IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
 
PRESENT: MR. JUSTICE MIAN SAQIB NISAR, HCJ 
 
 
MR. JUSTICE UMAR ATA BANDIAL 
 
 
MR. JUSTICE FAISAL ARAB 
 
CIVIL APPEAL NO.8 OF 2007 
(Against 
the 
judgment 
dated 
12.4.2006 of the High Court of Sindh, 
Karachi passed in I.T.A.No.55/1999) 
 
 
Fancy Foundation 
 
…Appellant(s) 
VERSUS 
 
Commissioner of Income Tax, Karachi 
 
…Respondent(s) 
 
For the appellant(s): 
Mr. Iqbal Salman Pasha, ASC 
 
 
For the respondent(s): 
Mr. M. D. Shahzad Feroz, ASC 
 
 
Date of hearing: 
13.4.2017 
… 
ORDER 
 
MIAN SAQIB NISAR, CJ.- The facts of this appeal are that 
the appellant, namely, Fancy Foundation, is a registered charitable 
trust. It purchased property bearing Plot No.7/3, Survey Sheet SR-1, 
Serai Quarters, I. I. Chundrigar Road, Karachi (the property) vide a 
registered 
sale 
deed, 
on 
28.06.1963, 
for 
a 
consideration 
of 
Rs.1,895,183/-. It finally sold the property for Rs.18,287,500/- in the 
year 1995. The appellant filed its income tax return for the year 1996-
97, in which it claimed exemption from payment of income tax on the 
surplus/differential between the purchase and sale prices of the 
property in terms of Section 27(2)(a) of the Income Tax Ordinance, 1979 
(the Ordinance). However, the department passed an assessment order to 
the effect that the profit made upon the sale of the property was income 
from business thus the appellant was liable to pay income tax 
thereupon in light of Section 22 read with Section 2(11) of the 
Civil Appeal No.8 of 2007 
-: 2 :-
Ordinance. The appellant’s appeals before the Commissioner Income 
Tax (Appeals) and the Income Tax Appellate Tribunal, and the income 
tax reference before the learned High Court all failed. Leave was granted 
on 03.01.2007 to consider whether “the petitioner was not an adventure in the 
nature of trade and was not liable to tax under the Income Tax laws as the surplus 
amount/profit received by the petitioner Foundation from the transaction of sale was in 
the nature of capital gain which is exempt from charge to tax.”  
2. 
 
Heard. We will first attend to the argument of the learned 
counsel for the respondent that the reference before the learned High 
Court was not maintainable as no question of law arose from the order 
of the Tribunal. In the judgment reported as Naseer A. Sheikh and 4 
others Vs. The Commissioner of Income-Tax (Investigation), Lahore 
and others (1992 PTD 621) this Court held that the High Court had 
erred in returning the reference to the Tribunal without answering the 
questions referred to it because whether or not the sale of the second lot 
of shares (resulting in a gain to the appellants) constituted an adventure in the 
nature of trade, was a mixed question of law and fact whilst the High 
Court had wrongly treated it as a pure question of fact.1 Thus we hold 
that the question of whether the sale/purchase of property constitutes 
‘business’ within the meaning of Section 2(11) of the Ordinance and its 
effect on the taxpayer involves a factual determination of the 
characteristics of the transaction in question and an interpretation of 
the aforesaid provision of law, therefore, this is a mixed question of fact 
and law and the reference before the learned High Court was 
maintainable.  
3. 
 
