JUDGMENT

1. The two questions that were referred to this court were:

1. Whether there are materials for the Tribunal to come to the conclusion that the sum of Rs. 3,00,000 received by Captain T.P.M Alexander by the sale of Cottangady estate in excess of its purchase price was a revenue receipt.

2. Whether in the circumstances of the case for the proper ascertainment of the profits and gains in respect of raising and selling coffee, tea and other produce of the estate, the Tribunal was right in upholding the decision of the Appellate Assistant Commissioner in taking into consideration the value of the produce which remained on hand unsold at the end of the year of account.

2. The accounting year was 1-4-1942 to 31-3-1943, and the year of assessment was 1943-1944. It is better to deal with each question separately, as the sets of facts necessary for answering each question are different.

3. The facts necessary for considering the points raised by the first question are as follows. Though the assessee, Captain T.P.M Alexander, died in July 1946 — the proceedings have been continued by his widow — it should be easier to refer to him as the assessee in the rest of this judgment. The assessee was a planter in South India. He acquired estates where rubber, tea, coffee and cardamom were raised. We need not concern ourselves in this case with the Kailasam estate which the assessee owned and which he sold in 1938; nor with the Aruna group of estates which the assessee purchased in 1936 jointly with Sir James Deak; the assessee's interest in the Aruna group of estates appears to have been sold in March 1949. The assessee purchased the Sivalogam estate in Travancore State in 1929; he sold that in August 1942. That estate was managed by the agents Messrs Harrison and Crossfield all through. Though the assessee was originally a planter himself, for a period of about 12 years i.e between 1930 and January 1942, he was employed as a Labour Officer in Burmah Shell Company. After retiring from the service of the Burmah Shell Company in January 1942, he obtained employment as the agency manager of the South India Plantations Agency Ltd. at Coonoor. That company acted as agents and secretaries of various tea and coffee estates in South India. He occupied that post till February 1943, when he became the director of that company, the South India Plantations Agency Ltd. In the latter half of 1942, the assessee was also the Secretary of the Southern India Planters Association for about three months. He left India finally in January 1944. He died in England in July 1946.

4. When the assessee sold the Sivalogam estate in August 1942 he realised a sum of Rs. 4,46,000. That obviously provided the capital for his subsequent transactions. In September 1942 the assessee started negotiations for the purchase of four estates, comprehensively referred to as the Cottangady group of estates. One of these four belonged to one Mr. Hall, and the other three to his mother Mrs. Emily Hall. These estates were first offered for sale to the Southern India Planters Association at a time when the assessee was the Secretary of that association. The association declined the offer. On 2-9-1942, the assessee inspected the Cottangady group of estates with a view to purchase. Again on 6-10-1942, he inspected the estates along with Mr. Walker Leigh of Messrs Davidson & Company. The company sold agricultural implements. The inspection of Mr. Leigh was to suggest improvements to the estate and the purchase of the necessary material including machinery. On 9-10-1942, Mr. Leigh drew up a report which he forwarded to Harrison and Crossfield, who, it should be remembered, had been managing the Sivalogam estate for the assessee, and Mr. Leigh requested Messrs Harrison and Crossfield in that letter to furnish estimates to the assessee to give effect to the recommendations of Mr. Leigh. Though the estimate furnished by Messrs Harrison and Crossfield was not on record, it would appear that their estimate came to Rs. 80,000. The assessee paid the purchase price of Rs. 2,50,000 for all the four estates and took possession of them on 11-11-1942. It was agreed between the vendors and the assessee that the purchase should take effect from 1-7-1942 i.e, the assessee became entitled to the crops that stood on the estates on 1-7-1942 or were grown thereafter. No sale deed however was executed then. Even before the purchase it would appear that the assessee arranged through Messrs Shaw Wallace Company to supply manure for the estates: and the supply of manure was on a long range basis i.e to improve the productivity of the estates on a long term plan. Though i/r. Hall and his mother Mrs. Emily Hall offered the estates for sale first to the Southern India Planters Association, they would appear to have been keen on the idea that the sale should be to a person who would keep the estates and satisfy their sentiment based on pride of ownership of a well-maintained estate. On 21-9-1942 Mr. Smith, Director of South India Plantations Agency Ltd., of which the assessee was then the Agency Manager, wrote to Mr. Hall:

“Glad that Alexander is pleased with the estate. I am sure that Mrs. Hail and you will be better pleased for the estate to be sold to a proprietor who will take the same interest in it as you have done in the past, rather than to a public company.”

