(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.136(2)‑‑‑Reference‑‑‑Decision of the Tribunal declining to refer the question alongwith other questions to High Court, was not challenged in the manner prescribed in S.136(2), Income Tax Ordinance, 1979‑‑Such objection was not raised when the appeal was heard by the Tribunal and even during a sufficiently long period elapsing between the hearing and delivery of judgment‑‑‑High Court declined to enter upon the said controversy.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.136 & 27‑‑‑Reference to High Court‑‑‑Adventure in the nature of trade‑‑‑Finding of fact recorded by the Tribunal and not denied by the assessee was to the effect that the assessee, in fact, was running a real estate business and she was being continuously assessed vis‑a‑vis the returns being filed by her for the income received from the, said source‑‑ Property in question, a hotel, was purchased by the assessee in August, 1982 and was sold during the said assessment year‑‑‑Reasons recorded by the Tribunal that the assessee was never involved in the hotel business, the building admittedly remained on lease from the date when its possession was delivered to the assessee till it was sold and that the assessee being in the trade of estate agency had waited for an appropriate time to dispose of the building at the best price, could not be said to be inappropriate or perverse‑‑‑Finding of fact recorded was that the transaction was in line with the business or trade usually being undertaken by the assessee i.e. sale and purchase of immovable property for deriving profits and that she was being regularly assessed for the income on the said account‑‑‑Transaction pertaining to immovable property of such nature, would not constitute an adventure in the nature of trade, provided it was in line with the business or trade of the assessee‑‑‑Such transaction, in circumstances, could not be termed as isolated transaction and thus was not an adventure in the nature of trade.

Radha Vilas Karyalaya, Varanasi v. Commissioner of Income Tax, Lucknow 71 ITR 279 (All.); Michael A. Kallivapalil v. Commissioner of Income Tax, Kerala (1976) 102 ITR 202; Commissioner of Income Tax v. Anandlal Bechari Al & Co. 1990 PTD 345; Sarojkumar Mazumdar v. Commissioner of Income Tax, West Bengal (1959) 37 ITR 242; Ramnarain Sons (Pvt.) Ltd. v. Commissioner of Income Tax, Bombay (1961) 41 ITR 534; V.S.R. Firm v. Commissioner of Income Tax, Madras (1963) 47 ITR 720; Shri Ram Jha v. Commissioner of Income Tax U.P. (1957) 31 ITR 987) (All.), Commissioner of Income Tax v. Mohammad Mohideen (1989) 176 ITR 393 (Mad.); Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII, South Zone, Karachi and others 1992 SCMR 250 = 1992 PTD 1; Messrs Nafees Cotton Mills Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others 2001 PTD 1380; Messrs Schowk International (Pvt.) Ltd. v. Commissioner of Income‑tax 2002 PTD 498; Commissioner of Income Tax/Wealth Tax, Companies Zone‑III, Lahore v. Messrs Margala Textile Mills Limited, Lahore 2002 PTD 327; Smt. Indramani Bai and another v. Commissioner of Income Tax (Addl.) 1993 PTD 988 arid G. Venkataswami Naida & Co. v: Commissioner of Income Tax AIR 1959 SC 359 ref.

(c) Income‑tax‑‑‑

‑‑‑‑Adventure in the nature of trade‑‑‑Determining factors stated.

It is the intention, to be gathered from the circumstances, with which the property was acquired to determine the nature of the ultimate transaction of resale and further that in considering whether a transaction is an adventure in the nature of trade, matter is to be approached in the light of the intention of the assessee having regard to the legal requirements which are associated with the concept of trade or business. An isolated transaction of such a nature would not constitute the adventure in the nature of a trade. Not only the character of such a transaction but several factors arc relevant such as, whether the purchaser was a trader and the purchase of the commodity and its re‑sale were allied to his usual trade or business or incidental to it, the nature and quantity of the commodity purchased and re‑sold; and act subsequent to the purchase to improve the quality of the commodity purchased thereby made it more readily resaleable, any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale, the similarity of the transaction to operations usually associated with the trade or business, the repetition of the transaction. In each case, it is the total effect of all relevant factors and circumstances that determines the nature of the transaction.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.27(2)(ii)‑‑‑Capital gain‑‑‑Immovable property is not included in capital asset for purposes of capital gain.

