Punnayya, J.:— On December 20, 1962, the petitioner and Kondal Reddy purchased ac. 45411 guntas of land in Manmole village, Sanga-reddy Taluk, Medak District, under a registered sale deed for a total consideration of Rs. 75,000. By the date of their purchase of the said lands, the lands were notified under the Notification dated October 17, 1961, for acquisition by the government for the construction of a Heavy Electrical Factory. On February 4, 1964, the Land Acquisition Officer passed an award giving compensation in a sum of Rs. 1,38,794.12. But the petitioner and Kondal Reddy were not satisfied with the amount of compensation granted under the award by the Land Acquisition Officer and filed a petition before the Land Acquisition Officer for making a reference of the matter to the civil court under s. 18 of the Land Acquisition Act. The matter was accordingly referred to the civil court. On a reference, the District Judge held enquiry into the claims and enhanced the compensation by passing an award for a sum of Rs. 3,95,020 out of which the petitioner's share was Rs. 2,08,739. The ITO treated this amount of Rs. 2,08,739 received by the petitioner towards his share from out of the compensation paid by the government as income from business. The assessee preferred an appeal to the AAC contending that the land purchased by him was agricultural in character and that what was realised was only a surplus over and above the investment and this only resulted in capital accretion and as such the amount of Rs. 2,08,739 could not be taxed as business income. The AAC held as follows:
“As pointed out by the Income-tax Officer in the assessment order, these lands were notified for acquisition by the Government on October 17, 1961, whereas the appellant purchased this actionable claim only on October 22, 1962, a year after the issue of the notification. So, it is evident that it is not a casual purchase of investment but it is an adventure in the nature of trade. So, it is immaterial whether all these lands were agricultural or not and the profit arising out of this transaction has to be treated as business income.”
2. So holding, the AAC justified the inclusion of the sum of Rs. 2,08,739 by the ITO in the total income of the assessee. The assessee was, therefore, aggrieved with the order of the AAC and hence preferred an appeal before the Appellate Tribunal. The learned counsel for the assessee had reiterated the same contentions that were advanced before the AAC. On behalf of the assessee, it was contended that it would be difficult to regard a single or an isolated transaction as an adventure in the nature of trade or business. On behalf of the Department, it was contended before the Tribunal that the lands, which were purchased by the petitioner and Kondal Reddy, were admittedly after the notification and that the transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. If it is found not to be an investment, then the transaction would undoubtedly be treated as an adventure in the nature of trade and as the question of investment does not arise in the instant case for the reason that the property was purchased after the notification was issued by the government, the only conclusion that has to be arrived at is that the transaction is an adventure in the nature of trade. The Tribunal examined these contentions in the light of the provisions of s. 2(13) which deals with the expression “in the nature of trade” appearing in the definition of business and also in the light of the decided cases.
3. The Tribunal ultimately rejected the contentions of the learned counsel for the assessee and held that as the assessee had embarked on a venture in the nature of trade and that as a surplus was realised from such venture, such surplus was liable to be treated as the income of the assessee and that they have no doubt that the assessee purchased the land with the sole object of making a profit and that the contention that it was an isolated transaction in agricultural land and as such the question of “adventure in the nature of trade”, did not arise, is unsustainable. Aggrieved with the order, the assessee filed an application under s. 256(1) of the I.T Act to refer the following question to the High Court for its opinion:
“Whether, on the facts and in the circumstances of the case, the excess amount of Rs. 2,08,739 realised by the assessee was his income from business?”