5. From the extracts of correspondence supplied by the assessee during the enquiry before the Income-tax authorities and appended to the printed record made available to us, it would appear that on 13-11-1942 — it should be remembered that the assessee took possession of the estates on 11-11-1942 — the assessee supplied his agent Velu Menon of Cottangady with sets of account books. There were also other letters to show that the assessee himself was managing the estates up to 5-2-1943. From a letter written on 8-2-1943 by the assessee to Davidson and Co., it would appear that the assessee placed an order with them for the supply of a Sirocco Drier and a 44” S.A Roller. These were two items of machinery included in the improvements suggested by Mr. Leigh in his report dated 9-10-1942. The order itself was not put in evidence, and there was nothing to indicate on which date the order was placed with Davidson & Co. Davidson & company would appear to have supplied the 44” S.A Roller, because in the letter dated 8-2-1943 the assessee asked for the erection of this plant. In the same letter, the assessee cancelled his order for the Sirocco Drier. It was represented during the arguments before us that the 44” S.A Roller cost about Rs. 9,500. As the assessee himself explained in his letter dated 8-2-1943, he cancelled the order for the Sirocco Drier as he had already taken steps to sell the Cottangady group of estates. On 3-2-1943, the assessee entered into an oral agreement with Mr. P.S George to sell the Cottangady group of estates to him for Rs. 5,50,000 and the assessee received an advance of Rs. 27,500. On 13-2-1943, the assessee executed the written agreement of sale. It was during the interval, on 8-2-1943, that the assessee informed Davidson & Company that the order for the supply of the Sirocco Drier should stand cancelled.

6. It should be remembered that, though the assessee took possession of the Cottangady estates on 11-11-1942, no document of sale was executed by the vendors. It was subsequent to the agreement of sale between the assessee and Mr. P.S George that the sale deeds were executed by Mr. Hail and Mrs. Emily Hall. One sale deed was executed on 11-2-1943 covering the three estates that were situated in Cochin State. The second sale deed for the fourth estate, which was in British India, was executed on 26-2-1943. Though Mr. P.S George negotiated the purchase of this group of estates, it was obviously his intention that the eventual purchaser should be the Chandramalai Estate Ltd., which company Mr. P.S George promoted. The agreement of sale dated 13-2-1943 provided for the sale to Mr. George or his nominee. Clause 7 of that agreement required the assessee to make out a good and clear title to the properties sold, and that was apparently why the assessee had to obtain the sale deeds from the previous owners, Mr. Hall and Mrs. Emily Hall. Rs. 27,500 of the agreed purchase price, it should be remembered, was paid to the assessee on 3-2-1943 itself. The agreement of 13-2-1943 provided for the payment of the balance before 31st March 1943; the balance was actually paid on 10th March 1943. On 19-4-1943 the assessee executed the sale deeds in favour of Chandramalai Estate Ltd.

7. Thus the position was that within about three months after his purchase of the Cottangady group of estates for Rs. 2,50,000, the assessee entered into an agreement to sell the estates for Rs. 5,50,000, and within a month thereafter, i.e, by the 10th March 1943, he received in full that Rs. 5,50,000. The Income-tax Officer treated the difference between the purchase price and the sale price in the hands of the assessee as income that accrued to the assessee during the year of account and assessed that sum to income-tax. The contention of the assessee was that he intended to keep the property as a source of income, that it was an investment, and that the excess of Rs. 3,00,000 of the sale price over the purchase price he had paid was a capital accretion. That contention was rejected by the Income-tax Officer and also on appeal by the Assistant Commissioner of Income-tax, A further appeal preferred by the assessee to the Tribunal also failed. It was subsequent to that the first question was referred to this Court under S. 66(1), Indian Income-tax Act.

8. When the matter came up for hearing first, the Court was of the opinion that the statement as drawn up by the Tribunal and submitted to the Court was defective, and the Court called upon the Tribunal to furnish a further and better statement of the case. That statement was furnished.