Sections 22 and 27 of the Ordinance (relevant parts) read as 
under:-  
                                       
1 See also Oriental Investment Co., Ltd Vs. The Commissioner of Income-tax Bombay (AIR 1957 SC 852), 
Juggilal Kamlapat, Kanpur Vs. Commissioner of Income Tax, U. P. (AIR 1970 SC 529) and Commissioner of 
Income-tax, Bombay Vs. H. Holck Larsen (AIR 1986 SC 1695). 
Civil Appeal No.8 of 2007 
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22.  
Income from business or profession.– The 
following incomes shall be chargeable under the head 
"Income from business or profession", namely:- 
(a)  
profits and gains of any business or profession 
carried on, or deemed to be carried on, by the 
assessee at any time during the income year; 
(b)  
…………………………………………………….; and 
(c)  
…………………………………………………… 
Explanation……………………………………………… 
 
27.  
Capital gains.- (1) Any profits or gains arising from 
the transfer of a capital asset shall be chargeable under the 
head "Capital gains" and shall be deemed to be income of 
the income year in which the transfer took place. 
 
(2) For the purposes of sub-section (1) and section 28 and 
29,– 
(a) "capital asset" does not include- 
(i)  
……………………………………………………; and 
(ii)  
any immovable property; and 
 
(b)  
"transfer" includes the sale, disposition, exchange 
or relinquishment of the asset, or the extinguishment of any 
rights therein, but does not include– 
⁞ 
 
4. 
 
Section 15 of the Ordinance provides various heads of 
income for tax purposes. The two relevant heads are ‘income from 
business or profession’ [Section 15(d)] and ‘capital gains’ [Section 15(e)]. 
According to Section 27 of the Ordinance, any profits or gains arising 
from the transfer of a capital asset shall be chargeable under the head 
‘capital gains’ and shall be deemed to be income of the (income) year in 
which the transfer took place. As per Section 27(2)(ii) of the Ordinance, 
for the purposes of Section 27(1) thereof, capital asset does not include 
any immovable property. It is the appellant’s case that the property they 
sold was an immovable property and not a capital asset: therefore the 
profit/gain from its transfer was not chargeable to income tax under the 
Civil Appeal No.8 of 2007 
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head ‘capital gains’. Whereas the department’s stance is that the 
purchase and ultimate sale of the property was an “adventure in the nature 
of the trade” in terms of Section 2(11) of the Ordinance thus the 
profit/surplus made on the sale thereof was a profit and gain of a 
business carried on by the appellant and was chargeable to income tax 
under the head ‘income from business or profession’ under Section 
22(a) of the Ordinance. Hence the terms ‘adventure’ and ‘trade’ need to 
be defined. The ordinary dictionary meaning of ‘adventure’ is as 
follows:-  
Black’s Law Dictionary (9th Ed.) 
1. A commercial undertaking that has an element of risk; a 
venture. 
 
Chamber’s 21st Century Dictionary 
1. an exciting and often dangerous experience. 2. The 
excitement of risk and danger. 
 
Oxford Advanced Learner’s Dictionary (9th Ed.) 
1. an unusual, exciting or dangerous experience, journey or 
series of events. 
 
P. Ramanatha Aiyar’s Concise Law Dictionary (4th Ed.) 
A mercantile or speculative enterprise of hazard; a 
venture; 
 
‘Trade’ has been defined as under:- 
 
Black’s Law Dictionary (9th Ed.) 
1. The business of buying and selling or bartering goods or 
services. (n) 2. A transaction or swap. 3. A business or 
industry occupation; a craft or profession (vb) 
 
Chamber’s 21st Century Dictionary 
1. a. the act, an instance or the process of buying and 
selling; 3. a. business and commerce, especially as opposed 
to a profession or the owning of landed property; 
 
Civil Appeal No.8 of 2007 
-: 5 :-
Oxford Advanced Learner’s Dictionary (9th Ed.) 
1. the activity of buying and selling or of exchanging goods 
or services between people or countries. 
 
P. Ramanatha Aiyar’s Concise Law Dictionary (4th Ed.) 
Trade in its primary meaning is the exchanging of goods 
for goods or goods for money; in its secondary meaning it 
is repeated activity in the nature of business carried on 
with a profit motive, the activity being manual or 
mercantile, as distinguished from the liberal arts or 
learned professions or agriculture. State of Punjab v. Bajaj 
Electricals Ltd., AIR 1968 SC 739, 741. 
 
