# SUPREME COURT REPORTS [1959] Supp. SAROJ KUMAR MAZUMDAR v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA

- **Citation:** [1959] Supp. 2 S.C.R. 846
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Case number:** Civil Appeal No. 347 of 1955
- **Bench:** N. H. Bhagwati, B. P. Sinha, J. L. Kapur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/supreme-court-reports-1959-supp-saroj-kumar-mazumdar-v-the-commissioner-of-1683
- **Pages:** 23

## Headnote

Income-tax-Assessment-Single transaction of purchase and
sale of land-If a venture in the nature of trade or capital investment
-Test-Dominant intention-Onus-Indian Income-tax Act, z922
(XI of I922), ss. 2(4), IO.
The question for decision in this appeal was whether a
single transaction of sale of land measuring about three quarters
of an acre was an adventure in the nature of trade so as to make
it liable to income-tax. The assessee appellant, an Engineer by
profession, was engaged in various business activities including
that of an engineering firm but, admittedly, had no dealing,
except the one in question, in respect of land. In 1946 he entered into an agreement with the Hindusthan Co-operative Insurance Society Ltd. for the purchase of the land in question and
paid a sum of Rs. 32,748 in two instalments, being 25% of the
estimated total price of the land. As his construction activities
declined and the Government, who had requisitioned the land,
were not immediately releasing it, the appellant sold his rights
under the agreement to a third party in 1947 and thereby received a sum of Rs. 74,000 odd in excess of the amount paid by him
to the Society. The land, however, was not released by the
Government until i949. The Income-tax Officer held that the
transaction v:.1as an adventure in the nature of trade and the said
sum was a profit therefrom, taxable under s. IO of the Incometax Act, and included it in the assessable income. The Appellate Assistant Commissioner, in appeal, held that the assessee, a
man of means, had intended to purchase the land for his own
use, and that the motive of profit was entirely absent when the
purchase was made and that as it was a case of appreciation of
capital, he was liable to pay Capital Gains ta,x.
The Appellate
Tribunal on appeal by the Department, reversed the findings and
the decision of the Appellate Assistant Commissioner and affirmed that of the Income-tax Officer. After the assessee had
obtained from this Court special leave to appeal, he made an
application to the High Court under s. 66(2) of the Income-tax
Act, which that Court dismissed as being barred by limitation.
Held, (per Bhagwati and Sinha, JJ., Kapur, J., dissenting) that admittedly the transaction in question being a single
instance of its kind, and not in the line of the business of the
assessee, it was for the Department to prove that the dominant
intention of the appellant, when he entered into the agreement
with the Society, was to embark on a venture in the nature of
(2) S.C.R. SUPREME COURT REPORTS
847
r959
trade as distinguished from a capital investment, and they having
failed to do so, the appeal must succeed.
Commissioners of Inland Revenue v. Reinhold, 34 T. C. 389,
Saroj Kumar
applied.
Mazumdar
1:here could. ~e ~o doubt,. as held by the . Court, that the Th• ca:;,.issioner
question for dec1s1on mvolved m such cases was one of law or a
mixed question of fact and Jaw.
G. Venkataswami Naidu and Co. v. The Commissioner of Income-tax, A.LR. 1959 S.C. 359, referred to and distinguished.
The line of demarcation, however, between an isolated transaction and a venture in the nature of trade was very thin and
each case had to be decided on the total impression all its facts
and circumstances made on the mind of the Judge.
Case-law reviewed.
KAPUR, J.-Even though the powers of this Court under
Art. 136 of the Constitution were very wide, they had to be
exercised within the limits imposed by its own decisions and one
such limitation was tqat this Court would not ordinarily interfere on questions of fact. Since the question involved in the
instant case was a mixed question of law and fact, the facts
should properly be found by the body whose exclusive function
under the Income-tax Act was to do so.
G. Venkataswami Naidu & Co. v. The Commissioner of Incometax, A.LR. 1959 S.C. 359 and Dhakeswari Cotton Mills v. The
Coihmissioner of Income-tax, [1955] l S.C.R. 941, referred to.
Nor could an assessee be allowed to by-pass t

## Text

_Characters 0–39,886 of 53,207. This is a partial read: ask again with offset=39886 for what follows._

r959
May 4.
•
846
SUPREME COURT REPORTS [1959] Supp.
SAROJ KUMAR MAZUMDAR
v.
THE COMMISSIONER OF INCOME-TAX, WEST
BENGAL, CALCUTTA.
(N. H. BHAGWATI, B. P. SINHA and J. L. KAPUR, JJ.)
Income-tax-Assessment-Single transaction of purchase and
sale of land-If a venture in the nature of trade or capital investment
-Test-Dominant intention-Onus-Indian Income-tax Act, z922
(XI of I922), ss. 2(4), IO.