Sikandar Hayat Khan for Petitioner.

Miss Shaheena Akbar for Respondents.

Date of hearing: 11th December, 2003.

JUDGMENT

MAULVI ANWARUL HAQ, J.‑‑‑The petitioner, an individual filed a return for the assessment year 1987‑88 reporting income having been received from sale of property. The case was selected for total audit and after completing the requisite formalities, the assessment was finalized. The Assessing officer found that a building known as Al‑Rauf Hotel had been sold and out of consideration a sum of Rs.32,62,700 has been declared as gain on the sale. The petitioner claimed that the said amount is exempted from income tax. The petitioner was called upon to explain as to why the said sale be not treated as a business transaction. As per particulars provided by the petitioner the said half share of the said hotel had been purchased by the petitioner in the year 1982. The sale was effected on 29‑8‑1982 but possession was delivered earlier and it was let out w.e.f. 1‑7‑1982 at a monthly rent of Rs.15,000 and the said income was declared in the preceding four assessment years and the share of the petitioner in the consideration was Rs.37,50,000. The net gain worked out was Rs.32,62,700. It was pleaded that the property was not purchased with the intention to resale, the transaction cannot be termed as an adventure in the nature of the trade. This plea did not found favour with the Assessing Officer who upon perusal of his record concluded that the petitioner is engaged in the business of purchase and sale of property. Accordingly, the said profits were added to the income. This was done 'vide order dated 30‑7‑1988. Against this order, the petitioner filed an appeal which was dismissed by the Commissioner (Appeals), Rawalpindi, vide order dated 22‑11‑1989. The said Appellate Authority did not agree with the contention raised on behalf of the petitioner that the said transaction be treated as an isolated transaction. A further appeal was then filed which was heard by Income Tax Appellate Tribunal, Islamabad Bench. This appeal was dismissed vide order dated 20‑5‑1992. The petitioner then filed a reference application which was numbered as R. A. No.9(IB)/1992‑93. Following questions were formulated for reference to this Court:‑‑

(i) Whether on the facts and in the circumstances of this case Bench of the Tribunal on the date of hearing was constituted in accordance with law and, if not, whether the hearing and disposal of appeal stands vitiated on account of an incurable legal infirmity in the constitution of the Bench?

(ii) Whether on the facts and in the circumstances of this case there, is material evidence on record from which the Tribunal has inferred that at the time of purchase of Al‑Rauf Hotel dominant intention of the assessee was to sell property and not to hold it as an investment although it was purchased and sold by a co ownership and the assessee was one of them?

(iii) Whether on the facts and in the circumstances of this case learned Tribunal has rightly concluded that sale of Al‑Rauf Hotel was not realization of investment despite retention of it as an investment in the shape of a hotel?

(iv) Whether on the facts and in the circumstances of this case there is material evidence on, record to legally conclude that Al‑Rauf Hotel was held as a stock‑in‑trade by the assessee while it belonged to all the three co‑owners?

(v) Whether on the facts and in the circumstances, of this case, the Tribunal was justified at law in recording a wholly illegal conclusion vide para. 4 on page 5 of the appellate order thereby rendering the appellate order a nullity in the eye of law?

(vi) If answer to the above question be in the negative, whether on the facts and circumstances of this case, the Tribunal was justified in recording para. 4 without giving the assessee an opportunity of being heard as is contemplated by rule 14 of the Income Tax Appellate Tribunals Rules, 1981, as amended from time to time?

(vii) Whether on the facts and in the circumstances of this case, the Tribunal has rightly concluded that the amount of investment at the time of purchase (which was rather small) necessarily determines policy decision whether the asset was to be held as an investment or was to be held for selling it?

(viii) Whether on the facts and in the circumstances of this case leasing of Al‑Rauf Hotel, which was a hotel at the time of purchase, was a sufficient evidence to hold that it was purchased with the intention of selling it and not holding it as an investment?