9. In paragraph 11 of the further statement submitted by the Tribunal it recorded:

“The tribunal held that almost simultaneously with the negotiations for the purchase of the-estate and its improvement, negotiations for its sale were also being carried on by the assessee. The letters written to Harrison and Crossfield and Davidson & Co., dated 8th February 1943 suggested that the negotiations-for sale were complete by that date and that, in these circumstances, it was difficult to hold that the assessee's intention at the time of the purchase of the property was to keep) it and improve it; that the idea at the time of the purchase in the mind of the assessee was to make a profit upon it; and that the interval of time that lapsed between the dates of purchase and sale also suggested: that his intention was to make a profit by sale which he actually did. Under these circumstances, the tribunal came to the conclusion that the profit was received from a business transaction.”

10. To complete the statement of the case, it is necessary to refer to the purchase and sale of the Umbhidikhan estate in Mysore. The-assessee purchased it in October 1942 for Rs. 75,000 in partnership with Mr. H.S Cameron, also an employee of the Southern India Plantations Agency Ltd. The partnership sold the estate in March 1943 for Rs. 1,05,000, thus-making a profit of Rs. 30,000. In this case also, the original owner Mr. Mayer did not execute any sale deed in favour of the assessee and Mr. Cameron. Subsequent to the sale in March 1943 by the Assessee and Mr. Cameron to the Southern Plantations Ltd. Calicut, Mr. Mayer-executed the sale deed under directions of the-partnership directly in favour of the Southern Plantations Ltd., Calicut. The assessee's share of the profit of Rs. 30,000 was treated as income and was assessed to income-tax. The assessee appears to have accepted that decision.

11. It was as a receipt from business that, the Rs. 3,00,000 was assessed to income-tax. That represented the profits of an “isolated” transaction, the purchase and sale of the Cottangady group of estates. It is well-established that if a person is engaged in the buying and selling of lands, he can be assessed to tax upon any surplus only if he is shown to have carried on a business of buying and selling lands. Business has been defined by Section 2(4) of the Indian Income-tax Act. “Business includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.” Even a single venture may amount to business, and the profits of such a single venture may be taxable as income arising from business. An isolated transaction of purchase and sale of land, even if it is not business as it is normally understood, may be business within the scope of the definition, an adventure in the nature of trade. An isolated-transaction of purchase and sale of land may be a speculation. Every speculation is am adventure; but unless it is an adventure in the nature of trade, the profits therefrom will not be income assessable to tax. In — ‘Balgownie Land Trust Ltd. v. The Commissioners of Inland Revenue’, 14 T.C 684 Lord President Clyde pointed out at page 691:

“A single plunge may be enough provided it is shown to the satisfaction of the Court that the plunge is made in the waters of trade; but the sale of a piece of property — if that is all that is involved in the plunge:— may easily fall short of anything in the nature of trade. Transactions of sale are characteristic of trade, but they are not necessarily distinctive of it; much depends on the circumstances.”

12. Where, as in this case, the purchase and resale of landed property constituted an isolated transaction, it is a matter of extreme difficulty to determine whether this was an adventure in the nature of trade. But as Lawrence L.J pointed out in — ‘Leeming v. Jones’, 15 T.C 333; at 354:

‘It seems to me that in the case of an isolated transaction of purchase and resale of property there is really no middle course open. It is either an adventure in the nature of trade, or else it is simply a case of sale and resale of property.”

13. The test formulated by Lord President Clyde in — ‘The Commissioners of Inland Revenue v. Livingstone’, 11 T.C 538 at page 542 was:

“I think the test, which must be used to deter-mine whether a venture such as we are now considering is, or is not, “In the nature of trade,” is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made. If they are, I do not see why the venture should not be regarded as “In the nature of trade” merely because it was a single venture which took only three months to complete.”

14. The learned Judge did not obviously formulate this as the sole test or even as a test capable of universal application in answering the question, whether an isolated transaction of purchase and resale constituted an adventure in the nature of trade. It was with reference to the facts of that case, which Lord Sands described as a “novel and difficult one” (see page 545), that the observations of the Lord President have to be considered. The learned Judge himself summed up the facts of that case:

“The respondents (assessees) began by getting together a capital stock sufficient (1) to buy a second-hand vessel, and (2) to convert her into a marketable drifter. They bought the vessel and caused it to be converted at their expense with that object in view, and they successfully put her on the market. From beginning to end, these operations seem to me to be the same as those which characterise the trade of converting and refitting secondhand articles, for sale. It may be that, in commercial practice relative to ships, this kind of business is not usually followed separately from the general business of ship builders and ship-repairers. But, even so, I think, it is nonetheless “in the nature of trade”. The profit made by the venture arose, not from the mere appreciation of the capital value of an isolated purchase for resale, but from the expenditure on the subject purchased of money laid out upon it for the purpose of making it marketable at a profit. That seems to me of the very essence of trade.”

