# JANKI RAM BAHADUR RAM v. COMMISSIONER OF INCOME TAX, CALCUTTA

- **Citation:** [1965] 3 S.C.R. 604
- **Court:** Supreme Court of India
- **Decided:** 1965-03-31
- **Case number:** Civil Appeal No. 308 of 1964
- **Bench:** K. Subba Rao, J. c. SHAH, s. M. Suau
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/janki-ram-bahadur-ram-v-commissioner-of-income-tax-calcutta-3518
- **Pages:** 7

## Headnote

In<iian Income-tax Act, 1922 (11 of 1922), s. 10-Purcluise of a
different business-Sale-Profit-If taxable.
The assessee who was dealing in <iron scrap and hardware had
purchased a jute press and sold it at a profit. The Income-t!IX Officer
brought to tax in the hands of the assessee, the profit arising out of
this sale. The Appellate Tribunal modified the order and reduced the
total income. At the instance of assessee the Tribunal referred to
the High Court, the question, whether the surplus received by the
assessee as a result of the sale of the jute press arose out of an adventure in the nature of trade and was, therefore, liable tc tax. The
High Court answered the question In affirmative. In appeal;
HELD: The question must be answered in the negative.
Granting that the assessee made a profitable bargain when he
purchased the property and granting further that the assessee 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 assessee intended by purchasing the
property to start a venture in the nature of trade. {609H-610A]
A profit motive in entering a transaction is nQ decisive, for, an
accretion to capital does not become taxable income, merely because
an asset was acquired in the expectation that it may be sold at a
profit. [608F]
Purchase of the property by the assessee was an isolated transaction not related to the business of the assessee. [608G]

