m is determined by the application of relevant legal
principles. The need to apply the relevant legal principles tends to confer upon the final conclusion its
character of a legal conclusion and that is why it is
regarded as a conclusion on a question of mixed law
and fact. In dealing with findings on questions of
mixed law and fa.ct the High Court would no doubt
have to accept the findings of the tribunal on the primary questions of fact ; hut it is open to the High
Court to examine whether the tribunal had applied the
relevant legal principles correctly or not; and in that
sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points
is the same as in dealing with pure points of law.
This question has been exhaustively considered by
this Court in Meenakshi Mills, Madurai v. Commissioner of Income-tax, Madras (1). In this case the appellate tribunal had come to the conclusion that certain
sales ente~·ed in the books of the appellant company
in t.he names of certain intermediaries, firms and companies, were fictitious and the profits ostensibly earned
by them were in fact earned by the appellant which
had itself sold the goods to the real purchasers and
received the prices. On this finding the tribunal had
ordered that the profits received from such sales should
be added to the amount shown as profits in the appellant\3 books and should be taxed. The appellant
{I) [1956j S. C. R. 691.
•
•
654
SUPREME COURT REPORTS
[1959] Supp.
r95B
applied for a reference to the tribunal under s. 66(1)
G. Venkataswami and ~he _High Cou~t of Madras ui:ider s. 66(2), but his
Naidu .s. co.
apphcat~on was reiected. Then it came to this Court
v.
by spe01al leave under A rt. 136 and it was urged on
The Commissioner its behalf that the tribunal had erred in law in holding
of Income-tax
that the firms and companies described as the inter-
. .
-
mediaries were its benamidars and that its application
Ga1e•d•agadka• f ·for reference should have been allowed. This plea was
rejected by this Court because it was held-that the
question of benami is purely a question of fact and not
a mixed question of law and fact as it does not involve
the application of any legal principles for its determination. In dealing with the argument urged by the
appellant, this Court has fully considered the true
legal position in regard to the limitation of the High
Court's jurisdiction in entertaining references under
s. 66(1) in the light of several judicial decisions bearing
on the point. The ultimate decision of the Court on
this part of the case was that " on principles established by authorities only such questions as relate to
one or the other of the following matters can be questions of law under s. 66(1): (l) the construction of a
statute or a document of title (2) the legal effect of the
facts found where the point for determination is a
mixed question of law and fact; and (3) a finding of
fact unsupported by evidence or unreasonable and
perverse in nature". Having regard to this legal position this Court held that t.he question of benami was a
pure question of fact and it could not be agitated
under s. 66(1).
The point about the scope and effect of the provisions of s. 66(1) has again been considered by this
Court in The 07-iental Investment Go. Ltd. v. Oommi8sifYner of Income-tax, Bombay('). This was a case on
the other side of the line. It was held that whether
the appellant's business amounted to dealing in shares
and properties or to investment is a mixed question of
law and fact and that the legal effect of the facts
found by the tribunal as a result of which the appellant could be treated as a dealer or investor is a q ues-
. tion of law. As a result of this conclusion the appeal
(1) [1958] S. C. R. 49.
(1) S.C.R. SUPREME COURT REPORTS
655
preferred by the appellant was allowed, the order
passed by the High Court refusing the appellant's G. Venkataswami
request for reference was set aside and the case was
Naidu & co.
remitted to it for directing the tribunal to state a case Th c v.. .
h
.
.
d .
th
. d
e ommsssioner
on t e two questions ment1one
m
e JU gment. of Income-tax
These two decisions bring out clearly the distinction
-
between findings of fact and findings of mixed ques- Gajendragadkar ].
tions of law and fact.
What then is the nature of the question raised
before us in the present appeal? The tribun~l and the
High Court have found that the transaction in question is an adventure in the nature of trade; and it is
the correctness of this view that is challenged in the
present appeal. The expression "adventure in the
nature of trade" is used by the Act in s. 2, sub-s. (4)
which defines business as including any trade, commerce or manufacture, or any adventure or concern
in the nature of trade, commerce or manufacture ..
Under s. 10, tax shall be payable by an assessee
under the head profits and gains of
business,
profession or vocation in respect of the profit or
gains of any business, profession or vocation carried
on by him. Thus the appellant would be liable to
pay the tax on the relevant amount if it is held that
the transaction which brought him this amount was
business within the meaning of s. 2, sub-s. (4) and it
can be said to be business of the appellant if it is held
that it is an adventure in the nature of trade. In other
words, in reaching the conclusion that the transaction
is an adventure in the nature of trade, the tribunal
has to find primary evidentiary facts and then apply
the legal principles involved in the expression" adventure in the nature of trade" used bys. 2, sub-a. (4). It
is patent that the clause " in the nature of trade "
postulates the existence of certain elements in the
adventure which in law would invest it with the character of a trade or business; and that would make the
question and its decision one of mixed law and fact.