5. 
 
Is the buying and selling of a single property an adventure 
in the nature of trade, rendering it a business? From the above 
definitions, “any adventure in the nature of trade” means an enterprise, 
venture or activity involving the buying and selling of goods or services. 
On a strict interpretation, the action of buying and selling property by 
the appellant may conceivably be tantamount to business. But, as per 
Section 2(11) of the Ordinance, ‘business’ “includes any, trade, commerce or 
manufacture, or any adventure or concern in the nature of trade, commerce or 
manufacture.” The use of the word ‘includes’ in the definition means that 
the definition is not exhaustive or all-encompassing, and it may well 
cover things other than those mentioned therein. Therefore ‘business’ 
has to be given its widest possible amplitude by examining its ordinary 
dictionary meaning, in the light whereof “adventure in the nature of trade” 
needs to be understood. ‘Business’ has been defined as under:-  
 
Black’s Law Dictionary (9th Ed.) 
1. A commercial enterprise carried on for profit; a 
particular occupation or employment habitually engaged in 
for livelihood or gain. 2. Commercial enterprises. 3. 
Commercial transactions. 
 
 
Civil Appeal No.8 of 2007 
-: 6 :-
Chamber’s 21st Century Dictionary 
1. the buying and selling of goods and services. Also called 
commerce, trade. 3. A regular occupation, trade or 
profession. 
 
Oxford Advanced Learner’s Dictionary (9th Ed.) 
1. the activity of making, buying, selling or supplying goods 
or services for money. 
 
P. Ramanatha Aiyar’s Concise Law Dictionary (4th Ed.) 
The word “business” is one of wide import and it means an 
activity carried on continuously and systematically by a 
person by the application of his labour or skill with a view 
to earning an income. Barendera Prasad v. I.T. Officer, 
AIR 1981 SC 1047, 1953. [Income-tax Act (43 of 1961), S. 
(1)(i)(a)]. 
 
Major Law Lexicon (4th Ed.) 2010  
An element of continuity and habit is essential to constitute 
the exercise of a profession or business. [AIR 1919 All. 
13(2)] 
 
Business connotes some real, substantial and systematic or 
organized course of activity or conduct with a set purpose. 
[Narain Swadeshi Mills v. Commissioner of Excess Profits 
Tax, AIR 1955 SC 176]   
 
In its ordinary parlance, ‘business’ entails regularity or continuity in an 
activity with the intention of earning income. Consequently, generally 
the adventure in the nature of trade must involve regular and 
continuous activity. Before giving a conclusive finding on what does or 
does not constitute an “adventure in the nature of trade” and is a ‘business’ 
within the contemplation of Section 2(11) of the Ordinance, it is 
pertinent to advert to the case law on the matter.  
6. 
 
In Commissioner of Income-Tax (Central), Karachi Vs. 
Messrs Habib Insurance Co. Ltd., Karachi (PLD 1969 Karachi 278),2 
                                       
2 This judgment was upheld by this Court in Messrs Habib Insurance Co. Ltd. Vs. Commissioner of Income-Tax 
(Central), Karachi (PLD 1985 SC 109). 
Civil Appeal No.8 of 2007 
-: 7 :-
the case was decided in favour of the department on the facts but the 
learned Division Bench of the High Court of Sindh held that:- 
 
…in order to constitute a business, there must be a 
continuous exercise of activity for the purpose of gain. This 
element of continuity is essential to constitute a business of 
investment. The reason for this condition is that in modern 
society people no longer hold their savings in gold or cash 
but are encouraged to invest their savings in property and 
securities, yet a man who invests his savings in buying a 
property would not be said to be carrying on a business if 
he lets out the property on rent, nor would a person who 
has purchased shares out of his savings be said to carry on 
business merely because he derives income from his 
investments. If, however, he regularly buys and sells 
property or shares, so as to make profit out of the 
fluctuations in the prices of property or shares, then it 
would be said that he was carrying on the business of 
investment; there is thus a fundamental distinction between 
the business of investment, and the purchase and sale of 
investments by a person. As pointed out by Lord Wright, in 
the definition quoted, even occasional speculation in 
shares does not amount to carrying on a business; 
therefore, a person, who buys property or shares and 
retains them for a long period of time, would not be 
considered to be carrying on the business of investment.  
 
