INDRAJIT SINGH VS COMMISSIONER OF INCOME-TAX
1999 P T D 1939
[227 I T R 539]
[Madhya Pradesh High Court (India)]
Before A. K. Mathur, C. J. and S. K. Kulshrestha, J
INDRAJIT SINGH
Versus
COMMISSIONER OF INCOME-TAX
Miscellaneous Civil Case No.342 of 1990, decided on 15/03/1996.
Income-tax---
----Business---Adventure in the nature of trade ---Assessee receiving grains on partial partition of HUF---Assessee himself a partner in firm carrying on business in grains---Grain received by assessee on partition kept in another firm which carried on business in grain ---Assessee waiting for sufficiently long period in relation to perishable commodities with a view to make profit---Transaction of sale of grain received on partition was an adventure in the nature of trade---Profit derived there from assessable to tax---Indian Income Tax Act, 1961, S.10.
The assessee was assessed in the status of an individual for the assessment year 1968-69 for which the previous year ended on Diwali, 1967. The assessee sold grains weighing 490.5 mani for Rs.60,857. The assessee contended that the grains represented agricultural produce of the Hindu undivided family, which he had received in the assessment year 1967-68 on the partial partition of the Hindu undivided family and, therefore, the sale proceeds of Rs.60,857, was exempt from tax under section 10 of the Income Tax Act, 1961, that the conversion of grains into cash was not liable to be taxed at a difference between the sale price and the cost price but only between the sale price and market price which the assessee had shown as "nil" and that he was not carrying on any business in grains or grain-lending. The Income-tax Officer held that after the partition of the Hindu undivided family, the character of the grains in the hands of the assessee was capital and not agricultural produce and, therefore, the income derived there from was not agricultural income. The Income-tax Officer recorded a finding that the transaction of sale of grains by the assessee constituted an adventure in the nature of trade and took the cost price of grains at the rate of Rs.55 per mani as valued at the time of partition and deducted the same from the sale price and computed the profit at Rs.33,880. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal dismissed the appeal filed by the assessee. On an application under section 256(2):
Held, that the assessee himself was a partner in a firm carrying on business in grains, that the grain received by him on partition was kept by the assessee in another firm, which carried on business in grains and grain lending, that the assessee waited for a sufficiently long period in relation to the perishable commodities with a view to make profit and that the transaction was only an adventure in the nature of trade. Therefore, the sale worth Rs60;857 relating to food grains received by the assessee on partition constituted an adventure in, The nature of trade and the profit of Rs 18.280 was properly taxed.
Bhagirath Prasad Bilgaiya v. CIT (1983) 139 ITR 916 (MP); Khan Bahadur Ahmed Alladin & Sons v. CIT (1968) 68 ITR 573 (SC) and Rala Bahadur Kamakhya Narain Singh v. CIT (1970) 77 ITR 253 (SC) ref.
B.L. Nema for the Assessee.
Abhay Sapre for the Commissioner
JUDGMENT
S.K. KULSHRESTHA, J.---In pursuance of the order of the High Court, dated February 20, 1990, in Miscellaneous Civil Case No.93 of 1985 on the application of the assessee under section 256(2) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal Indore, has forwarded the statement of the case and referred the following questions of law for the opinion of this Court:
"(1) Whether, on the facts and in the circumstances of the case and the material on record, there is justification in law to hold that on sale worth Rs.60,857 relating to food grain received on partition by the applicant, it constituted an adventure in the nature of trade and was taxable under the Income Tax Act, 1961, on. a profit of Rs.38,280?
(2) Whether, on the evidence on record, the Income-tax Appellate Tribunal was correct in law in holding that the aforesaid transaction constituted an adventure in the nature of trade?"