4. Sri A. Panduranga Rao, the learned counsel for the assessee, contends that the transaction is a single and an isolated one and it cannot, therefore, be treated as a transaction being adventure in the nature of trade. In support of his contention, he relied upon Venkataswami Naidu & Company v. CIT, [1959] 35 ITR 594 (SC), AIR 1959 SC 359; Janki Ram Bahadur Ram v. Commissioner Of Income Tax, Calcutta, [1965] 57 ITR 21 (SC), AIR 1965 SC 1898; P.D Ghanekar v. Commissioner Of Income-Tax, Bombay City I.*, [1971] 80 ITR 236 (Bom); Commissioner Of Income-Tax v. Raunaq Singh Swaran Singh, [1972] 85 ITR 220 (Delhi); Kkorshed Shapoor Chenai v. Asst. CED, [1973] 90 ITR 47 (AP); Commissioner Of Income-Tax, A.P v. Krishna Industrial Corporation Ltd., [1973] 92 ITR 261 (AP) and ITO v. Nawab Mir Barhat Ali Khan Bahadur, [1974] 97 ITR 239 (SC); [1974] CTR (SC) 273.
5. The learned standing counsel for the I.T Department, on the other hand, contends that the transaction in the instant case is an adventure in the nature of trade. According to him, a single transaction also constitutes business under the definition given under s. 2(13) of the Act and it is not essential for a transaction to be treated as an adventure in the nature of trade that there should be a series of transactions both of purchase and sale. In support of his contention, he relied upon the decisions in Jaldu Manikyala Row v. CIT, [1964] 54 ITR 409 (AP); Khan Bahadur Ahmed Alladin & Sons v. Commissioner Of Income-Tax.*, [1969] 74 ITR 651 (AP); CIT v. Himalayan Tiles & Marble P. Lid., [1975] 100 ITR 177 (Bom); Kanwarlal Manoharwal v. Commissioner Of Income-Tax, Madras., [1975] 101 ITR 439 (Mad); CIT v. Smt. Sankari Manick-yamma, [1976] 105 ITR 172 (AP); Mangalore Electric Supply Co. Ltd. v. CIT, [1978] 113 ITR 655 (SC); [1978] CTR (SC) 61; National Newsprint & Paper Mills Ltd. v. CIT, [1978] 114 ITR 172 (MP); [1977] CTR (MP) 234; Addl. CIT v. Abdul Kareem & Co., [1979] 117 ITR 233 (Mad); [1978] CTR (Mad) 150 and Prominent Motors (India) v. Commissioner Of Income-Tax, New Delhi., [1983] 140 ITR 326 (Delhi); [1983] 35 CTR (Delhi) 175.
6. From the facts narrated above, it is clear that the assessee purchased an extent of ac. 454 11 guntas of land in Manmool village, Sangareddy Taluk, Medak District. It is not in dispute that the land was notified under the Gazette Notification dated October 17, 1961, for acquisition for the purpose of construction of heavy electrical factory. The petitioner and Kondal Reddy purchased the lands proposed for acquisition for a sum of Rs. 75,000. In fact, the petitioner and Kondal Reddy are aware of the notification dated October 17, 1961. When the notification dated October 17, 1961, makes it abundantly clear that the lands, which are the subject-matter of the notification, were proposed for acquisition by the Government, it is clear that the petitioner and Kondal Reddy purchased the same not for holding or enjoying the said lands but only to receive the compensation from the Government. As to how much they would receive towards compensation, they are aware of the legal position regarding the rate of compensation, as the law regarding compensation is well settled that it is the market value prevailing as on the date of notification but not on the date of acquisition that should be taken into consideration for fixing the market value. Sale deeds about the same time or within reasonable time before the notification in respect of the same land or adjacent land or lands in the near locality should be taken into consideration. Hence, the petitioner knew pretty well that they would not get compensation beyond the rate mentioned in the sale deed under which they themselves purchased the land in question. If that be so, the petitioner and his companion did not purchase the land with the sole intention to make profit. It is, therefore, too much to imagine that the petitioner and Kondal Reddy expected even at the time of purchase of the lands that they would receive compensation far and above the sale consideration mentioned in their own sale deed. To say that the assessee and Kondal Reddy purchased the lands in question with the sole intention to get compensation far and above what was mentioned in the sale deed is nothing but indulging in conjecture and speculation. Merely because the petitioner and Kondal Reddy received compensation in a sum of Rs. 3,95,026, an argument cannot be built up that the petitioner and Kondal Reddy purchased the lands in question with the sole intention that they would make profit from out of the transaction. The petitioner and Kondal Reddy, of course, pursued the legal remedies under s. 18 of the Land Acquisition Act. The District Judge ignoring the rate mentioned in the sale deed under which the petitioner and Kondal Reddy purchased the land in question, gave a higher rate of compensation. For that, the assessee cannot be penalised. Merely because the petitioner has received his share of compensation from the court in a sum of Rs. 2,08,739, is the Appellate Tribunal justified to treat the amount of Rs. 2,08,739 liable to tax on the ground that the petitioner got this amount as profit from out of the transaction which is an adventure in the nature of trade? Our answer to this question is emphatically “not”.