15. That test may not be conclusive in deciding the question at issue in the present case. The conduct of the assessee, Captain Alexander particularly between the date of purchase of the Cottangady group of estates and the date of its resale was no doubt not inconsistent with that of a regular dealer in such plantations. But then some of his conduct at least, e.g his plans to improve the equipment of the estate and his plans to manure the soil on a long range view was as consistent with his desire to keep the estate for himself as with a desire to make it more attractive for resale.

16. Nor can the test suggested by Rowlatt, J. in — ‘Graham v. Green’, 9 T.C 309 really help us in this case. It should be remembered that what that learned Judge had to consider in the case before him was not a case of an isolated transaction. The learned Judge observed at page 312:

“……There is no doubt that if you set on foot an organised seeking after emoluments which are not in themselves profits, you may create, by way of a trade or an adventure or a vocation, subject-matter which does bear fruit in the shape of profits or gains. Really a different conception arises, a conception of a trade or vocation which differs in its nature, in my judgment, from the individual acts which go to build it up, just as a bundle differs from odd sticks. You may say, I think, without perhaps an abuse of language, there is something organic about the whole which does not exist in its separate parts.”

17. At page 313, the learned Judge laid down:

“As I have said, there is no doubt that you might create a trade by making an organized effort to obtain emoluments which are not in themselves taxable as profits, and the most familiar instance of all, of course, is a trade which has for its object the securing of capital increment. A person who buys an object which subsequently turns out to be more valuable, and then sells it, does not thereby make a profit or gain. But he can organize himself to do that in a commercial and mercantile way, and the profits which emerge are taxable profits, not of the transaction, but of the trade.”

18. Those observations must be read in the light of the facts of that case, which failed to prove the organization or the adoption of the commercial and mercantile way referred to by Rowlatt J. The basis of a but itself or a series of bets was, in the opinion of that learned Judge, an irrational agreement. The organization to do anything in a commercial and mercantile way should obviously have a rational basis.

19. In — ‘Smith Barry v. Cordy’, 28 T.C 250, Scott L.J laid down:

“Unless ex facie the single transaction is obviously commercial, the profit from it is more likely to be an accretion of capital and not a yield of income.”

20. The learned Judge qualified that statement by pointing out: “But that question is almost, necessarily one of fact.” That case again did not deal with an isolated transaction; but with, a series of transactions which satisfied the test formulated by Rowlatt J. in — ‘Graham v. Green, 9 TC 309:

“A person……can organize himself to do that (buy) in a commercial and mercantile way, and the profits which emerge are taxable profits, not of the transaction, but of the trade.”

21. This was quoted with approval by Scott L.J at page 260.

22. Even in the case of isolated transactions, judicial research and learning both in Great Britain and India have failed to produce any test of universal application, an infallible test. It is really with reference to the facts held proved in each case that the difficult question has to be answered, whether a given transaction was an adventure in the nature of trade.

23. The Tribunal found that Captain Alexander's intention when he purchased the Cottangady group of estates “was to make a profit by sale which he actually did.” No doubt, if the estate had been purchased without any intention then of reselling it at a profit, a sale under changed circumstances would not stamp the transaction of sale with a business character. The sale by itself would not be an adventure in the nature of trade, though the profit motive had actuated the sale. But then, the intention to resell at a profit would not by itself make a transaction of purchase and sale an adventure in the nature of trade. This was clearly laid down in — ‘Leeming v. Jones’, 15 T.C 333 by Lord Buckmaster:

“An accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise, its realisation does not make it income.”

24. Viscount Dunedin made it even clearer at page 360:

“The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments but per se it leads to no conclusion whatever.”

