DALMIA CEMENT LIMITED vs. COMMISSIONER OF INCOME TAX, NEW DELHI

CIVIL APPEAL No. 1437/1971Supreme Court[1977] 1 S.C.R. 55410 September 1976Bench: 3 JudgesAuthor: A.N. RAY, M. HAMEEDULLAH BEG, P.N. SHINGAL B9 pages
AI SummaryDismissed

What were the facts?

The appellant, Dalmia Cement Limited, ordered cement manufacturing machinery from a Danish firm in 1946 for its factory. Due to the partition of India, the Dandot factory went to Pakistan. Instead of cancelling the order, the appellant imported the machinery, intending to sell it at a profit to Orissa State. Initially, the appellant charged only the invoice price but later obtained an additional profit of Rs. 7 lakhs (in the form of shares). The Income Tax Officer treated this profit as income from an adventure in the nature of trade. The Appellate Taxation Authorities and the Income-tax Appellate Tribunal upheld this view. The matter was referred to the High Court, which also answered the question in the affirmative. The present appeal is against the High Court's judgment.

What did the Supreme Court hold?

The Supreme Court held that even a single and isolated transaction can be considered business if it bears clear indicia of trade. The Court affirmed that the onus was on the Department to prove the transaction was in the nature of trade. It found that the appellant had the dominant intention of selling the machinery to its own advantage and acted with the set purpose of profiting from its position as owner. The Court reasoned that even without an immediate profit at the time of sale, the transaction would still be an adventure in the nature of trade given the circumstances. The Court distinguished several cited cases, finding their facts to be different from the present appeal. The High Court's affirmative answer was upheld, and the appeal was dismissed. The Court found no merit in the argument that the purchase was a capital investment, noting the appellant's intention to resell advantageously and its own accounting treatment of the sale price as revenue.

What were the issues?

1. Whether the sum of Rs. 7 lakhs received from M/s Orissa Cement Ltd. was pursuant to an adventure in the nature of trade and as such taxable under the Indian Income-tax Act, 1922, turning on Section 2(4) of the Act. Assessee's contentions: - Making a profit was not the intention at the time of sale. - As it was a single and isolated transaction of purchase and sale, it was not an adventure in the nature of trade. - The onus of proving otherwise lay upon the Department. - The purchase of machinery was a capital investment. Revenue's contentions: - The transaction was an adventure in the nature of trade and thus taxable.

Which sections of the Income-tax Act were involved?

Section 2(4),Section 66(1),Section 10

AI-generated summary — verify with the full judgment below

A B c D E F G H 554 DALMIA CEMENT LIMITED v. COMMISSIONER OF INCOME TAX, NEW DELHI September 10, 1976 [A. N. RAY, C.J., M. H. BEG AND P. N. SHINGHAL, JJ.] Income Tax Act, 1922, s. 2(4)-When can a single and isolated sale be a business transaction within the meaning of-Onus probandi 011 the Taxation Department-Initial purchase with intention of advantageous sale-Earning pro- fit on delivery of goods not necessary.

In 1946, ·the appellant ordered cement manufacturing machinery from a firm in Denmark, for its f~ctory in Dandot, but long before the machinery was due, the country was parlit10ned and Dando! went to Pakistan. Instead of cancelling his order, the appellant imported the machinery. It was found that the appellant did so with the intention of selling it at a profit, to the Orissa State. At the time of the sale, the appellant charged only the invoice price initially paid by it, bnt later, obtained a profit.

The Income Tax Officer treated the profit as income earned pursua.nt to an adventure in the nature of trade, and taxed it as such.

The appellant's appeals were rejected by the Appellate Taxation Autho- rities. The inattei' was then referred to t

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 66(1)

All 184 judgments and leading authorities on Section 66(1) →

Recent GST High Court judgments

Search GST case law →