This view ha.a been incidentally expressed by this Court
in the case of M eenakshi Mills, Madurai (1) in repelling
the appellant's argument based on the decision of the
(1) [1956] s. c. R. 691.
656 SUPREME COURT REPORTS [1959] Supp.
z958
House of Lords in Edwards v. Bairstow (').
For the
respondent, the learned Attorney-General has, howG Veiikataswami
1 d
h f
h
h
ever, re ie on t e act t at t e relevant observations
NaiJu, 5- Co.
v.
in the case of M eenakshi Mills, Madurai, are obiter and
The Commissioner he has invited our attention to the decision in the case
of Income-tax
of Edwards (1) in support of his contention that the
.
-
judgment of the House of Lords would show that the
Ga;endrngodkor 1 ·question about the character of the transaction was
ultimately treated as a question of fact.
Before we
refer to the said decision it may be relevant to observe
that there are two ways in which the question may be
approached. Even if the conclusion of the tribunal
about the character of the transaction is treated as a
conclusion on a question of fact, it cannot be ignored
that, in arriving at its final conclusion on facts proved,
the tribunal has undoubtedly to address itself to the
legal requirements associated with the concept df trade
or business. Without taking into account such
relevant legal principles it would not be· possible to
decide whether the transaction in question is or is not
in the nature of trade. If that be so, the final conclusion of the tribunal can be challenged on the ground
that the relevant legal principles have been misapplied
by the tribunal in reaching its decision on the point;
and such a challenge would be open under s. 66(1)
because it is a challenge on a ground of law. The same
result is achieved from another point of view and that
is to treat .the final conclusion as one on a mixed question of law and fact.
On this view the conclusion is
not treated as one on a pure question of fact, and its
validity is allowed to be impeached on the ground
that it has been based on a misapplication of the true
legal principles. It would thus be seen that whether
we call the conclusion in question as one of fact or as
one on a question of mixed law and fact, the application of legal principles which is an essential part in
the process of reaching the said conclusion is undoubtedly a matter of law and if there has been an error in
the application of the said principles it can be challenged as an error of law.
The difference then is merely
one of form and not substance; and on the whole it is
(1) [1956] A. C. 14 ; 36 Tax Cas 207.
(I) S.C.R.
SUPREME COURT REPORTS
657
more convenient to describe the question involved as a
r9S8
mixed question of law and fact,.
That is the view G
-
db tl · C
t · th
f u·
k h' M'll
· Ve11kataswami
expresse . y
us our m
e case o ~aeena s i
i s,
Naid & c
Madura.i (1); and, in our opinion, it avoids any confu-
:.
o.
sion of thought and simplifies the position by treating The Commissioner
such questions as analogous to those falling under the
of Income·ta~
category of questions of law.
.
L
.h
·a
h h
h d . .
f h Ga;endragadkar ].
et us t en cons1 er w et er t e ec1s10n o t e
House of Lords in the case of Edwards (2) is inconsistent with this view. In this case the respondents,
who were respectively a director of a. leather manufacturing company and an employee of a spinning firm,
purchased a complete cotton spinning plant in 1946
\vith the object of selling it as quickly as possible at a
profit.
They hoped to sell the plant in one lot, but
ultimately had to dispose of it in five separate lots
over the period from November 1946 to February 1948.
Assessments to income-tax in respect of profits arising
from this transaction were made under Case l of
Schedule D for the years 1946-47 and 1947-48. On the
matter being taken before the Chancery Division, it was
held in accordance with the earlier decisions of the
Court of Appeal in Cooper v. Stubbs (3) and Leeming v.
Jones (4) that the finding of the General Commissioners
was a finding of fact which could not be challenged in
appeal. The attention of the court was drawn to the
different view expressed in a Scottish case, Commissioners of Inland Revenu.e v. Fraser (5) where th\:) Court
of Session had held that it was at liberty to treat the
matter as a mixed question of fact and law, and in fact
it had overruled the finding of the General Commissioners in that behalf. "lt does not, seem to me",
observed Upjohn, J., "that in this court I am at
liberty to follow the practice of the Scottish Court,
attractive though it would be to <lo so, if the. matter
was res integra ". However, since apparently the
finding of the General Commissioners did not appear
to the court to be satisfactory, the matter was remitted
to them wit.h an intimation that they should consider
(1) [1956] S.C.R. 691.