The question for decision in this appeal was whether a
single transaction of sale of land measuring about three quarters
of an acre was an adventure in the nature of trade so as to make
it liable to income-tax. The assessee appellant, an Engineer by
profession, was engaged in various business activities including
that of an engineering firm but, admittedly, had no dealing,
except the one in question, in respect of land. In 1946 he entered into an agreement with the Hindusthan Co-operative Insurance Society Ltd. for the purchase of the land in question and
paid a sum of Rs. 32,748 in two instalments, being 25% of the
estimated total price of the land. As his construction activities
declined and the Government, who had requisitioned the land,
were not immediately releasing it, the appellant sold his rights
under the agreement to a third party in 1947 and thereby received a sum of Rs. 74,000 odd in excess of the amount paid by him
to the Society. The land, however, was not released by the
Government until i949. The Income-tax Officer held that the
transaction v:.1as an adventure in the nature of trade and the said
sum was a profit therefrom, taxable under s. IO of the Incometax Act, and included it in the assessable income. The Appellate Assistant Commissioner, in appeal, held that the assessee, a
man of means, had intended to purchase the land for his own
use, and that the motive of profit was entirely absent when the
purchase was made and that as it was a case of appreciation of
capital, he was liable to pay Capital Gains ta,x.
The Appellate
Tribunal on appeal by the Department, reversed the findings and
the decision of the Appellate Assistant Commissioner and affirmed that of the Income-tax Officer. After the assessee had
obtained from this Court special leave to appeal, he made an
application to the High Court under s. 66(2) of the Income-tax
Act, which that Court dismissed as being barred by limitation.
Held, (per Bhagwati and Sinha, JJ., Kapur, J., dissenting) that admittedly the transaction in question being a single
instance of its kind, and not in the line of the business of the
assessee, it was for the Department to prove that the dominant
intention of the appellant, when he entered into the agreement
with the Society, was to embark on a venture in the nature of
(2) S.C.R. SUPREME COURT REPORTS
847
r959
trade as distinguished from a capital investment, and they having
failed to do so, the appeal must succeed.
Commissioners of Inland Revenue v. Reinhold, 34 T. C. 389,
Saroj Kumar
applied.
Mazumdar
1:here could. ~e ~o doubt,. as held by the . Court, that the Th• ca:;,.issioner
question for dec1s1on mvolved m such cases was one of law or a
mixed question of fact and Jaw.
G. Venkataswami Naidu and Co. v. The Commissioner of Income-tax, A.LR. 1959 S.C. 359, referred to and distinguished.
The line of demarcation, however, between an isolated transaction and a venture in the nature of trade was very thin and
each case had to be decided on the total impression all its facts
and circumstances made on the mind of the Judge.
Case-law reviewed.
KAPUR, J.-Even though the powers of this Court under
Art. 136 of the Constitution were very wide, they had to be
exercised within the limits imposed by its own decisions and one
such limitation was tqat this Court would not ordinarily interfere on questions of fact. Since the question involved in the
instant case was a mixed question of law and fact, the facts
should properly be found by the body whose exclusive function
under the Income-tax Act was to do so.
G. Venkataswami Naidu & Co. v. The Commissioner of Incometax, A.LR. 1959 S.C. 359 and Dhakeswari Cotton Mills v. The
Coihmissioner of Income-tax, [1955] l S.C.R. 941, referred to.
Nor could an assessee be allowed to by-pass the procedure
prescribed by ss. 66(1), 66(2) of the Income-tax Act to-have question of Jaw determined.
Since, however, the Appellate Tribunal had, in the instant
case, failed to consider certain essential facts, the case should be
remitted to it for a proper decision in the light of the observations made by this Court.
CIVIL
APPELLATE
JURISDICTION:
Civil Appeal
No. 347 of 1955.
Appeal by special leave from the judgment and.
order dated March 26, 1954, of the Income-tax Appellate Tribunal, Calcutta, in Income-tax Appeal No.
5263 of 1953-54.
A. V. Viswanatha Sastri and Sukumar Ghosh, for
the appellant.
0. K. Daphtary, Solicitor-General of India, R. Ganapathy, R.H. Dhebar and D. Gupta, for the respondent.
1959. May 4.
The Judgment of Bhagwati and
Sinha, JJ., was delivered by Sinha, J. Kapur, J. delivered a separate Judgment.
of Income-tax,
West Bengal,
Calcutta
848
SUPREME COURT REPORTS [1959] Supp.
'959
SINHA, J.-The only question for determination in
this appeal by special leave, is whether the solitary
Saroj J(umar
Mazumdor
transaction in respect of about three quarters of an
v.
acre of land in the suburbs of Calcutta, was an ad venThe Commission" ture in the nature of trade and, therefore, liable to
of Income-tax,
West Bengal,
Calcutta
Sinha J.
income-tax. The assessee is the appellant.
He challenges the correctness of the order of the Income-tax
Appellate Tribunal, Calcutta Bench, Calcutta, dated
March 26, 1954, passed in LT.A. 5263 of 1953-54, in
respect of the Assessment year 1948-49, reversing that
of the Appellate Assistant Commissioner of Incometax, Range "C ", Calcutta, dated September 5, 1953.
