The Judgment of the Court was delivered by

Govindan Nair, C.J:— At the instance of the assessee the Income-tax Appellate Tribunal, Cochin Bench, has referred the following question for our opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sale of Elangad estate by the assessee represented an adventure in the nature of trade resulting in a taxable profit of Rs. 1,70,175?”

2. We may add that the assessee wanted the following question also to be referred to this court:

“Whether, on the facts and circumstances of the case, the Tribunal was justified in rejecting the contention of the assessee that so long as the major portion of Yendayar estate remained unsold, the adventure, if any, was not concluded?”

3. The Tribunal observed that it was unnecessary to refer such a question separately as the question that was referred was comprehensive enough to cover the aspect “sought to be highlighted”.

4. The year of assessment is 1960-61. The facts which lead up to the sale are narrated in paragraphs 2, 3, 4 and 5 of the statement of the case, and the entire statement of the case is appended to this judgment.

5. It is stated in paragraph 6 of the statement of the case that “the Income-tax Officer and the Appellate Assistant Commissioner viewed the several transactions as integral parts of a single venture undertaken by the assessee and which venture resulted in the taxable surplus of Rs. 1,70,175”. The Tribunal too treated the various transactions as part of a single venture. This is clear from the statement of the case as well as from the order of the Tribunal. Paragraph 13 of the statement says “that the chain of facts starting from the acquisition of shares in Murphy Estates Ltd., the purchase of Yendayar estate, the acquisition of shares in Motor Transport Co. Ltd. (all made with the help of borrowings) and the disposal of the Elangad estate to Motor Transport Co. within about one year of acquisition went to show that the transactions in question were an adventure in the nature of trade”. We think this is the correct approach. And this is the view taken by the Supreme Court in G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax [1959] 35 ITR 594 SC.. The head-note in the report correctly depicts the dicta in the judgment and we extract a part of it:

“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 re-sale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are relevant, such as, e.g, 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 resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily re-saleable; any act prior to the purchase showing a design or purpose; the incidents associated with the purchase and re-sale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; 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. During the time that the purchaser had its possession he may 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 all relevant factors and circumstances that determines the character of the transaction.”

The underlining* is ours.

6. Before we proceed further we have to deal with an argument advanced by counsel for the revenue that this case, complicated as it appears from the innumerable activities of the assessee, can easily be disposed of on the simple ground that certain questions of fact have been found by the Tribunal and on those findings of fact entered by the Tribunal there is no alternative for this court but to answer the question referred to us against the assessee. In support of this contention our attention was drawn to certain passages from the order of the Tribunal. We shall refer to them in detail and extract every one of those sentences because the main argument in the case turned on the question whether this court should consider the effect of all the relevant facts most of which are admitted and decide the question that arises; that is whether the transaction represented an adventure in the nature of trade in the light of all that transpired or whether we should answer the question against the assessee by holding that the facts found by the Tribunal oblige us to do.

7. The following sentences and passages from the order of the Tribunal have been relied on by counsel:

“The facts considered as a whole show that there is substance in the inference of the department that by a series of interlinked steps, the asses-see acquired and then disposed of the Elangad estate at considerable profit as an adventure in the nature of trade. Murphy Estates Ltd. was willing to sell and the assessee was willing to buy the entire Yendayar estate for Rs. 5 lakhs. The assessee did not have the necessary funds and he borrowed heavily to finance the same. If the purchase of Yendayar estate was on investment account, the assessee would not have borrowed on such a large scale as he was already in possession of about 1,000 acres of estate. The facts regarding the subsequent conduct of the assessee brought on record show that the purchase of the estate was not for the purpose of holding it or otherwise enjoying or using it.” (Para. 13)

“The agreement of June 12, 1958, itself provided that the assessee could sell the Yendayar estate wholly or partly even before the full purchase consideration of Rs. 5 lakhs had been paid by him to the vendor company. It is reasonable to presume that this is indicative to some extent of the expectations of the assessee made known to the vendor company, of selling the Yendayar estate within a short period of his taking over. Whatever evidence is available goes to show that the assessee did not intend to hold the Yendayar estate or part thereof as an investment and exploit it as an investment. For the purchase of the Yendayar estate, the assessee had to incur heavy borrowings. The assessee was already familiar with the potential of the Yendayar estate as he had been managing that estate from March, 1957. It is not his case that he wanted to acquire and hold it as an investment and for that purpose he incurred a heavy liability by way of borrowings and that having acquired it in June, 1958, and having been put in possession of it, suddenly discovered that it was not a profitable investment and, therefore, disposed it of in June, 1959.” (Para. 14).