(2) [1956] A.C. 14; 36 Tax Cas. 207.
(3) (1925) 10 Tax Cas. 29.
(4) (1930) 15 Tax Cas. 333.
(5) (1942) 24 Tax Cas, 498,
lili8
SUPREME COURT REPORTS [1959] Supp.
z958
the question whether the transaction, being an isolated
transaction, there was nevertheless an adventure in
G. Venkataswanii
.Vaidu 0;. Co.
the nature of trade which was assessable to tax nuder
v.
Case I of Schedule D. The Commissioners were direct.
n, c.,n,.,,;,,;u.,,, ed to hear furthn arguments on this point before
of lnco,.e·tax
stating a Rupplementary case. After r<'mand, the Commissioners adhered to their earlier Yiew and stated
liajendra.t!adkar / · ·that they were of opinion that the transact.ion was an
isolated case and not taxable and so they discharged
the assessments.
\'V ith the statement of this supplementary case, the matter was argued
before the
Chancery Division a.gain. Wynn-Parry, J., who delivered the judgment. on this occasion referred to the earlier
decisions of thr Court of Appeal and held that "on
those authorities prima fa.cie the mat.ter is concluded
by t.he decisiou of the Commissioners that the transaction, the 8ubject-matter of the case, was not an
adventure in the nature of trade' . Then the learned
judge examined the question as. to whether the decision of the Commissioners can be said to be perverse ;
and held that it could not be so characterised. ln the
result tbe i•ppeal was dismissed.
The question then
reached t.he Court of Appeal but the result was the
~am<'. Tho Court of Appeal observed that the earlier
decisions were bindiug on it no less than the Court of
First Instanco; and so it held that the conclusion of
the Commissioners was a finding of fact which the
court cannot disturb.
However, it is apparent from
the discussion thM took place when the court granted
lea,,e to the Crown to take the matter to the House of
.Lords that the court did not feel happy about the
correctness of the finding made by the GPneral Commissioners in thE- cast'. That is how the mat.ter reach-
<•d the House of Lords.
The facts in t-his case wt>re s0 clearly against the
.finding of the Commissioner~ t.hat Viscount Simonds
made it elea1· at tlw outset that in his opinion, "whatever test. is adopted, that is, whether the finding that
the transaction was not an adventure in the nature of
trade is to be regarded as a pure finding of fact or as
the detnmination of the question of law or of mixed
law and fa.ct, t.he same result would be reached in this
(1) S.U.R.
SUPREME COUHT REPORTS
659
case.
The determination cannot stand. Thii; a.ppeal
z9sa
must be allowed a.nd the assessments must be confirm- c v -;;;
ed".
Jt, is in the light of this emphatic statement that '·N:;~.,";s~;."'•
the re1:1t of the judgment of Viscount Simonds must bo
v.
considered. He referred to the divergence of views n. Commiuio"•'
expressed in English a.nd Scottish decisions and his
of Incom1-1°~
conclusion was that "if and so far a.s there ii:; any . . d -dk
divergence between the English and Scottish appl'Oach,
1
'
111
en ragtJ
0
' f.
it is the former which is supported by the previous
authority of this House to which reference ha.s been
ma.de "; but he analysed the po!:!ition involved in both
the approaches and held that the difference between
t.hem was not of substa.uee. "To say that a. transaction is or is not a.n adventure in the nature of trade",
observed Viscount Simonds, " is to say that it. has or
ha.snot the characteristics which distinguish such an
advent.Ur<•, but it. is a question of law not of fact, what
<tre those chara.cteristics, or, in other words, what the
Htatutory language means.
[t follows that the inference cau only he regarded as an inforence of fact if it
it1 assumed t;hat the Tribunal which makes it is rightly
directed in law what the characteristics are a.nd
that, I think, is the assumption that is ma.de". Dea.ling with the merits of the case, Viscount Simonds
observed that "sometimes, as in the case as it now
oome<i before the Court where all the admitted or
found facts point one way and the inference is the
other way, it can only he a matter of conjecture why
that inference has been made. In such a case it is ea.av
nither to sav t.hat the Commissioners have made 8.
wrong infer~nce of fant because they have misdirected
themHelvei" in law or to t.a.ke a short.cut and say that
t.hey have ma<le a wrong inference of law, and I
vent.ure to doubt whether there is more than this in
t,he divergence between the two jurisdictions which bas
so much agitated the Hcvenue authorities". Lord
Radcliffe substantially agreed with this v.iew.