25. These principles were accepted by a Full Bench of the Rangoon High Court in — “Mrs. Sooniram Poddar v. Commissioner of Incometax, Burma’, 1939 I.T.R 470. After referring to — ‘Leeming v. Jones’, 15 T.C 333, Roberts C.J laid down at page 478:

“Stopping there, this means that if a man, outside his regular business, makes a speculative purchase of an article or commodity with a view to its profitable resale, he is not for that reason alone venturing on a trade. To use the words of our Act, it is not necessarily “an adventure or concern in the nature of trade, commerce or manufacture.”

26. A Full Bench of the Lahore High Court, however, took a different, view in — ‘Behari Lal Jhandu Mai, In re’, 1944 I.T.R 209, specifically dissenting from the view taken by the Rangoon High Court in — ‘Mrs. Sooniram Poddar v. Commissioner of Incometax, Burma’, 1939 ITR 470. Munir J. stated at page 225:

“With the greatest respect to the learned Judges, who decided that case, I must say that case does not appear to me to have been rightly decided.”

27. The facts in the Lahore case were: The assessee, a Hindu undivided family carrying on a moneylending business purchased in 1931, when England went of the gold standard, 1600 tolas of gold and paid the purchase price of Rs. 35,050 in two instalments of Rs. 17,525 each, by withdrawing money from fixed deposits before their maturity and from a firm in which it was a partner and also by borrowing from another firm. In 1936, the assessee sold one fourth of the gold for Rs. 13,800 and thus made a profit of Rs. 5,037, which was assessed by the Income-tax authorities as profits from business under Section 10 of the Indian Income-tax Act. After pointing out that — ‘Commissioners of Inland Revenue v. Livingstone’, 11 T.C 538 was not an authority for the position taken up by the assessee, that the profits of the sale of a fourth of the quantity of gold he had purchased did not constitute assessable income, and after explaining the observations of Lord President Clyde in the above case with reference to that learned Judge's observations in the later case of — ‘Rutledge v. Commissioners of Inland Revenue’, 14 T.C 490, Munir J. observed at page 225:

“The essential test in my opinion in such cases is whether the purchase of metal was made not with the intention to use it nor with the intention to invest one's capital in it but with the sole object of selling it in future in order to make a profit. If the purchase is with that intention the purchase and the subsequent sale are an adventure in the nature of trade.”

28. Earlier at page 220 Munir J. pointed out:

“If, however, at the date of the purchase the object of the purchaser was not to bring the article in his own use but to sell it at a, profit, there can hardly be any doubt that in that case the transaction would be a venture in the nature of trade.”

29. It is not really necessary for the purposes of deciding the case before us to consider whether the Rangoon view or the Lahore view is, in our opinion, the correct one. The observations of the learned Judges in each of those 2 cases have to be construed with reference to the facts of that case. In both cases the learned Judges held that the purchase and resale of gold were outside the scope of the normal trading activities of the assessee, which in each case was a money-lending firm. Suffice it to say Captain Alexander's position was totally different. To that we shall advert later. The learned Judges of the Lahore High Court held that the case before them fell within the scope of the rule in — ‘Rutledge v. Commissioners of Inland Revenue’, 14 T.C 490. Even in that case the Lord President himself observed at page 497:

“the crisis of judgment might turn, on the particular circumstances.”

30. The Lord President himself did not see any conflict between his views in — ‘Commissioners of Inland Revenue v. Livingstone’, 11 T.C 538 and those he expounded later in — ‘Rutledge v. Commissioners of Inland Revenue’, 14 T.C 490, on the question whether an intention to resell was a conclusive test in deciding whether a given transaction of purchase and resale was an adventure in the nature of trade, nothing could be more categorical than the observations of Lord Buckmaster and Viscount Dunedin in — ‘Leeming v. Jones’, 15 T.C 333, with which we respectfully agree.

31. Though a dominant or even a sole intention to resell is not by itself conclusive proof, it is certainly a relevant factor in deciding whether the transaction of purchase and resale was an adventure in the nature of trade, and in conjunction with other circumstances including the conduct of the assessee, such an intention might well establish beyond doubt that the adventure was in the nature of trade.

32. As we have already pointed out, courts have never treated such a question as one capable of easy solution by the taxing authorities. Our task however, it should be remembered, is more limited in scope. Did the evidence on record justify the finding of the Tribunal, that the purchase and sale of the Cottangady group of estates by the assessee constituted an adventure in the nature of trade.

