it was number disputed that the excess over the price realised for the re sale of stores was rs.
it is significant that the assessee firm invested very little of its own money in the purchase of the factory and the stores.
bren gun factory and that the transaction was launched upon with a view to make profit and number as a permanent investment.
7 lakhs to government of india though by that time it had sold properties valued over rs.
25 lakhs.
for rs.
by its letter dated december 24 1946 alladdin company accepted the proposal and informed the additional financial adviser that the board had agreed to purchase the brengun factory and the first payment would be made on 1st or 2nd january 1947.
and for the re sale of part of the factory land building etc.
number having ready cash to pay the first instalment the firm borrowed the sum from the state bank and the central bank pledging the shares of the partners valued at about rs.
40000 was agreed to be paid towards the price.
in the circumstances the inference that that resolution was passed at the instance of the assessee firm is number unreasonable.
appeals by special leave from the judgment and order dated july 23 1964 of the andhra pradesh high companyrt in case referred number 42 of 1962.
and 46 acres of land 14 factory buildings furniture railway siding etc.
on behalf of the appellant mr.
36 lakhs on the.
negotiations for the purchase of brengun factory situate in the out skirts of hyderabad companymenced in december 1946.
226484 o.s.
alladdin company started asbestos company in 1946 and the laminated products in 1947.
the property purchased companysisted of 24 acres of land factory buildings ind furniture and the sale deed was executed on february 11 1948.
it is apparent that the interval of time between the purchase of the factory and the sale was about 3 months and this is hardly companysistent with the companytention of the assessee firm that it had purchased the property as an investment.
the companyrespondence between the parties admittedly ended in february 1946.
the assessment years involved in these appeals are 1358 f. 1953 54 and 1954 55 the relevant accounting periods being the years ending 30 9 1948 30 9 1952 and 30 9 1953 respectively.
it is manifest that within one year of the purchase of the brengun factory the assessee firm realised rs.
which was considered necessary on the 28th december 1946 was given up and the price of rs.
on that day the companypany resolved that in view of the special facilities for power water and railway siding at the alladin industrial estate sanathnagar sanction should be accorded for the acquisition of the proposed area of 8 acres of land for the location of the companypanys factory as per the rate offered to the companypany i.e. at o.s.
pursuant to the resolution a sale deed appears to have been executed in favour of the asbestos company on 31st march 1947.
alladin company was the managing agent of several joint stock companies viz.
hyderabad asbestos cement products limited hereinafter referred to as the asbestos company hyderabad laminated products limited hereinafter referred to as the laminated products hyderabad allwyn metal works limited hereinafter referred to as the allwyn company and others.
the numberice companyvening the meeting was issued on the 23rd december 1946 on which date the assessee .firm had number even intimated their acceptance of offer made by the government of india for the sale of brengun factory.
the interest on loans on over drafts is paid to be 41 per cent.
it is also admitted that the sale deed in favour of the asbestos company as well as the laminated products and allwyn company were executed by the government of india in their favour direct.
a sale deed was executed pursuant to the resolution in june 1948.
it is a significant circumstance that on 23rd december 1946 a meeting of the board of directors of the asbestos company was held and in that meeting a resolution was passed that the government should be approached in the matter of the valuation of the site and building in tile establishment of the asbestos works in the premises of the brengun factory purchased by the assessee firm and that the managing agents be authorised to address nawab medhi nawaz jung bahadur in that behalf.
pursuant to the resolution of 28th december 1946 the asbestos company resolved to purchase 14 acres of land buildings etc.
the assessee firm was thus paying off the dues to the government and also discharging its debts by selling fractions of the property.
the companytention of he assessee firm was rejected by the income tax officer by the appellate assistant companymissioner and by the appellate tribunal in appeal.
3390908 by the sale of 46 acres of land and buildings in all making a profit of rs.
5 lakhs.
these facts establish that the assessee firm had number enumbergh financial resources to invest rs.
the price of the brengun factory and the properties together with the furniture etc.
30 lakhs.
with regard to the factory it was argued that it was an investment and number an adventure in the nature of trade and as such the excess amount realised represented a realisation of capital asset.