He also
referred to the di vergcnce of v iewi;_i expressed in Scottish
and ~jnglish dl'cisions and obserrnd t.hat " the true position of the Court iu all these cases can be shortly stated.
If a party to a hearing before the Commissioners
PX press«>s 1lissatisfact.ion with
thei!'
determination
660
SUPREME COURT REPORTS [1959] Supp.
z958
as being cnoneous in point of law, it is for them
-
. to state a case and in the body of it to set out the facts
G.:•;·~'t'"' that they have found as well as t.heir determination.
"' :.
•·
I do not think that inferences dm wn from other facts
The Commissioner are incapable of themselves being findings of fact,
of Income-tax
although there is value in the distinction between
. -- ·
primary facts and inferences drawn from them. When
G•;•nd .. gadkar J. the case comes before the Comt, it is its duty to
examine the determination having regard to its knowledge of the relevant law. If a case con ta.ins anything
ex facie which is bad in point of law and which bears
upon the determination, it is obviously, erroneous in
point of law.
But, without any such misconception
appearing ex f acie, it may be that the facts found are
such that no persons acting judicially and properly
instructed as to the relevant law could havl' come to
the determination under appeal. In those circumstances, too, the Court must intervene". Lord Radcliffe
remarked that the English courts had been led to be
rather overready to treat these questions as pure questions of fact and added "if so I would say with very
great respect that I think it a pity that such a
tendency should persist". Therefore, it seems to us
that in effect this decision is not inconsistent with the
view we have taken about the character of the question raised before us in the present appeal. As we have
already indicated, to avoid confusion or unnecessary
complications it would be safer and more convenient
to describe the question about the character of the
transaction in the context as a question of mixed law
and fact.
The learned
Attomey-Geueral has invitPd our
attention to the fact that the form in which t.he question referred to the High Court ha3 been framed in
the present case seems to assume that the impugned
finding is a finding of fact. It is ou ly in regard to a finding of fact tha't a question can be properly framed as to
whether there was material to support the said finding.
We would, therefore, like to add that it would
be more appropriate to frame the question in this.
form: whether, on the facts and circumstances proved
in the case, the inference that the transaction in
(1) S.C.R.
SUPREME COURT R.EPORTS
661
question is an adventure in the nature of trade is in
r958
law J
0Ustified ? In substance, that is the basis on which G. Venkataswami
the question has been framed by the respondent and
Naidu & c~.
considered by the High Court.
v.
This question has been the subject-matter of several The Commissi<m•r
judicial decisions; and in dealing with it all the judges
of Income-tu
appear to be agreed that no principle can be evolved
.
-
h. h
Id
th
d
· ·
f II
·
h' h Ga1endragadhar J.
w IC wou
govetn
e
ec1s10n o a cases m \\' ic
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 bu:;iness but not h.r
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 iudividua.lly cannot
themselves he described as 1.rade or business but are
essentially of such a similar character that they are
t,reated as in the nature of trade. It was faintlv
argued for the appellant that it 1rnuld Le ditlicult to
regard a single or an isolated transaction as one in tlw
nature of trade because income resulting from it would
i11evitably lack the characteristics attributed to it by
Sil' t;eorge I.oundes in Commissio11e1· of I. T. v. Shau·
Wallace aucl Company (1).
"Income their Lordships
(1) (1932) L. R. 59 I.A. 206.
662
SUPRE"'IE .COURT REPORTS [1959] Supp.
1958
think ", observed Sir George Loundes, . '.' in this Act
-
· .... ·connotes a periodical monetary return coming'in with
G. Ve.nkatasw.-.. · some sort of regularity or expected regularity from
Naidu .s. Co.
definite sources ". Then the learned judge proceeded
TA• c.,:;,;,;io•" to observe that "income has be!n likened pictorially
of Inc.me-ta> .. to the fruit of a tree, or the crop of a field. It is
. -
·. essentially the produce of something which is often
G_•J'"dragadkor 1· 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 transac.
tion 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 'Vright . in Raja
Bahadur Kamakshya Narain Singh of Ramgarh · v. ·
Commissioner of J. T., Bihar and Orissa (1) that "it is
clear that such picturesque similes cannot be used to
limit the true character of income in general".
'Ve
are inclined to think that,· in dealing with the· very
prosaic and sometimes complex questions arising under
the Income-tax 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.
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.