33. We have no hesitation in answering that question against the assessee. That it is possible for a different judicial tribunal to arrive at the opposite conclusion — and as Lawrence L.J pointed out in — ‘Leeming v. Jones’, 15 T.C 333 there is no middle course open or possible — is no justification for a court acting within the limited scope of S. 66(1), Indian Income-tax Act, to refuse to accept the finding of the Tribunal.

34. Captain Alexander sold the Sivalogam estate in August 1942 and was in possession of considerable funds. Judicial notice can be taken of the facts, that there was a real threat of invasion of India by the Japanese a little earlier, and that there were civil disturbances in this country in August 1942, when the Quit India Campaign against the Britishers was intensified. It was a period when planting estates changed hands and Indian purchasers came in. In one of the letters on record in this case, Davidson & Co pointed out on 12-2-1943 that the Cottangady group of estates had been sold to an Indian purchaser. By August 1942, Captain Alexander had ceased to be in the service of the Burmah Shell Company; and with his connections with the South India Plantations Agency Ltd. and the Southern India Planters Association he was obviously in a better position in August 1942 to look after his estate with his residence at Coonoor. Yet he sold the Sivalogam estate in August 1942. His association with the South India Plantations Agency and the Southern India Planters Association gave him the means of knowing which were the estates the European owners were anxious to sell at that period. Though there was no evidence, on the point, when Captain Alexander conceived the idea of leaving India, in fact he did leave India for good in January 1944. It is against this background that the sale of the Sivalogam estate and the evidence regarding the subsequent purchase and sale of estates by Captain Alexander have to be viewed.

35. We observed earlier that Captain Alexander's position between August 1942 and March 1943 was in no way analogous to that of the assessees in — ‘Mrs. Sooniram Poddar v. Commissioner of Income-tax, Burma’, 1939 I.T.R 470 and — ‘Behari Lal Jhandu Mal, In re’, 1944 I.T.R 209. He was a planter to start with. His main estate he sold in August 1942. At that period he was in the employ of planting associations. Subsequent to August 1942, he bought two sets of estates and sold them, the Cottangady group of estates and the Umbidikhan estate. That was a time when he should have been in a better position than many others to know the market conditions of the plantations which changed from European owners to Indian owners.

36. Despite the steps taken by the assessee, Captain Alexander, to improve the Cottangady group of estates, there was certainly sufficient material on record to justify the finding of the appellate tribunal, that the purchase was with a view to resell the estate at a profit. The purchase price was paid and possession of the Cottangady group of estates was taken on 11-11-1942. The agreement of sale to Mr. P.S George was within a short time i.e on 3-2-1943. When exactly negotiations for the sale of the estates to Mr. P.S George commenced, there was no specific evidence to show. The tribunal's comment on that was:

“That almost simultaneously with the negotiations for the purchase of the estate and its improvement, negotiations for its sale were also being carried on by the assessee.”

37. That might not be strictly accurate in the absence of any specific evidence as to when exactly negotiations for the sale to Mr. P.S George were commenced. But obviously the negotiations must have commenced sometime before 3-2-1943. Between 11-11-1942 and 3-2-1943, Captain Alexander did not even obtain sale deeds from the previous owners, Mr. Hall and Mrs. Emily Hall. He got the sale deeds from the vendors subsequent to 3-2-1943, obviously only to satisfy the conditions of cl. 7 of the agreement of sale dated 11-2-1943, which Captain Alexander executed in favour of Mr. P.S George. That condition barred the adoption of the technique of sale of the Umbidikhan estate during the same period. The sale deed in the case of the Umbidikhan estate was executed directly in favour of the vendee from Captain Alexander and his partner by the previous owner, Mr. Mayer from whom Captain Alexander and his partner bought that estate.