“These facts brought on record by the department go to show clearly that the acquisition on the part of the assessee (along with others) the shares of the Murphy Estates Ltd., the buying of the Yendayar estate for a consideration of Rs. 5 lakhs, the subsequent acquisition of almost all the shares of Motor Transport Co. Ltd. and finally the sale to Motor Transport Co. Ltd. of the Elangad estate at a considerable profit are all integral parts of a single venture. The shares of Murphy Estates Ltd. were acquired in November, 1956. Yendayar estate was acquired in June, 1958. Elangad estate was sold away as per agreement dated June 8, 1959, but negotiations for the sale had commenced in January, 1959, and an advance of Rs. 2 lakhs had been received by February, 1959. No clearer evidence is required to show that the transaction of purchase of Yendayar estate and sale of part thereof cannot be described as on investment account.” (Para. 16)

8. Most of the observations made cannot be characterised as findings on questions of fact. They are assertions arising from opinions and at best inferences drawn by the Tribunal from the proven or admitted facts. But such inferences in cases of this nature give rise to questions of law. The Supreme Court said in G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax :

“In dealing with findings on questions of mixed law and fact the High Court would no doubt have to accept the findings of the Tribunal on the primary questions of fact; but it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure points of law.”

9. There is no doubt a finding that the evidence narrated indicated that the purchase of the entire estate and the sale of a part thereof cannot be described as on investment account. But that is the question we have to consider and it has been referred to us. The question is certainly wide enough to enable this court to appreciate all the relevant circumstances and apply the correct legal principles in order to find out whether there was an adventure in the nature of trade. If we come to the conclusion that it was an adventure in the nature of trade it would naturally follow that the purchase was not an investment. To say, therefore, that the purchase was not an investment only means that the Tribunal was of that view. In this reference we have to consider whether that view is correct.

10. In paragraph 16 of the Tribunal's order (already extracted) there are two observations by the Tribunal rejecting the case of the assessee that a part of Yendayar estate was sold because of pressure from two creditors, the South Indian Bank Ltd. and Mrs. Sara Cherian. The Tribunal observed “that the story of a dire necessity for sale is far from true”. This observation also we do not think will conclude or will be a conclusive factor in determining the question before us. We are left with two more observations contained in paragraph 22 of the Tribunal's order which incidentally is the last but one paragraph of the long order of the Tribunal. The passages are:

“No doubt, the assessee has never dealt in real estate and the onus was on the department to discharge the burden that the acquisition and sale of the asset in question partook of the nature of a business activity. That the department has discharged this burden is evident from the facts brought on record and to which a detailed reference has already been made. The chain of facts starting from the acquisition of shares in Murphy Estates Ltd., the purchase of Yendayar estate, the acquisition of shares in Motor Transport Co. Ltd. (all made with the help of borrowings) and the disposal of the Elangad estate to Motor Transport Co. Ltd. within about one year of acquisition goes to show that the transaction in question was an adventure in the nature of trade. The intention to re-sell at a profit was there. The conduct of the assessee subsequent to the purchase also confirms that this was the sole intention.”

11. Reliance had been placed by counsel for the revenue on the last two sentences which we have extracted above and it was contended that the Tribunal having found that the sole intention of the purchase was to re-sell at a profit, the principle of the decision in G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax would apply and that the question must be answered in favour of the revenue. The last two sentences cannot be torn from their context. Read with the whole passage and the remaining parts of the order those sentences only embody the inference drawn by the Tribunal. The sole intention to sell, it is said on the basis of the ruling in G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax , will clinch the issue. But the question is whether there was such a sole intention and that question we consider is covered by the question referred to us.

12. In a case of this nature we do not think that the approach to be made is by trying to find out whether there are sentences in the order of the Tribunal which can be interpreted to be findings on certain aspects all of which must be taken together in determining the question referred. When we read the Tribunal's order as a whole we only find the conclusion that the transaction did not evidence an investment but really showed an adventure in the nature of trade. This question is the one that we have to consider in this reference and we do not think that it can be answered without considering all the facts and merely on the basis of certain observations made by the Tribunal which are only certain inferences of the Tribunal. In a case of this nature where the question is whether there is an adventure in the nature of the trade it is not the rule laid down by the Supreme Court in Bai Velbai v. Commissioner of Income-tax [1963] 49 ITR SC 130, 132. that would apply. There the question was whether certain amounts received by conversion of high denomination notes came from savings or withdrawals from business or was income from undisclosed sources. It was held that the only questions that can arise are:

“(1) Whether there was any evidence or material to support the finding of the Tribunal that the sum of Rs. 1,38,000 represented the assessee's income from undisclosed sources;

(2) whether the conclusion arrived at by the Tribunal that the sum of Rs. 1,38,000 was the assessee's income from undisclosed sources was perverse in the sense that no reasonable man could come to it on the materials on record; and

(3) whether the said conclusion was based on conjecture, surmise or suspicion and on a failure to consider relevant evidence in the record.”