## Text

JANKI RAM BAHADUR RAM
v.
COMMISSIONER OF INCOME TAX, CALCUTTA
March 31, 1965
[K. SUBBA RAO, J. c. SHAH AND s. M. Suau, JJ.J
In<iian Income-tax Act, 1922 (11 of 1922), s. 10-Purcluise of a
different business-Sale-Profit-If taxable.
The assessee who was dealing in <iron scrap and hardware had
purchased a jute press and sold it at a profit. The Income-t!IX Officer
brought to tax in the hands of the assessee, the profit arising out of
this sale. The Appellate Tribunal modified the order and reduced the
total income. At the instance of assessee the Tribunal referred to
the High Court, the question, whether the surplus received by the
assessee as a result of the sale of the jute press arose out of an adventure in the nature of trade and was, therefore, liable tc tax. The
High Court answered the question In affirmative. In appeal;
HELD: The question must be answered in the negative.
Granting that the assessee made a profitable bargain when he
purchased the property and granting further that the assessee 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 assessee intended by purchasing the
property to start a venture in the nature of trade. {609H-610A]
A profit motive in entering a transaction is nQ decisive, for, an
accretion to capital does not become taxable income, merely because
an asset was acquired in the expectation that it may be sold at a
profit. [608F]
Purchase of the property by the assessee was an isolated transaction not related to the business of the assessee. [608G]
Case law referred to.
. CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 308 of
1964.
Appeal by special leave from the judgment and order dated
September 10, 1962 of the Calcutta High Court in Income-tax
Reference No. 115 of 1957.
A. V. Viswanatha Sastri, B. Sen Gupta and P. K. Ghosh, for
the appellant.
N. D. Karkhanis and R. N. Sachthey, for the respondent.
The Judgment of the C,ourt was delivered by
Shah, J. 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 leasehold, and the other held
by the Company as a licensee from the Government of West
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JANKI 11AM: v. c. I. T. (Shah, J.)
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.
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.
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 I 3 I 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, bffice, 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.
The Income-tax Officer, District II(!), 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 modifiej 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.
L/P(N)4SCI ~
12
SUPREME COURT BEPOBTS
(1965} 3 s.c.R.
At the material time, capital gains were not taxable, and the
only question falling to be determined is whether profit made by
the appellant by sale of the property to Ranada Prasad Saha was
taxable under s. 10 of the Indian Income-tax, Act. The Tribunal
found the following facts proved:
The appellant was carrying on business in iron scrap and
hardware, and never carried on any business in jute or in pressing
jute. At the material time when the purchase of the Jute .P!ess
was made, the appellant had, because of abnormal cond1tlons
prevailing in the town of Calcutta, closed its business in iron
scrap and hardware. The appellant purchased the jute press and
the premises appurtenant thereto subject to litigation pending in
the High Court, effected certain repairs and kept the factory in
running condition, but made no attempt to start or organise the
business of pressing jute, and his plea that he was not able to
secure labour for working the press was not ,true. Soon alter he
bought the factory, the appellant received an offer from Ranada
Prasad Saha to buy the factory and he immediately accepted the
offer to sell it to him.
These facts in the view of the Tribunal indicated that the
appellant purchased the jute press, subject to litigation, with the
sole object of reselling at profit at the earliest opportunity, and
therefore the tranasction was in the nature of a trading venture.
The High Court substantially agreed with this view.
,, Section 10 of the Indian Income-tax Act, 1922 makes profits
and gains of business, profession, or vocation carried on by an
assessee taxable. The expression "business'' is defined in s. 2(4)
as inclusive of. "any trade, commerce, or manufacture or any
adventure or concern in the nature of trade, commerce or manufact11re". It is common ground that the transaction of purchase
and sale of the factory and appurtenant premises was an isolated
venture. To reiterate the sequence , of material events: the appellant agreed to purchase the Jute Press from the Company on
October ~ 1, 1942 subject to litigation pending in the High Court
of Calcutta: possession of the property except the premises in
the occupation of the tenant was obtained on November 14, 1942
'and the sale' deed was obtained on February 26, 1943: on June
12, 1943 the appellant agreed to sell the press to Ranada Prasad
Saha: on Au~ust 10, 1943 tlJe appellant was substituted as plaintiff in the smt filed by the' Company against Ramnath Bajoria,
and after obtaining possession of the demised premises the appellant executed on September 30, 1943 a sale deed conveying
the property and delivered possession to Ranada Prasad Saha.
Do these facts make out the case that th" transaction was an
adventure in the nature of trade?
It is for the revenue to establish that the profit earned in
a transaction is within the taxing provision and is on that account
liable to be taxed as income. The nature of the transaction must
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JANK! RAM v. C. 1. 'l'. (Shult, J.)
6D7
be determined on a consideration of all the faots and circumstances which are brought on the reoord of the income-tax
authorities. It has consistently been held by this Court that the
question whether profit in a trans~ction h.as arisen out of an
adventure in the nature of trade 1s a mixed questJon of law
and fact: see G. Venkataswami Naidu & Company v. The Commissioner of Income-tax(') in which case this Court held that
the expression "adventure in the nature of trade" in sub-s. (4)
of s. 2 of the Act postulates the existence of certain elements in
the adventure which in law would invest it with the c11araoter
of trade or business and that a tribunal while considering a question whether a transaction is or is not an adventure in the nature
of trade, before arriving at its final conclusion on facts, has to
address itself to the legal requirements associated with the concept 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.