The facts of this case leading upto this appeal are
as follows : The appellant is engaged in various types
of business activities, being a share-holder and Director or Managing Director of several limited liability
concerns, and is also a partner in the firm known as
"Pioneer Engineering Works". In respect of his
income during the previous two assessment years, the
appellant was assessed to income-tax on the sums of
Rs. 53,000/-(1946-47) and Rs. 59,000/- (1947-48).
The
appellant holds investments in shares of the value of
Rs. 2,45,000/-, out of which, according to the assessee,
shares of-the value of Rs. 1,95,000/-, though standing
in his name, belong to other members of his family,
including his father and his wife.
The Hindusthan Co-operative Insurance Society
Limited, of Calcutta, (hereinafter referred to as "the
Society "), acquired a block of about 578 bighas of land
lying between Diamond Harbour Road a'nd Tolly's
N ullah, within the Municipal limits of the Corporation
of Calcutta, between the years 1940 and 1942. The
Society decided to level the land thus acquired and to
open out roads and after developing the same, it subdivided it into small plots and sites in different blocks
suitable for residential purposes under its scheme
called "The New Alipore Land Development Scheme
No. XV ". The Society offered such plots for sale. One
such plot, being plot No. 77 in block " E " of the said
Scheme, was agreed, by an agreement dated January
10, 1946, to be sold to the assessee at the rate of
Rs. 2,550 /- per katha. In pursuance of the said agreement, the assessee paid to the Society, a sum of
(2) S.C.R.
SUPREME COURT REPORTS
849
Rs. 13,099/- being 10% of the estimated price of the
x959
plot with an approximate area of 51 kathas, which
Saro} Kumar
subsequently, on exact measurement, was found to
Mazunidar
be 45·56 kathas.
Subsequently, on the acceptance
v,
of his offer, the appellant paid another sum ofThe Commissioner
Rs. 19,649 (omitting annas), being 15% of the estimatof Income-tax,
ed price. Thus, in all, a sum of Rs. 32,748/- being
West Bengal,
25% of the estimated total price of the land, was
Calcutta
paid by the assessee to. th'tl Society.
All this area
Sinha 1.
which the Society had undertaken to develop and
sell to different purchasers in small plots, was in
occupation of the Government, which had requisitioned it for purposes connected with the prosecution of the Second World War. Hence, one of the
terms of the transaction between the assessee and the
Society, was that the transaction of purchase would be
completed within six months of the lands being released from Government occupation. It was further
stipulated that the assessee would be entitled to apply,
within three months of the receipt of the notice of
de-requisition, for extension of time not exceeding one
year, for the completion of the transaction on the condition that he paid interest at the rate of 7% per
annum on the outstanding amount, during the extended period. If the assessee, as purchaser, paid to the
Society another sum which, together with Rs. 32,748/-,
already paid, would amount to 50% of the total price
of the plot in question (within six months of the notice
of de-requisition), he could get a conveyance of the property on his executing an English Mortgage for the
remaining 50% of the price carrying interest at the
rate of 7%, on the expiry of these aforesaid six months.
As there was an apprehension that the Government
might acquire the whole property for its own purpose,
it was further stipulated that in the event of such an
acquisition by Government, the agreement for sale
would stand rescinded, and the assessee, in that event,
would be entitled to re-payment of the amounts paid
by him to the Society by way of advance for the completion of the transaction. The assessee's case is that
as the terms of the payment of purchase-price in several instalments, as aforesaid, were convenient to him,
L07
850
SUPREME COURT REPORTS [1959] Supp.
z959
he agreed to take the plot on the conditions aforesaid,
with a view to building a residential house for himself
Saroj Kuniar
d
•
k h
·
·
· h h'
Mazumdar
an
constructmg a wor s op m connection wit
1s
v.
business activity.
At the end of the Second World
The Commissioner War, the assessee's construction activities began to
of Income·t•>. decline, and there was no immediate prospect of the
West Bengal,
land in question being de-requisitioned by Government.
Calcutta
I th
·
h
·
d c
h
n
ose mrcumstances, t e assessee negotiate 1or t e
Sinha J.
assignment of his rights under the agreement with the
Society, to Rani Yuddha Rajya Devi of Nepal. The
Itani appeared to have taken a fancy to the plot and
to have made an attractive offer to the appellant.
Hence, after exchange of letters between the parties,
it was agreed between them that a sum of Rs. 1,07;000
odd would be deposited by the Rani with the assessee
on suspense account until the transaction of sale
between the Society as the vendor and the Rani or her
nominee, as the vendee, would be executed and the
transaction of purchase finalised upon her undertaking
- to pay the sum of Rs. 98,000 odd to the Society, which
was the outstanding amount of the sale-price in respect
of the plot agreed by the assessee to be purchased by
him from the Society. After a good deal of correspondence, on December 27, ,1950, the Society executed a
deed of conveyance in respect of the said plot, to the
daughter of the said Rani as the vendee. The aforesaid vendee executed a deed of mortgage in favour of
the Society for the outstanding amount of Rs. 50,900/-,
after payment of Rs. 32,700 odd to the Society. In
the result, the assessee received, on April 3, 194 7, a
sum of Rs. 1,07,000 odd from the Rani, in pursuance
of the agreement between her and the assessee.