38. To support the contention, that the sale of the Umbidikhan estate was an irrelevant factor in deciding the question at issue, whether the purchase and sale of the Cottangady group of estates constituted an adventure in the nature of a trade, learned counsel for the assessee relied on — ‘Cooksey and Bibbey v. Rednail’, 30 T.C 514. The facts of that case were: In 1924 Cooksey, a solicitor, and Bibbey, a farmer, purchased jointly a farm within six miles of Birmingham and let it to a tenant. Between 1920 and 1925 the firm in which Cooksey was a partner purchased and developed three housing estates, and from 1930 to 1940 Cooksey and Bibbey in partnership bought and developed five housing estates. It was admitted that these were trading transactions for income-tax purposes. In 1938 Cooksey and Bibbey sold the farm to the Birmingham Corporation and they were jointly assessed to income-tax on the profit realized. Croom-Johnson J. pointed out at page 518 that Bibbey had nothing to do with Thomas Cooksey and Company which carried out the operations referred to above between 1920 and 1925. The learned Judge observed:

“Is it any evidence that another partnership, (Thomas Cooksey and Co.,) which is not this partnership, was engaged in speculation and development of land by building houses between 1920 and 1925? This assessment is raised against these two gentlemen on the basis that they are a partnership, and accordingly it is a separate and distinct assessment. It is that partnership, not some other partnership, which the Crown is seeking to establish was engaged in transactions in the nature of trade. I shall have to look and see what other evidence there is, but, in my judgment, the evidence — as to the activities of Thomas Cooksey & Co in transactions dealing with land, in which firm Mr. Bibbey was not a partner, is no evidence upon which anybody could come to the conclusion that a partnership or joint adventure existing between Cooksey and Bibbey can be proved to be established for purposes of trade.”

39. It must be observed that it was not a rule of law that the learned Judge intended to lay down; nor did that learned Judge lay down that evidence of the activities of Thomas Cooksey & Co of which Bibbey was not a partner was wholly irrelevant. What the learned Judge really held was that the evidence afforded by the activities of Thomas Cooksey & Co was not evidence that could lead to any definite conclusion. By itself, the sale of the Umbidi-khan estate could not conclude the question at issue, whether the purchase and sale of the Cottangady group of estates was an adventure in the nature of trade. But the purchase and sale of the Umbidikhan estate at the same period, though it was in partnership with another, is a relevant piece of evidence to be considered in conjunction with the other pieces of evidence on record.

40. We feel that there was certainly sufficient evidence for the Tribunal to conclude that the transaction of the purchase and sale of the Cottangady group of estates was an adventure in the nature of trade and that the profits of that transaction in the hands of the assessee Captain Alexander constituted assessable income.

41. The first question is answered in the affirmative and against the assessee.

42. The facts necessary for the disposal of the second of the questions referred to us are as follows: During the accounting year, the assessee was in possession of three estates, the Sivalogam estate, the Cottangady group of estates and the Umbidikhan estate. Each of these three estates was managed by agents, the Sivalogam estate by Messrs Harrison & Crossfield, the Cottangady group of estates by Pierce Leslie & Co., and the Umbidikhan estate by Mysore Coffee Curing Works Ltd. The produce from all these estates was sold in what was then British India by these agents, and the sale proceeds paid into Captain Alexander's account with a bank in British India. The return of income submitted by Captain Alexander for the year of assessment was not placed before us. But it was not disputed that he did not in the first instance include in his return any income from any of these three estates. Eventually, the assessee filed the profit and loss statements furnished to him by his agents with reference to each of these three estates. That the amounts shown as profits in those statements was assessable to tax as income was not in dispute before us. Those profit and loss statements showed fairly large stocks of estate produce unsold at the end of the accounting year. These stocks were sold in the next accounting year. The Income-tax Officer treated the sale price so realised as the value of the stock unsold on 31-3-1943, treated it as income that accrued during the accounting year ending on 31-3-1943, and added the sum so arrived at to the profits as disclosed in the profit and loss statements the assessee received from his agents. No separate accounts were maintained for any of these three estates by the assessee himself.

43. On appeal, the Assistant Commissioner held that it was not the sale price of the stock unsold on 31-3-1943 that represented the income but only its cost price. That he worked out by deducting from the price realised by the-sales in the succeeding year of account the-proportionate working expenses incurred during the accounting year ending with March 1943. The assessee did not dispute the correctness of those figures in the appeal he preferred to the Tribunal. The Tribunal rejected the contention of the assessee, that even the cost price of the stock unsold on 31-3-1943 was not income that accrued during the year of account ending with 31-3-1943 and confirmed the order of the Assistant Commissioner on this point.

44. The reference was first heard by this Court in March 1951. In calling for a further and better statement of the case from the Tribunal the learned Judges observed:

“If the system adopted by him (the assessee) is a mercantile accountancy system then the value of the produce which remained on hand unsold at the end of the year of account would have to be taken into account as the value of the closing stock. If the system of accounting is on a cash basis then it is; only the actual receipts and disbursements that will have to be taken into account in arriving at the assessable profits during the year of account.”