13. But the question here is more complicated and we think it is the rule in G. Venkataswami Naidu & Co.'s case which must govern the matter. We have already extracted the relevant passage from the judgment. We cannot accept the argument that we are trammelled by any findings on facts entered by the Tribunal. The so-called findings are merely the inferences drawn by the Tribunal. We have to examine whether the inferences are correct and whether the sale was an adventure in the nature of trade.

14. We shall start doing so by quoting an illuminating passage from an early judgment of an English court in Commissioners of Inland Revenue v. Reinhold. There is the following passage in the judgment:

“I do not wish, however, to read this passage out of its context and without regard to the facts of the case then under consideration, and I draw attention to Lord Dunedin's language being used with reference to ‘an investment’, meaning thereby, as I think, the purchase of something normally used to produce an annual return such as lands, houses, or stocks and shares. The language would, of course, cover the purchase of houses as in the present case, but would not cover a situation in which a purchaser bought a commodity which from its nature can give no annual return. This comment of mine is just another way of saying that certain transactions shew inherently that they are not investments but incursions into the realm of trade or adventures of that nature. In my opinion, it is because of the character of such transactions that it can be said with additional definiteness that certain profits are income from trade and not capital accretion of an investment, the purchase and sale of, for instance, whisky, as in Fraser's case [1942 24 TC 498 C Sess., was a trading venture and so too in regard to toilet paper: Rutledge4. This means that, although in certain cases it is important to know whether a venture is isolated or not, that information is really superfluous in many cases where the commodity itself stamps the transaction as a trading venture, and the profits and gains are plainly income liable to tax.

It will have been observed that Lord Dunedin in the passage quoted gives an evidential value to a man's intention not to hold an investment, which may justify the inference that the individual in question is engaged in a venture of the nature of trade, but such an item falls to be offset by the way the individual makes his living and the part which the transaction plays in his activities as a whole. On such an enquiry in the present case, we find that the respondent is a warehouse company director and not a property agent or speculator, and that the only purchases of property of which we are made aware are two separated by ten years, and that the first heritage was acquired without intention to sell, which only arose fortuitously. I would, therefore, say that the Commissioners of Inland Revenue have failed to prove—and the onus is on them—the case they sought to make out.”

15. A number of principles have been enumerated if we may say so with respect succinctly and in the narrow compass of a few sentences. (1) The commodity purchased plays an important role in deciding whether a person was indulging in an adventure in the nature of trade or was making an investment, (2) whether the transaction was an isolated one or formed part of a series of transactions showing a tendency to indulge in trade is another important factor, (3) the fact that the property bought has been sold within a short time does not by itself indicate that the transaction was in the nature of trade, (4) if land has been purchased or a commodity which normally is not treated as a stock-in-trade has been purchased, the presumption is that the intention was to make an investment and not to indulge in an adventure in the nature of trade, and (5) if the property purchased was capable of yielding income then again the inference was that an investment was intended and not an adventure.

