Jagannatha Shetty, J.:—
The Income-Tax Appellate Tribunal, Bangalore Bench has referred the following question under Section 256(1) of the Income-Tax Act, 1961:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from the sale of sites was assessable as capital gains and not as business profits?”
2. The assessee along with his son jointly purchased a plot of land situated at Vijanpura village in Krishnarajpura Hobli, Bangalore North Taluk. The land was located within the urbanized area adjacent to big factories like I.T.I, Kempson & Co. etc. They purchased the land in 1962 from an agriculturist as an agricultural land. But, no attempt was, made by the assessee or his son to cultivate the said land. The land was left fallow up to 1969 in which year the assessee obtained permission to convert the land for non-agricultural purposes. Immediately thereafter he formed lay-out with the laid out plots as house sites and sold some of the sites to the workers in the nearby factories.
3. The assessee contended that he made the investment in agricultural land with the intention of cultivating it and he never indulged in land business and the income realised by him, therefore, should be treated as capital gains. The Income-Tax Officer rejected that claim. He held that neither the assessee nor his son was an agriculturist. The assessee purchased the land with a view to convert it into sites and therefore, the entire transaction should be treated as an adventure in the nature of trade. He accordingly assessed the income as business profits and not as capital accretion.
4. On appeal, the Appellate Assistant Commissioner upheld the view taken by the I.T.O But, on further appeal to the Appellate Tribunal, the assessee succeeded. The Tribunal was of the opinion that it was a case of realisation of investment in the land. The Tribunal took into consideration the gap between 1962 and 1969 during which period the land was allowed to remain fallow. It observed that the assessee did not deal in any other land at any time either prior or after the transaction in question. It then concluded that the transaction was not in the nature of trade and the Department has not made out any case in that regard.
5. It is a well settled principle that the Court in each case has to determine the nature of the transaction, its volume, frequency, continuity and regularity and there is hardly any abstract rule, principle or test for application.
In G. Venkataswami Naidu & Co. v. C.I.T . 1959 35 ITR 594. the Supreme Court observed at page 609:
“Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the case on the border line that cause difficulty. If a person invests money in land intending to hold it, enjoys its income for sometime, 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 adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant. Was the purchaser a trader and were the purchase of the commodity and its resale allied to his usual trade or business or incidental to it? Affirmative answers to these questions may furnish relevant data for determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated?”
In Raja J. Rameshwar Rao v. C.I.T . 42 ITR 179. the Supreme Court observed: (head note)
“Even a single venture may be regarded as in the nature of trade or business. When a person acquires land with a view to selling it later after developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes; further and divides the land into plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it, but in parcels, he is dealing with land as his stock-in-trade; he is carrying on business and making a profit.”
In Janki Ram Bahadur Ram v. C.I.T . 57 ITR 21. the Supreme Court observed:
“A transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade. However, the magnitude of the transaction of purchase, the nature of the commodity, the subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture.”
6. From these decisions it will be clear that no individual or single fact can be taken as a decisive rule in finding out the correct character of the transaction. The cumulative effect of all the facts and circumstances has to be taken into consideration for the said purpose.
7. Applying these principles we may now proceed to consider the facts found in the instant case. The assessee did not purchase the land by himself. He along with his son purchased the land as joint owners. Both of them were businessmen and not agriculturists. They purchased the land located within the urban area surrounded by big factories. If the idea of the assessee was to make an investment in the land, he would not have left the land without cultivation. It was allowed to remain fallow continuously for five years. He thereafter obtained permission from the Special Tahsildar for conversion of the land into non-agriculture purposes. After obtaining the permission, he formed a lay-out for house sites and sold some of the laid out sites to the workers in the nearby factories. These events clearly establish that the assessee purchased the land with a view to sell it as attractive house sites with profits.
8. Mr. S.P Bhat, Learned Counsel for the Respondent however, submitted that it was for the Revenue to establish that the assessee at the time of purchase of the land had the intention not to invest in the land. He also urged that time lag of five years to obtain permission for conversion of the land is sufficient to indicate that the assessee wanted to keep the land as an agricultural land.
9. We do not think that this circumstance is of much assistance to the assessee. On the contrary, it is very much against his contention. Keeping the land fallow without any attempt to cultivate for five years and forming house sites for attractive sale would defy all doubts about the intention as to investment in the land. The case plainly falls within the ratio of the decision of the Supreme Court in Raja J. Rameshwar Rao's case.
10. The Tribunal, in our opinion, was patently in error in coming to the conclusion that the assessee purchased the land with a view to make investment and not as an adventure in the nature of trade.
11. In the result, we answer the question in the negative and in favour of the Revenue.