45. It was admitted that the assessee did not maintain any separate accounts of his own for any of these three groups of estates. The income from these estates was not taxed in any year prior to 1942-43; nor apparently was there any scope for any assessment in any subsequent year; Captain Alexander parted with all the three estates before the end of March 1943. After pointing out that the question, whether the estate accounts had been kept by the agents on a mercantile or cash basis, did not come up for consideration in any of the prior years as there was no taxable income from the estates, the Tribunal recorded in their further and better statement of the case the finding:

“It follows in view of the mercantile system adopted by the managing agents all the income from the estates has to be computed by following the closing stock of unsold produce at cost price calculated by taking the proportion of the working expenses relating to the unsold stock.”

46. As we have already observed, the assessee did not maintain any accounts of his own. The return he submitted is not before us; but then the income from the estates was obviously not included in the original return. The Income-tax Officer recorded that the method of accounting on which his assessment was based was mercantile. No objection appears to have been taken before the Assistant Commissioner, that the mercantile basis of accounting should not have been adopted by the Income-tax Officer when the assessee himself did not adopt it. Even before the tribunal, no such specific plea appears to have been taken. In its order the Tribunal recorded:

“The argument of the learned lawyer for the (assessee) appellant seems to be that businesses of this type need not take into consideration, for the purpose of determining their income from year to year, the value of any stock remaining unsold at the close of their accounting year.”

47. That contention the appellate tribunal rejected.

48. In view of the observations in the order of this Court, to which one of us was a party, and with which we entirely agree, “If the system adopted by the assessee was a mercantile accountancy system, then the value of the produce which remained on hand unsold at the end of the year of account would have to be taken into account as the value of the closing stock”, the only question to be decided now is whether the taxing authorities were right in adopting the mercantile system of accounting as the basis of assessment. Section 13 of the Income-tax Act runs:

“Income, profits and gains shall be computed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee:

Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine.”

49. The section itself should suffice to answer the second question against the assessee. There was no evidence that the assessee had any method of accounting for the income from the three groups of estates, which method he regularly employed. The finding was that he did not maintain any accounts of his own. No doubt, assessee has a statutory right to choose his, method of accounting. But before he can claim that his assessable income should be computed on the basis of the system of accounting of his choice, he must satisfy two conditions (1) that it was a method of accounting regularly employed and (2) that it was a method of accounting from which in the opinion of the Income-tax Officer, the income, profits and gains could properly be deduced. If neither of those conditions was satisfied, the proviso to S. 13 gave a statutory right to the Income-tax Officer to determine the basis and manner in which the income should be computed for purposes of assessment. In this; case we need not concern ourselves whether the second of these two conditions was satisfied. The assessee did not maintain any accounts. He did not regularly adopt any method of accounting for his income from the estates. So, the provisions of the proviso to S. 13 that had to be invoked were “if no method of accounting has been regularly employed—then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine.” No method of accounting had been employed by the assessee and the Income-tax Officer determined that the computation should be on the mercantile basis. With the exercise of such a statutory right given to the Income-tax Officer, there can be no scope for any interference in the circumstances of this case at this stage. That this was not the approach to the question at issue either by the Assistant Commissioner or by the Tribunal—and it must be remembered the question was not raised in that form before them—does not really affect the determination of that question.

50. The Tribunal recorded that the method of accounting adopted by the agents of the assessee was mercantile. In view of what we have said above, the question whether the accounts maintained by the agents should be treated as the accounts of the assessee even when he maintained none of his own, does not arise for consideration. Even had those accounts of the agents not been produced, the Income-tax Officer would have had the right to adopt the mercantile basis of accounting for computing the income of Captain Alexander from his estates when he himself had not regularly employed any method of accounting for his income from that source.

51. As the tribunal observed, the correctness of the computation as finally made by the Assistant Commissioner was not Challenged even before the tribunal.

52. The answer to the second question referred to us is in the affirmative and against the assessee. As the assessee, now represented by his widow, the legal representative, Mrs. Alexander, has failed, she will pay the costs of the Commissioner of Income-tax—Rs. 250.

B/D.R.R

53. Reference answered.