In Naseer A. Sheikh’s case (supra) this Court, while considering whether 
a transaction of sale of shares by the assessee was an adventure in the 
nature of trade, held as under:-  
 
It is to be noticed that even if a receipt is of casual and 
non-recurring in character, it shall be liable to tax, if it 
arises out of business. The definition of the term `business', 
as given in section 2(4) of the Act, has already been 
noticed. The question as to whether or not that (sic) a 
transaction is an adventure in the nature of trade has to be 
determined, keeping in view the intention of the assessee, in 
the light of the legal requirements of concept of the 
business. 
Civil Appeal No.8 of 2007 
-: 8 :-
In the case of Commissioner of Income Tax Vs. Mahmood Ali (2008 
PTD 82) the High Court of Sindh opined as under:- 
 
The intention must be deduced from the facts and 
circumstances of each case and whether a man makes a 
business of speculation the same must be deduced from 
the facts of each case. The mere change of investment 
would not amount to adventure in nature of trade. It will 
be beneficial to quote the law laid down in the case of 
(1966) 62 ITR 578. In that case the company was a family 
company which was formed for the purpose of dealing in 
properties transferred to it and it had power to purchase 
and sell properties. The company made profits on the sale 
of land but it was held that the transaction of sale of plots 
was one that prudent owner of land would engage in and 
which was, therefore, no more than realization of a 
capital investment or conversion of land into money and 
not a venture in the nature of trade. 
 
18. We may further observe that in determining the nature 
of the transaction regard has to be made to the nature of 
the property, length of its ownership and holding, actual 
conduct of the assessee in respect of it all along and other 
factors including absence of evidence of any trading 
activity of the speculative venture. In another case the 
Indian Supreme Court in the case reported as AIR 1959 
SC 1252, while striking down the finding of the 
department, pointed out that mere fact that the assessee 
had realized that the property was valuable and would 
increase in price was no reason to hold that it should be 
treated as income and reliance was placed on a decision 
of the House of Lords in which it was held that: "An 
accretion of capital does not become income merely 
because original capital was invested in the hope and 
expectation that it would rise in value. If it so rises its 
realization does not make it income." 
 
Again the High Court of Sindh had the opportunity to dwell upon the 
issue of what constitutes an adventure in the nature of trade in the 
Civil Appeal No.8 of 2007 
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judgment reported as Major General (Retd.) M. Jalaluddin Vs. ACIT, 
CIR-VI, Zone-C, Karachi (2011 PTD 1377) in which the Court held:- 
 