Until
the execution of the sale-deed between the Society and
the Rani's nominee, as aforesaid, the assessee continued
to be liable to the Society in respect of the agreement
of January 10, 1946. The assessee, thus, received from
the Rani a sum of Rs. 74,000 odd in excess of the
amount paid by him to the Society. The property,
including the plot in question, was not de-requisitioned
until some time in 1949.
In respect of the assessment year 1948-49, the assessee filed a return of his income to the Income-tax
•
(2) S.C.R. SUPREME COURT REPORTS
851
Department, showing a loss of Rs. 2,000 odd for the
.
x959
financial year 194 7-48. In pursuance of the notice
Saroj Kumar
under s. 23(2) of the Income-tax Act, the assessee apMazumdar
peared before the Income-tax Officer, Calcutta, and
v.
produced all his books of account, including his bank The Commissioner
accounts. The Income-tax Officer, on an examination
of Income-tax,
of the accounts and after questioning the assessee
West Bengal,
h
'
l .
h
h
'
Calcutta
came to t e cone usion t at t e assessee had made a
profit of Rs. 74,000 odd from the transaction in quesSinha J.
tion, which, according to him, was an adventure in
the nature of trade. Hence, on an examination of the
assessee's accounts, the Income-tax Officer included
the sum of Rs. 74,485/- as profit from an "adventure
in the nature of trade "-taxable under s. 10 of the
Income-tax Act-as one of the items of income accrued to the assessee during the assessment year 1948-49.
The assessee went up in appeal to the Appellate
Assistant Commissioner of Income-tax, and challenged
the conelusioh of the Income-tax Officer that the sum
of Rs. 74,000 odd was profit from an adventure in the
nature of trade. It was also taken as one of the grounds
of appeal by him that in any event, the receipt accrued to the assessee only in 1950, after the transaction
of sale had been completed as between the Rani's
nominee and the Society. The Appellate Assistant
Commissioner did not agree with the Income-tax
Officer that the assessee was not in a position either to
complete the transaction of purchase by paying the
full amount of consideration, or to erect a building
thereon, or to use the land in any ot,her way. He
pointed out that under the Scheme, the Society had
offered terms of purchase on instalments and on execution of a mortgage in respect of the vended property
to the extent of 50% of the consideration money. He
also pointed out that the assessee had considerable
investments to the extent of Rs. 2,45,000/- in shares of
different limited concerns. He, therefore, came to the
conclusion that the assessee was a man of means, and
that it could not be said that he had not intended to
purchase the plot for his own use.
He further held
that the motive of making a profit at the time of the
purchase, had not been established by the Department,
•
852
SUPREME COURT REPORTS [1959] Supp.
'959
and that it was a " solitary transaction ".
On
these findings, he found himself unable to confirm the
Saroj [( uniar
Mazumdar
finding of the Income-tax Officer that the profit was
v.
from an adventure in the nature of trade.
He took
The Commission" the view that the appellant had made an investment
of Inoome tax,
which had appreciated considerably in value, and that
West ,s-•gal,
it was undoubtedly a case of appreciation of capital.
ca cutta
Treating it as a "Capital Gain", he came to the conSinha 1.
clusion that as the payment had been made in 1947,
the gain accrued in that year and not in the year 1950,
as contended on behalf of the assessee. In the result,
he made him liable to pay Capital Gains tax.
The Department went up in appeal to the Incometax Appellate Tribunal, which, by its judgment dated
March 26, 1954, allowed the appeal. The Tribunal
pointed out that the assessee was not a man of
such large means as to think of acquiring the plot
for his own residential or business purposes. The
admitted shares worth Rs. 2,45,000/- · standing in
his name, the Tribunal pointed out, were held by the
assessee, in respect of the major portion, on behalf of
other members of his family.
The Tribunal also
observed that Rs. 32,748/- paid hy the assessee to the
Society had been paid out of borrowed money. This
conclusion does not appear to have been well-founded
in fact. The accounts do show credits in favour of
the assessee of a larger amount. The Tribunal also
pointed out that undoubtedly the "assessee is a keen
businessman and has a number of varied business
interests. Admittedly, he is a director of about a
dozen concerns and managing director of two or three.
He is -/8/- annas partner in an Engineering concern
which is carrying out a number of construction and
other contract works. He is an Engineer by profession and a resident of Calcutta." The Tribunal based
its conclusion that the sale was an adventure in the
nature of trade, and that the profits, thus made, were
assessable to income-tax, on the following grounds:-
1. That the payment by the assessee to the Cooperative Society, of Rs. 32,748/-, came out of a loan
taken for the purpose from a company (which conclusion, as already pointed out, is not borne out by the
entries in the books of account of that company);
(2) S.C.R. SUPREME COURT REPORTS
853
2. That the assessee could not have paid the
c959
balance of Rs. 98,000 odd, the outstanding amount of
Saroj I< umar
the purchase.money, to the Insurance Company;
Mazumdar
3. That the assessee had no means to construct a
v.
house on the land, and lastly,
The Co1nmissioncr
4. That the site itself fetched no income, thus,
of Income-tax,
showing that it could not be an investment but only
West Bengal,
Calcutta
an excursion into the realm of trade.