The Tribunal referred only the following question to this Court:‑‑

"Whether on the facts and in the circumstances of the case the Tax Authorities as well as the Income Tax Appellate Tribunal were justified to hold that the sale of her share in the hotel by the assessee was a transaction in the nature of trade?"

The reference was accordingly received.

2. Mr. Sikandar Hayat Khan learned counsel for the petitioner argues that the Bench hearing the appeal was not property constituted as the Judicial Member did not have three years experience as a District Judge. Then he contended that in a case before learned Federal Service Tribunal, Islamabad, in which both the said Members were respondents, he represented the appellant and as such the Members were biased against him and they decided the case against the petitioner only for the reason that he was her counsel. He refers to the case of Radha Vilas Karyalaya, Varanasi v. Commissioner of Income Tax, Lucknow 71 ITR 279 (Allahabad). On the merits of the case, he contends that notwithstanding the fact that his client actually was dealing in real estate and being assessed as such on the said income, the transaction in question had no nexus with the said usual trade or business of his client. He says that the building had been purchased Jointly and as such his client ought to have been assessed as a member of the A.O. P. owning and consequently selling the said building Further reasons that the building was purchased as an investment and not for making capita' gain. He draws our attention to the definition of the said term to the Income Tax Ordinance, 1979. Further argues that immovable property is not a commodity of trade or business and the profit or gain by its sale is not to be treated as capital gain and taxed as such He relies on the cases of Michael A. Kallivapalil v. Commissioner of Income Tax, Kerala (1976) 102 ITR 202; Commissioner of Income Tax v, Anandlal Bechari A1 & Co. 1990 PTD 345; Sarojkumar Mazumdar v. Commissioner of Income Tax, West Bengal (1959) 37 ITR 242; Ramnarain Sons (Pvt.) Ltd. v. Commissioner of Income Tax, Bombay (1961) 41 ITR 534 (S.C India); V.S.R. Firm v. Commissioner of Income Tax, Madras (1963) 47 ITR 720; Shri Ram Jha v Commissioner of Income Tax U.P. (1957) 31 1TR 987) (Allahabad), Commissioner of Income Tax v. Mohammad Mohideen (1989) 176 ITR 393 (Madras); Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII South Zone, Karachi and others 1992 SCMR 250 = 1992 PTD 1.

3. Miss Shaheena Akbar learned counsel for the respondent-Department, on the other hand, contends that only such question can be referred to this Court or can form subject‑matter of a reference which arises out of an order of the Tribunal and further that such question can be said to have arisen out of order of the Tribunal only if it was before the Tribunal and ruled upon by it and since the said first contentions made by the learned counsel do not pertain to a question that arose out of the order of the Tribunal in the manner stated above, the same cannot be considered. She refers to the cases of Messrs Nafees Cotton Mills Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others 2001 PTD 1380 and Messrs Schowk International (Pvt.) Ltd. v. Commissioner of Income‑Tax 2002 PTD 498. Further contends that the Tribunal having refused to refer the remaining several questions including the one being urged by the learned counsel for the petitioner, it was incumbent upon the petitioner to have filed an application before this Court in terms of section 136(2) of the Income Tax Ordinance, 1979, within the prescribed time of 120 days and this having not been done, the said questions cannot be urged. Goes on to argue that so far as the facts of the matter are concerned, these are to be considered as have been found by the Tribunal. Relies on the case of Commissioner of Income Tax/Wealth Tax, Companies Zone‑III, Lahore v. Messrs Margala Textile Mills Limited, Lahore 2002 PTD 327. With reference to the question referred to this Court, argues that it had been found as a fact by all the concerned authorities including the Tribunal that the petitioner is running a real estate business and in the said attending circumstance the transaction of the sale of the said hotel building has been correctly found to be an adventure in the nature of trade. She relies on the cases of Smt. Indramani Bai and another v. Commissioner of Income Tax (Addl.) 1993 PTD 988 and G. Venkataswami Naida & Co. v. Commissioner of Income Tax AIR 1959 SC 359. Her contention is that the transaction cannot be termed as an isolated transaction in the circumstances of the case as found by the Tribunal.