7. The expression “adventure in the nature of trade” is used by the Act in s. 2(13), which defines “business” as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Under s. 28, tax shall be payable by the assessee under the head “Profits and gains of business or profession” in respect of the profits or gains of any business, profession or vocation carried on by him. Thus, the assessee would be liable to pay tax on the relevant amount if it is held that the transaction which brought him this amount was business within s. 2, sub-s. (13), and it can be said to be business of the assessee if it is held that it is an adventure in the nature of trade. In other words, in reaching the conclusion that the transaction is an adventure in the nature of trade, the Income-tax Officer, the Assistant Commissioner and the Tribunal have to find primarily evidentiary facts and then apply the legal principles involved in the expression “adventure in the nature of trade” used by s. 2, sub-s. (13). It is patent that the clause “in the nature of trade” postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business.
8. It is now well settled that the question whether a particular transaction is an adventure in the nature of trade is a mixed question of law and fact. This view was incidentally expressed by the Supreme Court in Sree Meenakshi Mills Lid. v. CIT, [1957] 31 ITR 28, while repelling the assessee's contention that the question about the character of the transaction should be treated as a question of fact.
9. In order to hold that the profit assessable to income-tax arises from a transaction which is an adventure in the nature of trade, regard must be had to the character and circumstances of the particular venture. If the venture was one consisting simply of an isolated purchase of some article against an expected rise in price and a subsequent sale, it must be impossible to say that the venture was in the nature of trade. Lord President Clyde observed in Commissioners of Inland Revenue v. Livingston, [1926] 11 Tax Cas 538, that from the mere intention to resell at a profit, it would be impossible to attribute to the transaction the character of an adventure in the nature of trade.
10. Judged from this ruling, it is clear that the petitioner's transaction is one consisting simply of an isolated purchase of land without any intention that it would be resold for any profit as such, as the question of resale does not arise in view of the notification issued by the Government for acquisition of the said land. Further, the land is purchased not to be sold but only to get compensation at the rate to be fixed by the civil court according to the principles of law which are in vogue. Following the principle laid down by Lord President Clyde in Commissioners of Inland Revenue v. Livingston, [1926] 11 Tax Cas 538, we would like to hold that the purchase of the actionable claim, even if it is treated so, to obtain compensation as per the award of the civil court is not a transaction which is an adventure in the nature of trade. In Venkataswami Naidu & Company v. CIT, [1959] 35 ITR 594, their Lordships of the Supreme Court considered several transactions which do not come under adventure in the nature of trade and which come under adventure in the nature of trade. In that case, the appellant firm acted as managing agent of a company and purchased for a total consideration of Rs. 8,712-15-6 four contiguous plots of land, adjacent to the place where the mills of the company managed by it were situated. The first purchase was made in October, 1941, in the name of a benamidar covering land measuring about 28 cents and the second and subsequent purchases were made in November, 1941, June, 1942, and November, 1942, respectively. As long as the appellant was in possession of the lands, it made no efforts to cultivate them or erect any superstructure on them but allowed them to remain unutilised except for the rent received from the house which existed on one of the plots. The appellant sold these lands to the company managed by it in two lots in September and November, 1947, for a total consideration of Rs. 52,600. The question was whether a sum of Rs. 43,887 being the excess realised by the appellant by the two sales over its purchase price was assessable to income-tax?