Against this decision of the Appellate Tribunal, the
Sinha 1.
assessee moved this Court and obtained special leave
to appeal.
Before we deal with the main question in controversy in this appeal, we would like to make some
general remarks on the nature of the questions involved in this case. It is not disputed on behalf of the
respondent that the question now before us, is a question of law, or a mixed question of fact and law, as
has been recently laid down by this Court in the case of
G. Venkataswami Naidu and Go. v. The Commissioner
of Income-tax (1).
Speaking for the Court, Gajendragadkar, J., after a detailed discussion of the decisions
of this Court M eenakshi Mills, Madurai v. Commissioner of Income-tax, Madras (2) and The Oriental
lnvestmi;,nt Go., Ltd. v. Commissioner of Income-tax,
Bombay (3), and of the House of Lords, in Edwards v.
Bairstow (4), came to the conclusion that the question
arising in the case, is a mixed question of law and fact,
and, therefore, open to examination by this Court. In
G. V enkataswami N aid11, and Go. v. The Commissioner of
Income-tax (supra), the question raised, was exactly
similar to the question now ·before us, though in a
different setting of facts. His conclusion may be stated
in his own words as follows :-
"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 by s. 2,
sub-s. (4). It is patent that the clause 'in the nature
of trade' postulates the existence of certain elements in
(1) A.I.R. 1959 S.C. 359.
(2) [1956] S.C.R. 691;
(3) [1958] S.C.R. 49'.
(4) 36 T.C. 207 •
•
854
SUPREME COURT REPORTS [1959] Supp.
'959
the adventure which in Jaw would invest it with the
character of a trade or business; and that would make
Saroj J(u1nar
Mazumda,
the question and its decision one of mixed law and
v.
fact."
The Commission" In that view of the matter, this Court further pointo/ Ineome·tax, ed out that the more proper form of the question is
~Vest Bengal,
Caleutta
"whether, on the facts and circumstances proved in
the case, the inference that the transaction in question
Sinha J.
is an adventure in the nature of trade is in Jaw justified."
The recent decision of this Court has examined
almost all the relevant cases decided in Indian as also
English and Scotch Courts, and thus, our task in the
present case, has been very much simplified. It has·
further been observed in that case, more than once,
that judicial opinion was unanimous that no general
principles or universal tests could be laid down, which
could govern the decision of all cases in which the
question for determination is similar to the one now
before us.
Each case must be determined on the total
impression created on the mind of the Court by all the
facts and circumstances disclosed in that particular
case. Hence, no decided case can, strictly speaking,
be a precedent which could govern the decision of a
later case, involving a similar question. Those decisions can be used only by way of illustrations of the
different view-points which have a bearing on the
decision of the case in hand. It has also not been disputed that in a case .where a transaction under
examination, is not in the line of the business of the
assessee, and is an isolated or a single instance of a
transaction like that, the burden lies on the Revenue
to bring the case within the words of the statute,
namely, that it was an adventure in the nature of
trade. That the onus is on the Department, has been
clearly laid down by Lord Garmount in the case of
Commissioners of Inland Revenue v. Reinhold('). That
was a case in which the respondent, the assessee, was
a director of a company carrying on the business of
Warehousemen, and had bought four houses in January, 1945, and sold them at a profit in December, 1947.
He admitted that he had bought the property with a
(I) 34 T. C. 389, 393·
•
(2) S.C.R.
SUPREME COURT REPORTS
855
view to resale, and had instructed his agents to sell
x959
the same whenever a suitable purchaser was forthSaroj Humar
coming. The assessee was made liable for tax in
Mazumdar
respect of the profit made by him on the resale.
On
v.
an appeal by the assessee before the General Commis- The Commissioner
sioners, it was contended on his behalf that "the profit
of Income-ta:i,
on the resale was not taxable. On behalf of the Crown,
West Bengal,
.
d d h
h t
.
f
h
d
Calcutta
1t was conten e t at t e ransact10n o pure ase an
sale in question, constituted an adventure in the nature
Sinha J.
of trade, and that, therefore, the profits arising out of
the transaction, were chargeable to income-tax. The
General Commissioners, being eqally divided, allowed
the appeal. It was held by the Court of Session (First
Division) that the fact that the property was purchased with a view to resale, did not, of itself, establish
that the transaction was an adventure in the nature of
trade, and that, therefore, the determination by the
Commissioners was justifiable in law. The Court, in•
coming to that conclusion, took into account the considerations that the respondent was'not a property
agent, and that his business was not, in any way,
associated with the purchase and sale of estates. It
was an isolated transaction, even though the assessee
had purchased a hotel and sold it again ten years
previously. The Court made a reference to the following observations of Lord Buckmaster in the case of
Leeming v. Jones (1):-
" ............ an accretion to capital does not become
income merely because the original capital was invested in the hope and expectation that it would rise in
value ; if it does so rise, its realization does not make
it income."