See also Saroj Kumar
Majumdar v. Commissioner of Income-tax, West Bengal(').
A large number of cases were cited at the Bar in support of
the respective contentions of the Commissioner and the assessee.
Passages from judgments in the same case were often cited claiming support for the respective contentions.
No useful purpose
would be served by entering upon a detailed analysis and review
of the observations made in the light of the relevant facts. for
no single fact has decisive significance, and the question whether
a transaction is an adventure in the nature of trade must depend
upon the collective effect of all the relevant materials brought on
the record. But general criteria indicating that certain facts have
dominant significance in the context of other facts have been
adopted in the decided cases. If, for instance,, 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 inierred.
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. Magnitude of
the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that
the transaction may be stamped with the character of a trading
venture: for instance, a man who purchases a large quantity of
aeroplane linen and sells it in different lots, and fOF the purpose
of selling starts an advertising campaign, rents offices, engages
an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes
receipts and payments in connection with the linen through a
separate banking account: Martin v. Lowry('): a person who
carries on a money-lending business purchases very cheaply a
('I [1959] Supp. 1 S.C.R. 646.
(') 11 T.C. 297.
(') 37 I,T.R. 242.
608
SUPBEllE COURT BEPOBTS
[1965] 3 8.C.B.
•
vast quantity of toilet paper and within a short time thereafter
sells the whole consigrunent at a· considerable profit: Rutledge v.
The Commissioner of Inland Revenue('); a person even though
he has no special knowledge of the trade in wines and spirits,
purchases a large quantity of whisky sells it without taking deli·
very of it at a considerable profit: Commissioners of Inland
Revenue v. Fraser('), may be presumed having regard to the
nature of the commodity and extent of the transaction coupled
with the other circumstances, to be carrying on an adventure in
the nature of trade. These are cases of commercial commodities.
But a transaction of purchase of land cannot be assumed without
more to be a venture in the nature of trade. A director of a company carrying on the business of warehouseman purchasing a
number of houses with a view to resale, and selling them at a
profit some years after the purchase: Commissioners of Inland
Revenue v. Reinhold('): a person carrying on business in vario.us
lines, including an Engineering Works, purchasing land which
was under requisition by the Government, negotiating sale thereof before the land was derequisitioned, and selling it after the
.Jand was released: Saroj Kumar Mazumdar v. Commissioner of
Income-tax, West Bengal('); and a syndicate formed to acquire,
an option over a rubber estate with a view to earn profit, and
finding the estate acquired too small acquiring another estate
and selling the two estates at a profit: Leeming v. Jones(') may
not be regarded as commencing a venture in the nature of trade.
These are cases in which the commodity purchased and sold is
·not ordinarily commercial, and the manner of dealing with the
commodity does not stamp the transaction as a trading venture.
It may be emphasized from an analysis of these cases that
a profit motive in entering a transaction is not decisive, for, an
accretion to capital does not become taxable income, merely
because an asset· was acquired in the expectation that it may be
sold at profit.
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 were purchased by the appellant,
and the appellant sold its entire rights in the properties in Schs. I,
(') 14 T.C. 490 •.
(') 24 T.C. 498.
(') 34 T.C. 389.
(') II T.C. 297.
(') 16 T.C. 333.
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JANK! &All! II. C. I. T. (Shah, J.)
609
II and III without any reservation. It is true that the appellant had
put the factory in a working condition, but had not org~ized 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 l;ll>ourers. The appellant's claim that it was not
so done because the appellant could not secure labourers has not
been accepted. But that is not a decisive
circumstan~e" The
factory was in the occupation of the· lessee Ramnath Ba1ona and
p~ssession was obtained after August 10, 1943. But before
t)le 10th of August an agreement of sale was execu!Cd by the
appellant in favour of Ranada Pra~ad Saha. In the J1ght 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. BaITing
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 purchased.
In the deed of conveyance daJted 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 OQ 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 1;1n 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. Beside 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 whiah
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 ma1erials
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 raised.
Granting that the appellant made a profitable bargain when
he purchased the property, and granting further that the apoellant had when he purchased it a desire to sell the prooertv, if a
favourable offer was forthcoming. these could not Without other
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SUPREME COUll.'l' REl'OR'J'8
[19u5j 3 8,C,R.
circumstances ·justify an inference that the appellant intended by
purchasing the property to start .<i venture in the nature of trade.
Absence of advertisement inviting offers for purchasing the property, and absence of brokers in the negotiations for s.ale between
the appellant and Ranada Prasad Saha, are circum ;tances which
lead to no positive inference. There is nothing to show that the
appellant desired to convert the property to some other use. No
brokers 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 al?proached the Company after the sale deed
was executed in favour of the appellant and he was inf01;med
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 sudh 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 busin~,s. 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 qf 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.
We therefore discharge the answer given by the High Court
in respect of the question submitted bf the Tribunal and record
a negative answer. The appeal is allowed. The Commissioner to
pay the costs in this Court and the High Court.
Appeal allowed.
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