11. The ITO treated the said amount of Rs. 43,887 as the income of the appellant for the assessment year 1948-49, and assessed it to income-tax under the head “Business” on the ground that there was no evidence to show that the appellant had purchased the said lands for agricultural purposes or that it had acquired them as an investment. The ITO also found that the lands were adjacent to Janardana Mills and that the appellant must have purchased them solely with a view to sell them to the said mills with a profit. That is why it had all the elements of a business transaction and was thus an adventure in the nature of trade though the transaction was in the nature of a solitary transaction. Against this order of assessment, the appellant preferred an appeal to the A AC. The appellate authority upheld the contention of the appellant that the amount in question was not assessable as it cannot be held to be income or profit resulting from a profit-making scheme and set aside the order under appeal. Against that order of the AAC, the Department preferred an appeal before the Appellate Tribunal. The Tribunal agreed with the view taken by the ITO and held that the amount in question was not a capital accretion but a gain made in an adventure in the nature of business in carrying out a scheme of profit-making and was, therefore, taxable. On a reference, the High Court also held that the transaction was an adventure in the nature of trade and that the department was justified in taxing the amount. On appeal to the Supreme Court, their Lordships held on the facts that the Appellate Tribunal was right in inferring that the appellant knew that it would be able to sell the lands to the managed company whenever it thought it profitable so to do; that the appellant purchased the jour plots of land with the sole intention of selling them to the mills at a profit which intention raised a strong presumption in favour of the view taken by the Tribunal and that the High Court was right in holding that the transaction in question was an adventure in the nature of trade. It was further held that the expression “in the nature of trade” appearing in the definition of “business” in s. 2(4) of the Income-tax Act postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business; and that would make the question whether a transaction is in the nature of a trade and its decision one of mixed law and fact. Where the question is whether a transaction is in the nature of trade even if the conclusion of the Tribunal about the character of the transaction is treated as a conclusion on a question of fact, in arriving at its final conclusion on facts proved, the Tribunal has undoubtedly and necessarily to address itself to the legal requirements associated with the concept of trade or business. Their Lordships also considered as to what elements are the essential features that would make a transaction an adventure in the nature of trade. Their Lordships further held that if a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventure in the nature of trade. In deciding the character of such transaction, several factors are relevant, such as, whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make 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 trade or business; the repetition of the transaction; and the element of pride of possession. A person may purchase a piece of art, hold it for some time and if a profitable offer is received, sell it Daring the time that the purchaser had its possession, he may be able to claim pride of possession and aesthetic satisfaction; and if such a claim is upheld, that would be a factor against the transaction being in the nature of trade. The presence of all these relevant factors may help the court to draw an inference that a transaction is in the nature of trade; but it is not a matter of merely counting the number of facts and circumstances pro and con; what is important to consider is their distinctive character. In each case, it is the total effect of relevant factors and circumstances that determines the character of the transaction. In cases where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the iproperty for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted.