Placing that decision along-side of the present case,
let us see what its salient features are. Though the
appellant is engaged in various types of business as a
share-holder or a director in limited liability concerns,
as also in building contracts, dealing in landed estates
is not in the line of his business. If such a transaction were in the line of his business, it would not
matter much whether, in the assessment year, he had
several such transactions or only one. Even a single
(I) (1930) .A. C. 415, 420,
856
SUPREME COURT REPORTS [1959] Supp.
r959
transaction of dealing in landed estates, being a part
of his business, would be liable to income-tax, if a
Saroj J(umar
fi .
d
h
Mazumdar
pro t lS ma e in t at transaction.
But, admittedly,
v.
the transaction in question is the only one of its kind,
The Commissioner out of which the appellant has made a considerable
of Income-tax, profit wliich appears to have been in the nature of a
West Bengal,
windfall.
'Vhen he entered into the agreement with
Calcutta
the Society for the purchase of the plot, in January,
Sinha 1.
1946, he had expected that at the end of the W or Id
War, the Government would release the property from
its requisition, and that the Society witl develop the
land by laying the necessary roads and providing
other amenities to the plot-holders. But as the
Government did not release the property, and as the
appellant was a businessman, who was interested in
return from his capital, and as he had already paid
Rs. 32,000 odd by way of advance towards the pur-
• chase price, and as in 1947, at the end of the Second
World War, his business in contracts for building constructions, beg'an to decline, he, naturally, thought of
making the be~t of the bargain. If he did not get out
of the transaction, his financial difficulties in meeting
his further liabilities under the agreement, as a result
of slump in his main line of business, might lead to the
forfeiture of the advance of Rs. 32,000 odd, he would
naturally be on the lookout for a good purchaser. He
was lucky to find a lady with a lot of money to spare,
who had, as he alleged, taken a fancy to the plot in
question.
Thus, he could assign to her the benefit of
his agreement with the Society on terms which were
highly profitable to him.
There is no clear evidence
in support of the inference of the Appellate Tribunal
that the land was purchased with the sole intention of
selling it later at a profit. The Tribunal considered
two alternatives in relation to this transaction-one,
that the land was purchased in order to build a residential house, and the second, that it was purchased in
hope of selling it later for a profit. The first alternative, the Tribunal rejected on the ground that·" he
does not seem to have very much of means at his
disposal." That itself is a statement which does
not bear close scrutiny. During the two years previous to the year under assessment, the appellant had
(2) S.C.R.
SUPREME COURT REPORTS
857
been assessed to income-tax on Rs. 53,000/- and
z959
Rs. 59,000/-, as already indicated. That does not lend
Saroj Kumar
countenance to the surmise that the appellant was not
Mazumdar
a man of means. Admittedly, he held marketable
v.
shares of the value of about 2§- lacs of rupees, though The Commissioner
all those shares standing in his name, were not claimed
of Income-tax,
by him as his own.
Apparently, he was carrying on
West Bengal,
l
t •
b ,
d
.
h .
d'
l
d'
Calcutta
a ucra ive usmess urmg t e imme 1ate y prece mg
years. It is true that in the year of assessment, on his
Sinha J.
own showing in his income-tax return, he had suffered
a loss, but that may have been a turning point in his
fortunes, and that would not necessarily lead to the
inference that he was not in a sound financial position
on the date of the agreement with the Society. It may
be that his hopes of flourishing in his business in the
years to come, were not realized after the conclusion
of the Second World War. But even assuming that
the Tribunal was right in its conclusion as to the
second alternative, namely, that the purchase was
made in the hope of making a profit after re-sale, the
matter is not concluded. In this connection, a reference may be made again to the decision in Commissioners of Inland Revenue v. Reinhold (supra), at p. 392,
where it was argued on behalf of the Revenue that a
profit made in a transaction which was in the nature
of an investment in the hope and expectation of a rise
in price, may be an accretion of capital, but that if at
the time of the purchase, the purchaser had resolved
to sell the property in the event of a profit being made,
and instructions had been issued to his agents accordingly, the transaction could not have been treated as
an investment, but was truly an adventure in the
nature of trade, and the profit thus made, must be
treated as income. This argument was not accepted
as valid. In that connection, reference was made to
the following observations of Lord Dunedin, in the
case of Jones v. Leeming (1) :-
" ............ The fact that a man does not mean to
hold an investment may be an item of evidence tending to show whether he is carrying on a trade or
(r) (1930) A.C. 415, p. 423.
roS
858
SUPREME COURT REPORTS [1959] Supp.
'959
concern in the nature of trade in respect of his investSaroj Rumar
ments, but per se it leads to no conclusion whatever."