6. 
Before adverting to the issue in hand, it would 
be pertinent if the law regarding adventure in the 
nature of trade be first examined. It is a trite 
proposition of law that facts of one case are to be 
examined 
on 
the 
basis 
of 
the 
surrounding 
circumstances of that case only. There may be 
occasions where the facts of one case may be akin to 
the facts of the other case but as no two sun rises are 
same so are the cases of tax laws. The prime 
consideration is the cases wherein the question of 
adventure in the nature of trade is involved is to 
examine and gather information from which it can be 
deduced as to what the intention of the purchaser was 
at the time of the purchase of the plot. If from the facts 
gathered it becomes imperative that the said plot was 
purchased with the intention of resale then the case 
squarely falls under the ambit of adventure in the 
nature of trade but if due to subsequent facts and 
circumstances the assessee had to sale a plot for some 
reasons to convert an un-remunerative asset into a 
remunerative asset and obtains a gain, specially in the 
case of sale of plot, the gain arising there-from is a 
capital gain on which no tax is applicable subject to the 
condition that the assessee is neither a dealer nor a 
habitual purchaser and seller of the plots, though this 
gain is not considered to be a yardstick so far as the 
sale of plots are concerned. It has been held in some 
decisions that under the given circumstances an 
isolated transaction of sale of the plot was held to be an 
adventure in the nature of trade and under different 
circumstances a series of sale of plots can be held not 
to be so. Therefore, no yardstick or parameter, as far 
this aspect is concerned, could be laid down and each 
case is to be judged on the basis of the facts pertaining 
to that case only. It is also a trite proposition of law 
that the onus of proving adventure in the nature of 
trade lies squarely on the department. 
 
Civil Appeal No.8 of 2007 
-: 10 :-
In Pakistan Steel Mills Corporation (Pvt.) Ltd., Karachi Vs. 
Commissioner Inland Revenue (Legal Division), Karachi and 
another (2012 PTD 723) the High Court of Sindh observed that:- 
 
“12. 
In order to establish that a transaction whereby a 
plot of land has been sold out for profit constitutes as 
“adventure in the nature of trade”, we have to take 
cognizance of the entire transaction keeping in view 
intention of the assessee at the time of purchasing the said 
land as well as future transaction whereby such land has 
been sold out by the assessee with a intention to earn 
profit. No hard and fast rule can be adopted in cases of 
adventure in the nature of trade and each transaction has 
to be examined on the basis of its own facts.” 
 
7. 
 
Coming to cases from the Indian jurisdiction, in the case of 
Messrs Narain Swadeshi Weaving Mills Vs. The Commissioner of 
Excess Profits Tax (AIR 1955 SC 176) the Supreme Court, while 
interpreting the term ‘business’ as defined in Section 2(5) of the Excess 
Profits Tax Act, 1940 (which is identical to the definition of ‘business’ in the Ordinance), 
held that:- 
 
“14. 
…Whether a particular activity amounts to any 
trade, commerce or manufacture or any adventure in the 
nature of trade, commerce or manufacture is always a 
difficult question to answer. 
 
On the one hand it has been pointed out by the 
Judicial Committee in the – ‘Commissioner of Income-tax, 
Bengal v. Shaw Wallace & Co.’, AIR 1932 PC 138 (A), that 
the words used in that definition are no doubt wide but 
underlying each of them is the fundamental idea of the 
continuous exercise of an activity. The word ‘business’ 
connotes some real, substantial and systematic or 
organised course of activity or conduct with a set purpose. 
On the other hand, a single and isolated transaction has 
been held to be conceivably capable of falling within the 
Civil Appeal No.8 of 2007 
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definition of business as being an adventure in the nature of 
trade provided the transaction bears clear indicia of trade. 
The question, therefore, whether a particular source of 
income is business or not must be decided according to our 
ordinary notions as to what a business is. 
 
In the facts and circumstances of the case, the Indian Supreme Court 
was of the opinion that the letting out of plant, machinery, etc., could 
not be held to fall within the definition of ‘business’ under Section 2(5) 
ibid. In the judgment reported as G. Venkataswami Naidu & Co. Vs. 
The Commissioner of Income Tax (AIR 1959 SC 359) the Indian 
Supreme Court, in great detail, observed as under:- 
 