The assessee was assessed in the status of an individual for the assessment year 1968-69, the previous year ending Diwali of 1967. The assessee sold grain weighing 490.5 mani for Rs.60,857. According to the assessee, the grain was agricultural produce of the joint family which he had received in the assessment year 1967-68 on partial partition of the Hindu undivided family known as Rai Seth Achal Singh Bhanwar Singh, and, therefore, it was exempt from tax under section 10 of the Act. The assessee also contended that conversion of grain into cash was not liable to be taxed at a difference between the sale price and the cost price but only between the sale price and market price which the assessee had shown as nil. The assessee claimed that it was not carrying on any business in grain or grain lending. The Income-tax Officer did not accept the claim of the assessee and observed that after the partition of the Hindu undivided family, the character of the grain in the hands of the assessee was capital and not agricultural produce and, therefore, the income derived there from was not agricultural income. The Income-tax Officer recorded a finding that the same constituted an adventure in the nature of trade and took the cost price of the grain at the rate of Rs.55 per mani as valued at the time of partition and deducted the same from the sale price and computed the profit at Rs.38,880.
The assessee filed an appeal before the Appellate Assistant Commissioner of Income-tax who by order, dated February 16, 1982, endorsed the order of the Income-tax Officer. The second appeal filed by the assessee before the Tribunal also failed. The assessee filed an application before the Tribunal for reference of questions of law, arising out of the order of the Tribunal but the application was dismissed. The assessee, therefore, filed an application under section 256(2) of the Income-tax Act, before this Court and in pursuance of the order, dated February 20, 1990, passed by this Court, the said questions have been referred.
We have heard learned counsel for the parties and perused the record.
Learned counsel for the assessee placing reliance on the decisions of the Supreme Court in Raja Bahadur Kamakhya Narain Singh v. CIT (1970) 77 ITR 253 and in Khan Bahadur Ahmed Alladin & Sons v. CIT (1968) 68 ITR 573, has contended that the sale of the grain received in the partition of the Hindu undivided family in relation to agricultural produce could not have been treated to be any adventure in the nature of grain trade. In Raja Bahadur' s case (1970) 77 ITR 253 (SC), their Lordships considered the case of an assessee who was a land holder deriving large income from agriculture but who had invested the said income in gold which had been sold after a period of four years, even though during this period when the prices had risen high, he had not sold even a portion of it. The amount received was later invested by him in shares. In the case in hand, it is clear from the finding arrived at by the Income-tax Officer and confirmed by both the appellate authorities that the assessee was a partner in Indrajit Singh Anoop Singh, which carries on business in grain and the assessee on receipt of the grain on partition had kept it with Bhanwar Singh, a firm which carried on business in grain and grain-lending. From the record also, we do not find that the assessee was himself an agriculturist and received the said grain from his agricultural operations. In the case of Khan Bahadur (1968) 68 ITR 573 (SC), their Lordships have observed that the answer to the question whether the transaction is an adventure in the nature of trade does not depend upon the application of any abstract rule, principle or formula but must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction. In the said case, their Lordships concluded that the purchase of the site and the building of the factory was an adventure in the nature of trade. In Bhagirath Prasad Bilgaiya v. CIT (1983) 139 ITR 916, this Court has observed (headnote):
"That the dominant purpose of the assessee at the time of purchase of the lands from the family was to resell at a profit and not to utilise it for any other purpose. It was not a case where the intention to sell was inspired by the fortuitous circumstance of an unforeseen rise in price, but the lands were purchased with the calculation that they will bring profit immediately. There were continuous transactions of sales of lands. The buying and selling activity in the lands was characterised by a multiplicity of transactions, a prior association of business and the existence of a scheme, system and business operation. "
From the facts on record, it is clear that the assessee was himself a partner in a firm carrying on the business in grains. It is-further clear that the grain received by him on partition was kept by the assessee with Bhanwar Singh, a firm which carried on business in grain and grain lending and since the assessee waited for a sufficiently long period in relation to the perishable commodities with a view 'to make profit, it was only an adventure in the nature of trade. The assessing authority has, thus, rightly taxed the income and the appellate authorities have not committed any error in confirming the decision of the Income-tax Officer.
Accordingly, we hold that in the facts and circumstances of the case and the material on record, there was sufficient justification in law to hold that sale worth of Rs.60,857 relating to the food grain received in partition by the assessee constituted an adventure in the nature of trade and the profit of Rs.38,280 was properly taxed.
In the result, the reference is answered against the assessee and in favour of the Revenue.
M.B.A./2012/FCReference answered.