Joint Financiers (P.) Ltd. vs Commissioner of Income Tax

S. Raganathan, J.—The question raised in this reference is whether a surplus realisation by the assessed-company is taxable income arising from an adventure in the nature of trade. The facts are a little unusual but we have come to the conclusion that the Tribunal was right in holding that the surplus constituted taxable income under the I.T. Act. The facts may now be briefly stated.

The assessed-company, M/s. Joint Financers (P.) Ltd., is a company now in liquidation. We are concerned with the assessment year 1961-62 for which the accounting year ended on October 31, 1960.

On May 21, 1960, a sale deed was executed by one Rajinder KUmar in respect of certain lands in village, Ballabgarh, and got registered in the office of the Sub-Registrar on May 24, 1960. The sale deed was in favor of the assessed-company and the sale price was stated to be Rs. 1,28,084. Earlier, on April 28, 1960, the board of directors of the assessed-company has passed a revolution in respect of this land which read as follows :

"Further, resolved that a sum of Rs. 1,35,000 approximately be invested jointly with Shri B. K. Bedi in purchase of land situated at the Mathura Raod, near Ballabgarh (Punj.), Mr. B. K. Bedits share being 50% in the shape of investment and profit. The advance paid to the seller in this respect be and is herebyconfirmed"

It will be seen from the above resolution that though the land has been purchased in the name of the assessed-company, it has been agreed between the assessed-company and Shri B. K Bedi that each was to be entitled to a 50% share in the investment and profit. On October 31, 1960, the assessed entered into an agreement with Shri B. K. Bedi agreeing to sell its half share in the land in favor of Shri B. K. Bedi agreeing to sell its half share in the land in favor of Shri B. K. Bedi for Rs. 1,03,625. This was only an agreement to sell but it is common ground that the sum of Rs. 1,03,625 was received by the assessed-company. It has been found as a fact by the authorities that the difference between the sale price (Rs. 1,03,625) and the total cost price pertaining to the half share (Rs. 66,588) was taken by the assessed-company as profit on sale of land to the credit of the profit and loss account and then to the appropriation account and subsequently even dividends were declared out of it.

It may be mentioned by way of narration that subsequently Shri B. K. Bedi appears to have agreed to sell the entire land to two companies but since the land stood in the name of the assessed-company those venders has insisted that the sale deed in their favor should be executed by the assessed-company. Shri B. K. Bedi, Therefore, wrote to the assessed-company on January 28, 1961, requesting it to execute the necessary agreement of sale in favor of the said two companies on his behalf. Though the officer mentions that the land was sold to the two companies, Mrs. Jain, appearing for the official liquidator, states that no sale deed was at all executed in pursuance of the above agreements all that the lands were acquired by the Government at some point of time but it is not known whether any compensation was paid and if so to whom.

The short question for consideration is whether the difference between the sums of Rs. 1,03,625 and Rs. 66,588 could be treated as profit from an adventure in the nature of trade in the hands of the assessed. Apparently, the position has been looked at by the assessed as well as the authorities on the same footing as if there had been sale by the assessed of the land in favor of Shri Bedi but as will be clear from the narration of facts set out earlier there was no actual sale of any such interest. The assessed has not executed any sale deed and all it had done was to execute an agreement to sell in favor of Shri Bedi. The question is whether notwithstanding this, the profit would be taxable in the hands of the assessed, because, admittedly, the assessed has received from Shri Bedi the sum of Rs. 1,03,625 and since this is in excess of the cost price of the land which fell to the share of the assessed-company, surplus has accrued to the assessed.

We think that though there has actually been no sale of the land, the circumstances clearly show that the assessed has made a profit and that this profit was derived from an adventure in the nature of trade. It is true that the onus is on the revenue to establish that a particular transaction is in the nature of adventure and that in the case of a transaction pertaining to agricultural land, the conclusion is not easily drawn that it is in the nature of adventure because agricultural lands normally are purchased by way of investment. However, in the present case, the cumulative effect of all the circumstances is to show that the assessed intended to and did make a profit on a transaction in the nature of business put through by it within a very short span of time. pH The first and foremost point to note is that the assessed is a private limited company and though it was actually carrying on a business in the financing of motor vehicles on hire purchase basis, its memorandum of association was wide enough to include, among others, "the power to sell dispose of, turn, to account, and otherwise deal with property of all kinds and in particular, land, farms, buildings, etc." Secondly, at the time of the purchase of the lands, the company has passed a revolution which shows that it was a joint purchase along with Shri Bedi. The terms of the resolution clearly show that the parties contemplated the realisation of a profit there from. Thirdly, the area of location of the land is quite significant. The AAC has pointed out that the lands were situate in Ballabgarh which was likely to be declared as an industrial area. The fourth relevant circumstance is that soon after the purchase was effect by it the assessed purported to transfer its interest in the land in favor of Shri Bedi and within a very short time thereafter the purchase was effected by it was assessed purported to transfer its interest in the land in favor of Shri Bedi and within a very short time thereafter, Shri Bedi also agreed to sell the land to two other companies. The close proximity of time among the several transactions also throws a light on the intention with which the land was purchased by the company and Mr. Bedi together Finally, it may be pointed out that though the assessed has not yet executed a sale deed in favor of Shri Bedi, it was able to realise the entire sum of Rs. 1,03,625. This amount was also treated as a profit of the company and distributed as dividend to its shareholders. Considering all these circumstances cumulatively, we are in agreement with the conclusion of the Tribunal that the amount of Rs. 37,037 was taxable income under the I.T. Act.

This question referred to us is, Therefore, answered in the affirmative and in favor of the revenue. Since the company is already in liquidation we see no purpose in mulcting it with costs. There will, Therefore, be no order as to costs.