16. As we have already observed it is impossible to evolve 
any formula which can be applied in determining the 
character of isolated transactions which come before the 
Courts in tax proceedings. It would besides be inexpedient 
to make any attempt to evolve such a rule or formula. 
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 cases on the border line that cause 
difficulty. 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 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 
Civil Appeal No.8 of 2007 
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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 regard to the purchase of the commodity 
and its subsequent possession by the purchaser, does the 
element of pride of possession come into the picture? A 
person may purchase a piece of art, hold it for some time 
and if a profitable offer is received may sell it. During 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 
contention that the transaction is in the nature of trade. 
These and other considerations are set out and discussed in 
judicial decisions which deal with the character of 
transactions alleged to be in the nature of trade. In 
considering these decisions it would be necessary to 
remember that they do not purport to lay down any general 
or universal test. The presence of all the relevant 
circumstances mentioned in any of them may help the 
Court to draw a similar inference; 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; and so, though we may attempt to derive 
some assistance from decisions bearing on this point, we 
cannot seek to deduce any rule from them and 
mechanically apply it to the facts before us.  
 
17. In this connection it would be relevant to refer to 
another test which is sometimes applied in determining the 
character of the transaction. Was the purchase made with 
the intention to resell it at a profit? It is often said that a 
transaction of purchase followed by resale can either be an 
investment or an adventure in the nature of trade. There is 
no middle course and no half-way house. This statement 
may be broadly true; and so some judicial decisions apply 
the test of the initial intention to resell in distinguishing 
adventures in the nature of trade from transactions of 
investment. Even in the application of this test distinction 
will have to be made between initial intention to resell at a 
profit which is present but not dominant or sole; in other 
Civil Appeal No.8 of 2007 
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words, cases do often arise where the purchaser may be 
willing and may intend to sell the property purchased at 
profit, but he would also intend and be willing to hold and 
enjoy it if a really high price is not offered. The intention to 
resell may in such cases be coupled with the intention to 
hold the property. Cases may, however, arise 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 property for himself or otherwise 
enjoying or using it. The presence of such an intention is no 
doubt 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. We thus come 
back to the same position and that is that the decision 
about the character of a transaction in the context cannot 
be based solely on the application of any abstract rule, 
principle or test and must in every case depend upon all the 
relevant facts and circumstances.  
 
In the case of Saroj Kumar Mazumdar Vs. Commissioner of Income-
tax, West Bengal (AIR 1959 SC 1252), the Indian Supreme Court, 
while 
determining 
whether 
the 
transaction 
in 
question 
had 
characteristics which would allow one to conclude that it was a venture 
in the nature of trade, held:- 
 
Hence, the possibility or the probability that the site may 
appreciate in value, would not necessarily lend itself to the 
inference that the transaction was a venture in the nature of 
trade, as distinguished from a capital investment. In all the 
circumstances of this case, the total impression created on 
our mind is that it has not been made out by the 
Department that the dominant intention of the appellant 
was to embark on a venture in the nature of trade, when he 
entered into the agreement which resulted in the profits 
sought to be taxed.  
Civil Appeal No.8 of 2007 
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In The Commissioner of Income-tax, Punjab, Haryana, Jammu and 
Kashmir and Himachal Pardesh Vs. Prabhu Dayal (dead) by his legal 
representatives (AIR 1972 SC 386) the Supreme Court of India, while 
dealing with the question whether the compensation received by the 
assessee for the termination of the agreement was a capital receipt and 
hence not taxable, held as follows:- 
 
11. 
Business as understood in the income-tax law 
connotes some real, substantial and systematic or 
organised course of activity or conduct with a set purpose – 
see the decision of this Court in Narain Swadeshi Weaving 
Mills v. Commissioner of Excess Profits Tax, 26 ITR 765 = 
(AIR 1955 SC 176). By this statement we do not mean to 
say that under no circumstance a single transaction cannot 
amount to a business transaction. But this is not one such. 
Herein we are dealing with the stray activity of a non-
business man. Hence it is difficult to agree with the 
Revenue in its contention that the agreement entered into 
by the assessee with the Dalmia Dadri Cement company 
should be considered as a business activity. 
 