12. In Janki Ram Bahadur Ram v. Commissioner Of Income Tax, Calcutta, [1965] 57 ITR 21 (SC), the assessee was carrying on business in iron scrap and hardware and never carried on any business in jute or in pressing jute. At the material time when the purchase of the jute press was made, the appellant had, because of abnormal conditions prevailing in the town of Calcutta, closed its business in iron scrap and hardware. The assessee purchased the jute press and the premises appurtenant thereto subject to litigation pending in the High Court, effected certain repairs and kept the factory in running condition, but made no attempt to start or organise the business of pressing jute, and his plea that he was not able to secure labour for working the press was not true. Soon after he bought the factory, the appellant received an offer from Ranada Prasad Saha to buy the factory and he immediately accepted the offer to sell it to him. These facts, in the view of-the Tribunal, indicated that the appellant purchased the jute press, subject to litigation, with the sole object of reselling at profit at the earliest opportunity and, therefore, the transaction was in the nature of a trading venture. The High Court substantially agreed with his view. The Supreme Court had to examine whether the transaction of the assessee is an adventure in the nature of trade. Their Lordships observed that “it has been consistently held by this court that the question whether profit in a transaction had arisen out of an adventure in the nature of trade is a mixed question of fact and law It was emphasised from an analysis of the cases that a profit motive in entering into a transaction is not decisive, for an accretion to capital does not become taxable income, merely because an asset was acquired in the expectation that it may be sold at profit. Purchase of the property by the appellant was an isolated transaction not related to the business of the appellant. The Tribunal and the High Court were, in our judgment, in error in holding that the right of the company was not sold to the appellant in the lands of Schedule II and Schedule III properties. The land in Schedule II was leasehold, and on it was constructed a warehouse and the land in Schedule III was held as a licensee and two warehouses were standing thereon. The conveyance by the company to the appellant is not on the record, but the recitals in the deed dated September 30, 1943, definitely indicate that the rights of company without any reservation were purchased by the appellant and the appellant sold its entire rights in the properties in Schedules I, II and III without any reservation. It is true that the appellant had put the factory in a working condition, but had not organised a jute pressing business, had not obtained a licence for working the factory, had not attempted to secure orders for pressing jute, and had not employed labourers. The appellant's claim that it has not so done because the appellant could not secure labourers has not been accepted. But that is not a decisive circumstance. The factory was in the occupation of the lessee, Ramnath Bajoria, and possession was obtained after August 10, 1943. But before August 10, an agreement of sale was executed by the appellant in favour of Ranada Prasad Saha. In the light of the sequence of events, the inference that the appellant had no intention to commence doing jute pressing business does not necessarily follow. Even if that inference be regarded as binding upon the court, it cannot be presumed that the sole intention of the appellant was to start a venture in the nature of trade. Barring the expectation of profit and realisation of profit by sale of the property, there is no evidence bearing on the intention with which the property was purchased.
13. Thus it is clear that their Lordships of the Supreme Court in Venka-tasami Naidu and Co. v. CIT, [1959] 35 ITR 594, made it abundantly clear that where the purchase has been made solely and exclusively with the intention to resell it at a profit and the purchaser has no intention to hold it for himself or to enjoy it or to use it, the transaction is an adventure in the nature of trade.
14. The case on hand is not the one where the purchase has been made solely and exclusively with the intention to resell it at a profit. It was purchased, of course, with the intention to receive compensation, by the civil court ultimately under an award fixing the compensation according to the principles established by law. It is the exclusive jurisdiction of the civil court as to how much it has to pay by way of compensation, in view of the law governing the matter. Hence, the petitioner's transaction cannot be treated as an adventure in the nature of trade.
15. Even in Janaki Ram Bahadur Ram's case, [1965] 57 ITR 21 (SC), their Lordships emphasised the same principle for judging whether a transaction is an adventure in the nature of trade and it further clarified that a profit motive in entering into a transaction is not decisive and an accretion to capital does not become taxable income merely because an asset was acquired in the expectation that it may be sold at a profit. Their Lordships also held that if the purchase of the property was an insolated transaction not related to the business of the appellant, the transaction is also not an adventure in the nature of trade.
16. This ruling is also helpful to the petitioner's case. Merely because the petitioner purchased the land which was notified for acquisition by the Govt, to get compensation, the purchase of the property by the petitioner being an isolated transaction cannot become an adventure in the nature of trade.
17. The Delhi High Court in Commissioner Of Income-Tax v. Raunaq Singh Swaran Singh, [1972] 85 ITR 220 (Delhi) also laid down the same principle which the Supreme Court had laid down in the above decisions. While holding so, the learned judges further added that profit-making would normally not be an irrelevant consideration for every honest and prudent purchaser but will not in every case make the purchase a venture in the nature oj trade and to bring a transaction within this category, it has to be shown that the sole intention at the time oj purchase was to sell the property purchased later on at a profit and the burden is upon the department to show that a transaction effected by the assessee is an adventure in the nature of trade.
18. A stated above, the petitioner did not purchase the property to sell it later on at a profit. He purchased it with the intention to get compensation only. As to how much compensation he would get was not in his hands. It is the civil court that has to pass ultimately an award and the award will have to be passed in accordance with the established law. He got the higher compensation as a casual and non-recurring receipt. His getting higher compensation as a result of the award by the civil court cannot make the purchase a venture in the nature of trade.