16. Briefly, to recapitulate the facts, we must emphasise that there is no evidence that the assessee was in the habit of buying and selling estates or even of his having at any time bought an estate and sold it within a few months or even a few years. The occupation of the assessee was to derive income from owning and managing plantation. At the time he entered into the agreement in 1958 with Murphy Estates Ltd., to purchase 575.175 acres of estate he was already the owner of 1,000 acres. He sold only 225 acres out of the 575.175 acres he purchased. No doubt by the sale he made a profit in the sense that he got more than he paid for that part of the estate which he sold. He had borrowed for purchasing the estate. He had more than 3 lakhs of rupees debt at the time he sold the estate. The remaining part by no means was negligible. Actually, the balance 350 acres remained with the assessee at the time the Income-tax Officer passed the order of assessment, nearly seven years after the purchase, and nearly six years after the sale of a part of the property that he purchased. The property was sold to a company in which the assessee himself held 98 per cent. of the shares. In effect, it was, therefore, only a transaction of transfer from an individual to an one-man company. It is in this background one has to view the question whether there was an adventure in the nature of trade and we feel no hesitation in these circumstances in coming to the conclusion that there was no adventure in the nature of trade. The fact that a person had the intention to sell at profit is never conclusive. In fact no person who makes an investment does so with the expectation that when he realised that investment he will realise less or only what he paid. On the other hand, every person who invests does so with the idea that if it became necessary either to change the investment or to realise it he will realise more than what he paid. We would go further and say that even if a person bought with the intention that he should sell in due time and make a profit that would not amount to an adventure in the nature of trade. “If a land-owner, finding his property appreciating in value, sells part of it, and uses part of his money still further to develop the remaining parts, and so on, he is not carrying on a trade or business; he is only properly developing and realising his land; and the position would be the same if a company or a firm thus deals with land as a land-owner.” This is an extract from the passage in the commentaries to section 4 of the Income-tax Act, 1961, by Kanga and Palkhivala and the cases cited support the statement. The assessee, if he wanted to retain the estate that he had purchased would have had certainly to discharge the debts, debts arising from the borrowings to enable him to invest. The assessee's case that he sold a part of the estate to clear the debts had been discarded by the Tribunal by stating that there was no dire need to sell. The date for payment of the loan, it is said, had not expired. This is a very unrealistic approach. The sale was on June 8, 1959. But the assessee had put the transferee in possession of the estate in June, 1959, and had received 2 lakhs of rupees in advance before the actual sale deed was executed. The Tribunal rejected the case of the assessee that he sold in order to clear his debts on the ground that there was still time to pay till April and the sale agreement need not have been entered into earlier. No person who is desirous of having his obligation discharged can be expected to wait till the last minute to find the necessary financial resources. We find it difficult to follow the reasoning of the Tribunal in discarding the case put forward by the assessee. The Tribunal itself made the following observations earlier in its order at the end of paragraph 14 regarding the case of the assessee that the sale was for discharging debts:

“If, indeed, this explanation is tested and found to be true, the taxability of the surplus in question will be open to serious doubt.”

17. It is an admitted fact that the assessee owed large sums of money to the South India Bank Ltd. and Mrs. Sara Cherian. Nobody suggested that there was no need to discharge these debts on or before the due date. Nobody suggested that it would be a prudent act to try and keep the entire estate without discharging the liabilities. Nobody suggested that these liabilities had not been cleared. The Tribunal took the view that a sale at the time it was made was unnecessary. That is a question which should have been left to the assessee to decide. The Income-tax Officer or the Tribunal should not in such matters substitute his or their judgment for that of the assessee. So the conclusion is irresistible that the sale was only a realisation of a part of the investment made by the assessee which was thought of by the assessee to be a necessity.

18. There is no iota of evidence in the case to indicate or which would enable the inference being drawn that the Yendayar estate was not bought with the idea of keeping it. The assessee might have made all attempts to strike the best bargain. But these are steps any person is likely to take even when he was intending to make an investment. The fact that he indulged in borrowing for the purpose of purchasing the estate cannot conclude the question.

19. We have not referred to the innumerable decisions on the subject because after all as has often been said the decision of a case must turn on its own facts and the principles that have to be applied have been clearly laid down by the Supreme Court in the decisions in Janki Ram Bahadur Ram v. Commissioner of Income-tax and Saroj Kumar Mazumdar v. Commissioner of Income-tax. These decisions show that the onus in cases of this type is entirely on the department and that the onus cannot be satisfied by mere surmises. The decision of the Supreme Court in G. Venkataswami Naidu & Co.'s case reiterated the same principles. The Supreme Court held on the facts of that particular case that the purchase of the land by the managing agents and the sale of the entire land purchased was clearly an adventure in the nature of trade. The facts of that decision are entirely different from the facts we are dealing with here. This is the case of an isolated transaction. The land purchased was an estate. The assessee who bought it was an estate owner who owned one thousand acres of estate at the time he purchased the estate in question and he was making his living by managing estates. He never dealt with the purchases and sales of land or estate. It is not shown that he has any business or trade. The bulk of the estate purchased had been retained by him. The inference is irresistible that the intention was to invest.

20. We answer the question referred to us in the negative that is against the revenue and in favour of the assessee. We direct the parties to bear their respective costs.

21. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (1) of section 260 of the Income-tax Act, 1961.