In the judgment reported as The Commissioner of Income-tax, 
Nagpur Vs. M/s. Sutlej Cotton Mills Supply Agency Ltd. (AIR 1975 
SC 2106) the Indian Supreme Court was faced with the question as to 
whether the profit arising from the sale of shares was assessable as 
business profit. The Court observed as under:- 
 
13. 
Where a purchase is made with the intention of 
resale, it depends upon the conduct of the assessee and the 
circumstances of the case whether the venture is on capital 
account or in the nature of trade. A transaction is not 
necessarily in the nature of trade because the purchase was 
made with the intention of resale… 
 
14. 
A capital investment and resale do not lose their 
capital nature merely because the resale was foreseen and 
Civil Appeal No.8 of 2007 
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contemplated when the investment was made and the 
possibility of enhanced values motivated the investment 
(see Leeming v. Jones, (1930) 15 Tax Cas 333 and also the 
decisions of this Court in Saroj Kumar Mazumdar v. C. l. 
T. (1959) 37 ITR 242 (250-251) = (AIR 1959 SC 1252, 
1258-1259) and Janki Ram Bhadur Ram v. C. I. T. (1965) 
57 ITR 21 = (AIR 1965 SC 1898)). 
 
15. 
In I. R. C. v. Fraser, (1942) 24 Tax Cas 498 (502) 
(Scot) Lord Norman said: 
 
“The individual who enters into a purchase of an 
article or commodity may have in view the resale 
of it at a profit and yet it may be that that is not 
the only purpose for which he purchased the 
article or the commodity, nor the only purpose to 
which he might turn it if favourable opportunity 
for sale does not occur. An amateur may purchase 
a picture with a view to its resale at a profit, and 
yet he may recognise at the time or afterwards 
that the possession of the picture will give him 
aesthetic enjoyment if he is unable ultimately, or 
at his chosen time, to realise it at a profit…” 
 
16. 
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. Lord 
Dunedin said in Leeming v. Jones, (1930) 15 Tax Cas 333 
at p. 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 a 
concern in the nature of trade in respect of his 
investments, but per se it leads to no conclusion 
whatever." 
 
This Court laid down in Venkataswami Naidu & Co. v. 
C.l.T.(1959) 35 ITR 594 (610; 622) = (AIR 1959 SC 359 at 
p.367; 374) that the dominant or even sole intention to 
resale is a relevant factor and raises a strong presumption, 
but by itself is not conclusive proof, of an adventure in the 
nature of trade. 
Civil Appeal No.8 of 2007 
-: 16 :-
 
17. 
The intention to resell would, in conjunction with 
the conduct of the assessee and other circumstances, point 
to the business character of the transaction. 
 
In the judgment reported as Commissioner of Income Tax Vs. A. 
Muhammed Mohideen [(1989) 176 ITR 393] the High Court of Madras 
held that the transaction whereby the assessee purchased a property 
and sold the same after converting it into small housing plots did not 
amount to an adventure in the nature of trade as no material was 
presented by the department to indicate that the assessee ever intended 
to indulge in any trading activity. In holding so, the Court relied upon 
its own previous decision rendered in Commissioner of Income Tax, 
Madras Vs. Kasturi Estates (P.) Ltd. [(1966) 62 ITR 578] in which it 
held that:- 
 
