JANKI RAM BAHADUR RAM vs. COMMISSIONER OF INCOME TAX, CALCUTTA

CIVIL APPEAL No. 308/1964Supreme Court[1965] 3 S.C.R. 60431 March 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI RAM BAHADUR RAM7 pages
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What did the Supreme Court hold?

The Supreme Court held that the question must be answered in the negative. It reasoned that while the assessee made a profitable bargain and may have had a desire to sell if a favourable offer was forthcoming, these circumstances alone, without other evidence, did not justify an inference that the assessee intended to start a venture in the nature of trade. The Court emphasized that a profit motive is not decisive, and an accretion to capital does not become taxable income merely because an asset was acquired with the expectation of a profit. The purchase of the property was an isolated transaction unrelated to the assessee's business. The Court found that the Tribunal and High Court erred in holding that the surplus was taxable. The appeal was allowed, and the answer given by the High Court was discharged, with a negative answer recorded.

What were the facts?

The assessee, a Hindu Undivided Family dealing in iron scrap and hardware, purchased a jute press and appurtenant premises from Messrs. Hoare Miller and Company Ltd. for Rs. 2,45,000. The purchase was subject to a pending ejectment suit against a lessee. The assessee took possession of most of the property in November 1942, with the sale deed executed in February 1943. In June 1943, the assessee agreed to sell the property to Ranada Prasad Saha for Rs. 4,73,364. Possession of the remaining factory premises was obtained in August 1943, and the final sale deed was executed in September 1943. The Income-tax Officer taxed the profit of Rs. 2,24,864 arising from this sale. The Income-tax Appellate Tribunal partially modified the order, reducing the total income by Rs. 7,000. The High Court, on reference, held the surplus taxable as arising from an adventure in the nature of trade.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, 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 to be assessed to tax under Section 10 of the Indian Income-tax Act, 1922? Assessee's Contentions: The assessee argued that the purchase and sale of the jute press was an isolated transaction not related to its existing business of iron scrap and hardware. It contended that a profit motive alone does not make an accretion to capital taxable income. The assessee also pointed out that it had not organized a jute pressing business, obtained a license, or sought orders, and that the property was capable of being let out. Revenue's Contentions: The revenue contended that the assessee purchased the jute press with the sole object of reselling it at a profit at the earliest opportunity, thus constituting a trading venture. The Tribunal and the High Court agreed with this view, finding that the assessee's actions indicated an intention to trade.

Which sections of the Income-tax Act were involved?

Section 10,Section 2(4)

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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 ad- venture 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 tha

The order continues below.

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