19. Now, we would like to deal with the decisions on which the department relies.
20. In Jaldu Manikyala Row v. CIT, [1964] 54 ITR 409 (AP), the Andhra Pradesh High Court took the view that the question whether or not a given transaction is a venture in the nature of trade, is a mixed question of fact and law and as such is open to review by the High Court in exercise of its jurisdiction under s. 66 of the I.T Act. It is also well established that in determining whether a venture is in the nature of trade, no general or universal test can be laid down and it is not possible to formulate a single criterion or apply an exclusive yardstick to be drawn from the totality of circumstances present in that case.
21. We have no quarrel with the proposition laid down by the Bench in the said case. In the circumstances of that particular case, the learned judges held that the venture taken as a whole was an adventure in the nature of trade and the amount in question was-assessable as business profit.
22. In Kanwarlal Manoharwal v. Commissioner Of Income-Tax, Madras., [1975] 101 ITR 439 (Mad), the assessee being a pawn-broker obtained an assignment of a decree for Rs. 8,000 for a consideration of Rs. 4,000. Thereafter, he purchased some house property from the judgment-debtor for a consideration of Rs. 21,500 and adjusted the sum of Rs. 8,000 due under the decree in part payment of consideration. The ITO assessed the profit of Rs. 4,000 made by the assessee in the transaction relating to the assessment of the decree as business profit. This was confirmed by the AAC. On a reference by the Tribunal at the instance of the assessee, the High Court held that when the assessee purchased the decree on payment of Rs. 4,000, he should have intended to execute the decree and realise the amount due thereunder and the fact that without the necessity of executing the decree, the assessee was able to realise the money by adjustment in the purchase consideration made no difference. Accordingly, the sum of Rs. 4,000 was rightly assessable as business profit. The absence of any prior or subsequent dealing in purchase and sale of decrees by the assessee had no significance because even a first venture could be an adventure in the nature of trade.
23. In CIT v. Himalayan Tiles & Marble P. Ltd., [1975] 100 ITR 177 (Bom), the assessee, a private limited company, took over two businesses as going concerns in 1956. The outstandings and liabilities of the concerns were not transferred to the company. In 1957, two claims of the concerns were purchased by the company for an aggregate amount of Rs. 57,716. In the accounting year 1958-59, there was an award in regard to one of the claims under which the assessee received a sum of money. The surplus realised over cost amounting to Rs. 60,940 was brought to tax as income from business by the Income-tax Officer. The Tribunal reversed the decision of the ITO on the ground that the memorandum of association of the assessee-company did not permit it to trade in actionable claims. The Bombay High Court held that the fact that the memorandum of association did not permit the assessee-company to trade in actionable claims was irrelevant. At the time of purchasing the actionable claims, the assessee was under no obligation or compulsion to do so. In point of time, there was close proximity between the purchase of the claims and the realisation. The assessee had embarked upon a venture in the nature of trade and the surplus realised from the venture was liable to be included in the income of the assessee under s. 10.
24. We have no quarrel with the proposition of law laid down by the Madras High Court as well as the Bombay High Court in the above-cited decisions. They were rendered with reference to the facts and circumstances of those cases. In those cases, the transactions were clearly and solely intended to make profit and hence the profits were assessable to income-tax. These two decisions, therefore, do not apply to the assessee's case. Hence, we find no substance in the contention of the learned standing counsel for the Department.
25. Sri A. Panduranga Rao, the learned counsel for the assessee, contends that if the disputed amount is treated as income from business it should be assessed in the assessment year 1965-66 but not in the assessment year 1968-69. Since we took the view that the transaction is not an adventure in the nature of trade, the question of assessment does not arise.
26. Having regard to the above discussion, the answer to the question is that the excess amount of Rs. 2,08,739 is not income from business. It is answered against the Revenue and in favour of the assessee. No costs.