LexP. M. MOHAMMAD MEERAKHAN versus COMMISSIONER OF INCOME-TAX, ERNAKULAM
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659 A P. M. MOHAMMAD MEERAKHAN v. COMMISSIONER OF INCOME-TAX, ERNAKULAM February 12, 1969 B (J.C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.) c D E F G H Income-tax Act (II of 1922)-Sing/e Transaction to purchase estate-- No means to buy-Purchasers found-Plots sold and one retained- whether transaction constituted trade-Value of plot retained added for estimate profit., whether correct. The assessee entered into an agreement to purchase a land for Rs. 6 lakbs. He paid Rs. 11,000/- as advance and it was agreed that the sale deed was to be executed by a specified date either in favour of the assessee or his nominees. The assessee did not have resources to buy land even worth a lakb nor could cultivate the land himself. He divided the land into 23 plots and found purchasers for 22 of these plots. These 22 plots were conveyed to the respective purchasers and the 23rd plot was conveyed to the assessee. The Income-tax authorities brought to tax the sum representing the assessee's profit (after including the estimated value of the plot retained by him). The assessee contended that ( !) the tran- saction did not constitute a venture in the nature of trade; and (ii) even if it did, the profits from the adventure were not be properly ascertained as the adventure would terminate after the plots retained by the assessec was also sold and therefore the profits in the adventure e<mld be detennin- · ed only at the time of the completion of the sale of the plot. Repelling these contentions, this Court, HELD: (i) The question whether a transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant factors and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abs- tract rule or prmciple or fonnula but must depend upon the total impres- sion and effect of alJ the relevant facts and circumstances established in the particular case. [662 A] Having regard to the total effect of al1 tho circumstances in the present case the transactions of the assessee constituted an adventure in the nature of trade and were in the course of the profit making scheme and were tax- able. California Copper Syndicate v. Harris, [1904] S S.T.C. 159, 165-6, Martin v. Lowry, 11 Tax Cases 297, Rutledge v. Commissionerr of Inland Revenue, 14 Tax Cases 490, Commissioner of Inland Revenue v. Fraser, 24 Tax Cases 498, Leeming v. Jones, IS Tax Cases 333, Saro; Kumar Mazumdar v. Commr"ssr"oner of Income.tax, 37 l.T.R. 242, Venkataswami Naidu cl Co. v. Commissioner of Income-tax, 35 I.T.R. 594 and Raja 1. Rameshwar Rao v. Commissioner of Income-tax, Hyderabad, 42 I.T.R. 179, referred to. (ii) The profit of the assessee was correctly estimated by treating the land retained by him as stock-in-trade and valuing it according to the nonnal accountancy practice. Under the Income-tax Act for the pur- pose of assessment each year is a self-contained unit and in the case of a trading adventure the profits have to be computed in the manner provided by the statute. It is true that the Income-tax Act makes no express provi- sion with regard lo the value of stock. It charges for payment of tax the 660 SUPREME COURT REPORTS [1969]3 s.c.R. income, protits and gains which have to be computed in the manner pro- vided by the Income-tax Act. In the case elf a trading adventure the pro- fits have to be calculated and adjusted in the light of the provisions of the Income-tax Act permittiqg allowance pl-escribed thereby. For that purpose it was the duty of the Inel)me-tax Officer to find out whai profits the busi- ness has made according to the true accountancy practice. As a normal rule, the profit should be ascertained by valuing the stock-in-trade at the beginning and at the end of .the accounting year. (666 E-H; 668 DJ Whimsier & Co. v. Commissioner of Inland Revenue 12 Tax Cases 813, Commissioners of Inland Revenue v. Cock, Russell & Co. Ltd., 29 Tax Cases 387 and Comnzissioner of Jncome~tcx, MadTas v. A. Krishna· swami Mudaliar & Ors., 53 L.T.R. 122, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1230 of 1967. Appeal by special leave from the judgment and order, dated October 10, 1966 of the Kerala High Court in Income-tax Referred Case No. 18 of 1965. S. T. Desai, Bhuvnesh Kumari, J.B. Dadachanji and 0. C. Mathur, for the appellant. Sukumar Mitra, R. N. Sachthey and B. D. Sharma, for t
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