4. We have examined the reference file in the light of the respective contentions of the learned counsel for the parties. Now so far as the objection being raised to the constitution of the Tribunal is concerned, we find that the case was heard on 24‑2‑1992 while the judgment was delivered on 20‑5‑1992. How it is Mr. Sikandar Hayat Khan's own case that for the reasons noted by us above the Members of the Tribunal were biased. However, we do not find any explanation as to why this objection was not raised before and during the course of hearing as it is to be assumed that the learned counsel must have been aware of the constitution of the Tribunal having received a notice for hearing. During the course of hearing also the objection was not raised and of course it was not raised even upon conclusion of the hearing. In the reference order, the members of the Tribunal have noted that the only question debated was the one framed by them and referred to this Court and this is evident from the judgment to appeal We find that the said decision of the Tribunal declining to refer the said question alongwith the other six questions to this Court was not challenged in the manner prescribed in section 136(2) of the said Ordinance. Needless to state that a writ petition could have also been filed promptly on the said ground. Now in the course of present hearing where we are concerned only with the question referred to us by the Tribunal it is neither possible nor proper to enter upon the said controversy. Besides we have already stated above that we are satisfied that this objection was not raised when the appeal was being heard by the learned Tribunal and even during a sufficiently long period elapsing between the hearing and delivery oil judgment. We may also note here that in the said case Radha Vilas Karyalaya, Varanasi cited by the learned counsel from the Allahabad High Court, the question was formulated and referred to the said High Court by the Tribunal.

5. Now coming to the question referred to us it is a finding of fact recorded by the learned Tribunal and the fact otherwise has not been denied before us by the learned counsel that the petitioner, in fact, was, running a real estate business and she was being continuously assessed vis‑a‑vis the returns being filed by her for the income received from the said source. It is true that the property was purchased in August, 1982 and was sold during the said assessment year. However, the reasons recorded by the learned Tribunal that the petitioner was never involves in hotel business, the building admittedly remained on lease from the date its possession was delivered to the petitioner till such time that it was sold and that the petitioner being in the said trade had waited for an appropriate time to dispose of the building at the best price cannot be said to be inappropriate or perverse. Now the ratio of the judgments cited by both the learned counsel on the subject is that in the first instance it is the intention, to be gathered from the circumstances, with which the property was acquired to determine the nature of the ultimate transaction of resale and further that in considering whether a transaction is an adventure in the nature of trade, matter is to be approached in the light of the intention of the assessee having regard to the legal' requirements which are, associated with the concept of trade or, business. The consensus is that' an isolated transaction of such a nature would not constitute the adventure in the nature of a trade It has also been observed that not only the character of such a transaction but several factors are relevant such as, as to whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his veal trade or business or incidental to it, the nature and quantity of the commodity purchased and re‑sold and act subsequent to the purchase to improve the quality of the commodity purchased and thereby made it more readily resaleable any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale, the similarity of the transaction to operations usually associated with the trade or business, the repetition of the transaction. In each case, it is the total effect of all relevant factors and circumstances that determines the, nature of the transaction. Now section 27(2)(ii) of the Income Tax Ordinance, 1979, does go to support the contention of the learned counsel that for purposes of capital gain, immovable property is not included in capital asset. It is also true that a transaction pertaining to immovable property, of the said nature, would not constitute an adventure in the nature of trade provided it is not in line with the business or trade of the assessee. Now in the present case, the finding of fact recorded is that the transaction is in line with the business or trade usually being undertaken by the petitioner i.e. sale and purchase or immovable property for deriving profits and that she is being regularly assessed for the income on the said account. It cannot, therefore, be termed as an isolated transaction.

6. So far as the contention that it was a joint property making it distinguishable from the other transactions reported by the petitioner in her return for the said year, suffice it to say that in the same return she has shown sale of 1/2 share in another house. Needless to state that the petitioner had opted to be assessed as an individual and had throughout been filing her returns as such. Nothing, therefore, turns on the said contention of the learned counsel.

7. In the facts and attending circumstances of the present case, we answer the said question referred to us by the Tribunal in the affirmative. The Tax Reference is accordingly disposed of.

M.B.A./R‑1/L Reference answered in the affirmative.