Mazumdar
The decision of the House of Lords in the case aforev.
said, which is also reported in 15 T. C. 333, is rather insThe Commfasioner tructive. In that case, the appellant was a member
of Income-tax,
of a syndicate of four persons, formed to acquire an
West Bengal
t'
bb
t t
'th
·
11'
Calcutt• •
op 10n over a ru . er es a e, w1
a view to se mg at
a profit. The opt10n was secured, but the estate was
Sinha J.
considered to be too small for re-sale. An option over
another joint estate was accordingly secured, and it
was decided to resell the two estates to a public company to be formed for the purpose. Another member of
the syndicate undertook to arrange for promotion of the
company. The syndicate's rights were transferred to a
company. This company floated another company to
which the properties were sold.
The syndicate's profits were divided between the members, and the appellant, as one of the members of the syndicate, was
assessed to income-tax in respect of his shares of the
profits. The General Commissioners, on appeal, were
of the opinion that the interest in the property in
question had been acquired with the sole object of
making a profit, and that there was no intention of
holding it as an investment. Hence, the assessment
to income-tax was affirmed.
The King's Bench Division, at the first hearing, remitted the case to the
General Commissioners for a finding as to whether
there was a concern in the nature of trade, and the
Commissioners found that the transaction was not
such a concern. It was held by the House of Lords
that the profits were not liable to tax on the basis that
they were income from an adventure in the nature of
trade. Viscount Dunedin, in the course of his opinion,
referred, with apparent approval, to the dictum in
Ryall v. N oare (' ), to the following effect :
" A casual profit made on an isolated purchase
and sale, unless merged with similar transactions in
the carrying on of a trade or business is not liable to
tax."
He also approved of the following dictum of Lawrence, L. J., in the case of Leeming v. Jones (2) :-
(1) (1923) 2 K. B. 447, 454.
(2) (1930) 1 K.B. 279, 302.
(2) S.C.R.
SUPREME COURT REPORTS
859
"It seems to me in the case of an isolated transaction of purchase and re-sale of property there is really
I959
Saroj K uma•
no middle course open. It is either an adventure in
Mazttmdar
the nature of trade, or else it is simply a case of sale
v.
and re-sale of property."
The Commissione•
Lord Warrington of Clyffe, in the course of his
of Income-tax,
. .
f J
L
.
l)
d
h
West Bengal,
opmwn in the case o
ones v.
eeming ( , ma et e
Calcutta
following observations, which apply with full force
to the facts and circumstances of the present case:-
"Here we have a case of the acquisition of an
item of property and a profit made by the transfer
thereof to .another. In this I can find nothing but a
profit arising from an accretion in value of the item
of property in question and the realization of such
enhanced value. There is in this nothing in the nature
of revenue or income. The fact that the parties
intended from the first to make a profit if they could
does not in my opinion affect the question we have
to determine."
As already indicated, the line of demarcation between cases of isolated transactions of purchase and
sale being ventures in the nature of trade, and those
which are not such ventures, if any, is very thin.
The cases in which single transactions have been held
not to belong to the class of ventures in the nature of
trade, have been noticed above, and the considerations which lecf those courts to hold that such ventures
were not liable to income-tax, apply to the case in
hand. On the other side of the line, there is a series
of cases in which single transactions have been held to
have been ventures in the nature of trade, for reasons
which do not apply to the present case.
We may
notice some of the typical cases which illustrate the
reasons for which a single transaction was brought
within the ambit of a venture in the nature of trade.
The case of Californian Copper Syndicate (Limited and
Reduced) v. Harris (Surveyor ·of Taxes) (2), related to
the purchase and sale of a mining property. In that
case, a company had been formed for the purpose,
inter alia, of acquiring and re-selling a mining property. That company acquired some mining property
(r) (1930) A.G. 415, 425.
(2) 5 T.C. 159·
Sinha J,
860
SUPREME COURT REPORTS (1959] Supp.
'959
and sold the same to a second company, consideration
for the sale being paid-up shares of the latter company.
Saroj Kumar
f
Mazitmdar
It was held by the Court o Exchequer (Scotland)
v.
Second Division, that the difference between the purThe Commissioner chase price and the value of shares for which the proof Iucome-tax,
perty was exchanged was a profit assessable to incomew"' Bengal,
tax. It was pointed out by the Court that the case inCalcutta
volved a deal which was a "proper trading transaction,
Sinha J.
one within the Company's power under their Articles,
and contemplated as well as authorised by their Articles". The ratio of the decision in that case appears
to have been that though it was a single transaction
in which profit was made, it was an adventure in the
nature of trade, being in the line of the business
adopted by the company. The next case of Martin
v. Lowry (1) is another instance of a single transaction
of purchase of property being treated as a venture in
the nature of trade, on account of the very nature
and magnitude of the commodity dealt in by a person
whose usual line of business was wholly outside the
scope of the new venture. That was a case in which
a wholesale agricultural machinery merchant, who
never had any dealings in linen trade, purchased from
the Government its surplus stock of aeroplane linen
(some 44 million yards). In order to dispose of this
huge stock of linen purchased by him, the assessee
embarked upon an extensive advertising campaign,
rented offices and engaged expert staff to organize
the sales.