7 lakhs to the government though by that time it had sold over rs.
the next transaction relates to the purchase by the allwyn company the board of directors at its meeting on october 29 1947 resolved to sell away their existing factory buildings at azamabad to the nizams state railway and purchase the new factory land and buildings as sanathagar for rs.
the assessee firm purchased the brengun factory and the properties attached to it companysisting of 403 acres of land 14 factory buildings about on hundred residential quarters and railway sidings furnitures etc.
for rs.
it was companytended that the assessee firm had number developed the land or parcelled it out with the view to sell it to purchasers as a residential area and make a profit.
sukumar mitra y. v. anjaneyulu bhuvnesh kumari j. b. dadachanji and o. c. mathur for the appellant in all the appeals .
the latter informed the two alladin brothers that the government of india had decided to sell the brengun factory as the war had ended and it was going cheap.
it was admitted by the assessee firm before the appellate tribunal that the surplus realised by the resale of stores was number a capital accretion but an adventure in the nature of trade.
niren de solicitor general s. k. aiyar r. n. sachthey and p. naya for the respondent in all the appeals the judgment of the companyrt was delivered by ramaswami j. these appeals are brought by special leave from the judgment of the high companyrt of andhra pradesh dated 23rd july 1964 in referred case number 42 of 1962.
the property income from bren gun fac tory during the year 1953 54 as would appear from the assessment orders of the years 1953 54 1954 55 was about rs.
the mnents for the subsequent years were made under the indian act.
in other words the assessee firm was purchasing selling and liquidating the loans which would all show the companymercial nature of the transaction.
it appears from the balance sheet as on september 30 1948 that even after the extended date it still owed rs.
22000 i.g.
civil appellate jurisdiction civil appeals number.
20 lakhs for rs.
the view taken by the appellate tribunal was that the assessee firm had planned a well calculated scheme of profit making that it had the intention of exploiting the properties which it had purchased to its advantage that the transactions in question companystitute an adventure in the nature of trade and any surplus which it got by sale of the portions of the properties was liable to tax.
on 18th december 1946 there took place a meeting between khan saheb dost mohammed alladin and numberr mohammed alladin on behalf of alladin company and khan bahadur obaidullah the then additional financial adviser to the government of india.
at the instance of the assessee firm the appellate tribunal stated a case to the high companyrt on the following question of law whether the purchase of the site and buildings knumbern as brengun factory was in the companyrse of a profit making scheme or an adventure in the nature of trade by its judgment dated 23rd july 1964 the high companyrt answered the question against the assessee firm.
the assessee firm acquired the brengun factory with the intention of starting a bicycle factory or some other industry as an investment but number with the intention of resale.
it was stated that the purchase was an isolated transaction and even after the sales a major portion of the factory remained with the assessee firm.
the provision of law under which assessment was made for the assessment year 1358 f. was section 31 3 of the hyderabad income tax act hereinafter referred to as the hyderabad act which companyresponds to s. 23 3 of the indian income tax act 1922 hereinafter referred to as the indian act .
1046834 o.s.
the companytract of sale was made subject to the condition that the hyderabad government was numberlonger interested in the factory and also subject to the confirmation by the board of directors.
708 to 710 of 1966.
the argument was stressed that the purchase and sale of land and buildings was number in the line of business of the assessee firm.
it was agreed that the price of the factory building should be fixed at rs.
the sale was in favour of the laminated products pursuant to a resolution passed on 17th september 1947.
30 lakhs worth of property.
it should be numbericed that the valuation by the p.w.d.
it got six months time from the government of india to pay the price in instalments and paid it by pledging its shares with the banks by obtaining further loan from the banks on over drafts and by selling portions of the factory to the asbestos company and laminated products and the allwyn company the balance sheet of the assessee firm as on 31 9 1948 disclosed that the assessee firm owed about rs.
9 lakhs.
was fixed at rs.
the submission made on behalf of the appellant was that the transaction of purchase was in the nature of investment and was number an adventure in the nature of trade and the sales represented the realisations of capital asset.
27 lakhs and of the stores at rs.
was rs.
5000 per acre and a sum of rs.
in venkataswami naidu company v. companymissioner of income tax 1 it was pointed out by this companyrt that the expression in the nature of trade in sub section 4 of section 2 of the indian 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 a tribunal while companysidering the question whether a transaction is or is number an adventure in the nature of trade before arriving at its companyclusion on the facts has.
1190661.
2648215 o.s.
the assessee firm khan bahadur ahmed alladin sons hereinafter referred to as the assessee firm consists of three partners khan bahadur ahmed alladin and his two sons khan saheb dost mohammed alladin and numberr mohammed alladin.
alladdin co. asked for six months time for making the payment but finally it was agreed that the price should be paid in four equal monthly installments companymencing from 1st january 1947.
953918 o.s.
9 lakhs.
the government of hyderabad had 50 share holding in both these companypanies.
sukumar mitra argued that the assessee firm along with abdullah alladin brother of khan bahadur ahmed alladdin had been carrying on business as a partnership firm under the name of khan bahadur ahmed alladdin and companypany hereinafter referred to alladdin co. it had substantial interest in various joint stock companies and was the managing agent of several joint stock companies and possessed companysiderable financial resources.
1399753 by the sale of stores and rs.
27 lakhs while the price of the stores was fixed at rs.
in addition to the stores from the government of india.
5 lakhs was accepted by the board of directors.
8 lakhs.
there is anumberher aspect of the matter to be taken into account.
during the relevant accounting years the assessee firm sold a part of the stores for rs.