The number of transactions of sale of that
huge stock of linen, ran into thousands. The House of
Lords affirmed the determination of the courts below,
holding that the transaction amounted to the carrying
on of a trade of which the profits were chargeable to
income-tax and Excess Profits Duty. Another case
in the same volume, is The Commissioners of Inland
Revenue v. Livingston and others (2). In that case, the
persons sought to be taxed were, a ship repairer, a
blacksmith and a fish salesman's employee, who
joined in the venture of purchasing a cargo vessel
with a view to converting it into a steam-drifter, and
selling it. That was a new line of .business for them.
(1) II T.C. 297.
(2) II T.C. 538.
(2) S.O.R. SUPREME COURT REPORTS
861
Extensive repairs and alterations to the ship were
r959
carried out, and the result was a sale of the converted
1
fi
I
h ld
b
h
.
Saroj Kumar
vesse at a pro t.
twas e
t at t e transact10n,
Mazumdar
though an isolated one, was a venture in the nature
v.
of trade, and thus, liable to income-tax. The ratio of The Commissioner
the decision was stated in the following words of•the of Income-tax,
Lord President :-
West Bengal,
f
· •
·
1 •
Calcutta
" I the venture was one consIStmg s1mp y m an
isolated purchase of some article against an expected
Sinha 1.
rise in price and a subsequent sale it might be impossible to say that the venture was 'in the nature of
trade '; because the only trade in the nature of which
it could participate would be the trade of a dealer in
such articles, and a single transaction falls as far
short of constituting a dealer's trade, as the appearance of a single swallow does of making a summer.
The trade of a dealer necessarily consists of a course
of dealing, either actually engaged in or at any rate
contemplated and intended to continue."
The case of Rutledge v. The Commissioners of Inland
Revenue (1), is another illustration of a case in which a
single transaction of purchase and sale, was held to be
an adventure in the nature of trade for the reason that
the commodity purchased was of such a nature and
of such a vast magnitude that it could not have
possibly been intended for the consumption of the purchaser himself or his family. In that case, the assessee was a money-lender who was also interested in a
cinema company. In the interest of his cinema business, he happened to be in Berlin, and there took the
opportunity of purchasing, for a very cheap price, a
very large quantity (one million rolls) of toilet paperfor £1,000-and realised £12,000 by sale of that com·
modity. He was taxed on the nett profit of £10,895.
It was held by the Court of Session, Scotland (First
Division), that it was certainly an adventure, because
the assessee made himself liable for the purchase of
that vast quantity of toilet paper, obviously for no
other conceivable purpose than that of re-selling it for
a large profit.
As regards the question whether the
adventure was in the nature of trade, it was contended
(r) 14 T.C. 490.
862
SUPREME COURT REPORTS [1959] Supp.
r959
on behalf of the assessee that it was essential to the
idea of trade that there should be a continuous series
Saroj J{umar
f
d
.
Mazumda.
o tra ing operat10ns.
The Court rightly pointed out
v.
that the question was not whether it was a trade but
The Cammi.'5iouer whether it was a venture in the nature of trade.
of Income-tax,
He~ce, though the single transaction of purchase and
West Bengal,
sale, may not· have amounted to what is ordinarily
Calcutta
d
d b
d · th
f
·
f
un erstoo
y tra e m
e sense o a series o transacSinha 1.
tions, it was certainly a venture in the nature of trade,
because from the very beginning, the intention was
manifest that the purchase was made not with a view
to utilizing the commodity for the personal use of the
purchaser, but with a view to making profit by a resale, which was apparent from the very nature and
magnitude of the commodity purchased. Another
illustration of the same rule is to be found in the case
of The Balgouniie Land Trust, Ltd. v. The Commissioners of Inland Revenue (1). That was the case of a
landed estate which was left by the owner to trustees
with a direction to sell it. The trustees, being unsuccessful in their efforts to sell the estate, formed a company with general powers to deal in real property,
and transferred the estate to this company. The company made certain other purchases of property by
way of accretions to the original estate. The property
was sold in parts during the years 1921, 1924, 1926
and 1927. The company was assessed to income-tax
for the profits from the sales of those lands. The
·Court, confirming the assessment of the company to
income-tax on the profits made on those sales, held
that the company was doing precisely what it meant
to do, namely, carrying on business of a company.
dealing in a real estate. The case of Commissioners of
Inland Revenue v. Fraser (2), is another illustration of
the rule that if a person enters into a single transaction outside his ordinary avocation of life, with the
sole object of making a profit by re-sale, it may
amount to an adventure in the' nature of trade. In
that case, a wood-cutter bought, for re-sale, whisky
in large quantities, and without taking delivery of the
whisky, sold it at a profit. It was the assessee's sole
(r) 14 T.C. 684.
(2) 24 T.C. 498.
(2) S.C.R.