Can we then say that the sales of land in the accounting 
year were transactions constituting an adventure in the 
nature of trade? A great deal of stress has been laid for the 
revenue on the objects mentioned in the preamble to and in 
the body of the memorandum and articles. Undeniably, the 
company has the power to deal or traffic in immovable 
property, to purchase and sell it at a profit as a business. 
But the objects by themselves are not determinative of the 
character of the transaction, though the objects should be 
kept in view. A sale of immovable property may possibly be 
a trading or commercial transaction, but need not 
necessarily be so. Here is a company possessed of vast 
immovable property including lands in different parts of the 
city and mofussil. It may well be described that the 
company is a land-owner or at least its position may be 
similar to it. There are no facts and circumstances present 
in the case which may be inconsistent with that way of 
looking at it, notwithstanding the objects shown in the 
memorandum and articles. If a land-owner developed his 
land, expended money on it, laid roads, converted the land 
into house sites and with a view to get a better price for the 
Civil Appeal No.8 of 2007 
-: 17 :-
land, eventually sold the plots for a consideration yielding 
a surplus, it could hardly be said that the transaction is 
anything more than a realisation of a capital investment or 
conversion of one form of asset into another. Obviously, the 
surplus in such a case will not be trading or business profit 
because the transaction is one of realisation of assets in 
investment rather than one in the course of trade carried on 
by the assessee or an adventure in the nature of trade. The 
case of the assessee can stand on no different footing, as we 
think, only because it is a company which has among its 
objects power to trade or traffic in land. There is here no 
evidence of a venture or adventure. The transaction 
involved no risk or speculation; nor can it be truly said that 
it is a “plunge in the waters of trade.” It is a transaction 
which any prudent owner of land will engage in and which 
is, therefore, no more than realisation of capital 
investment, conversion of land into money, not a venture in 
the nature of trade. Having regard to the nature of the 
property, length of its ownership and holding, actual 
conduct of the assessee in respect of it all along and all 
other facts including absence of evidence of any trading 
activity or speculative venture, we are of the view, 
therefore, that the Tribunal was right in its conclusion that 
the surplus from sale of the land did not result from any 
trade or business in land carried on by the assessee or from 
any transaction which may properly be described as an 
adventure in the nature of trade. 
 
8. 
 
In light of the above discussion, we find that indeed there 
can be no hard and fast rule as to whether a transaction constitutes an 
“adventure in the nature of trade” amounting to ‘business’ in terms of Section 
2(11) supra; instead, such a determination is dependent upon the facts 
and circumstances of each case. However, in order to make such a 
determination, the following guiding principles may be employed:-  
(a) 
Generally, in order to constitute ‘business’, there 
must be a continuous, regular or habitual activity for 
the purpose of earning gain or profit; 
Civil Appeal No.8 of 2007 
-: 18 :-
(b) 
However, this does not mean that a single transaction 
cannot constitute an adventure in the nature of 
trade, which must be examined on a case to case 
basis; 
(c) 
A transaction is not necessarily in the nature of trade 
because the purchase was made with the intention of 
resale;  
(d) 
A capital investment and resale do not lose their 
capital nature merely because the resale was foreseen 
and contemplated when the investment was made 
and the possibility of enhanced values motivated the 
investment; 
(e) 
The intention to resell, by itself is not conclusive 
proof, of an adventure in the nature of trade, rather 
would have to be examined in conjunction with the 
conduct 
of 
the 
assessee 
and 
attendant 
circumstances, to determine the business character 
of the transaction; and 
(f) 
If it is alleged that an activity is in the nature of an 
adventure, there must be positive material brought 
on the record to prove that the assessee intended to 
indulge in such an activity and, in the absence of 
evidence, the sale of immovable property would give 
rise only to capital accretion. 
 
9. 
 
The appellant is a charitable foundation which is clear from 
its memorandum of association (MOA). While Clause 21 of the MOA 
allows the appellant to “purchase, take on lease, exchange, hire or otherwise 
acquire any real and personal or immoveable and moveable property and any rights 
and privileges whatsoever and to build, construct, alter and maintain buildings, house 
or other constructions for the housing of the Foundation or its staff or as necessary or 
convenient for any of the objects or purposes of the Foundation;” mere 
permissibility of a transaction by itself does not automatically confer on 
Civil Appeal No.8 of 2007 
-: 19 :-
it the status of a business. It is settled law that the burden to prove that 
an assessee’s receipts fell within the scope of ‘income’ and were liable to 
be taxed, lies on the department, and if the latter manages to establish 
this, then the burden shifts onto the former to show that such receipts 
were exempt from tax. In this regard reference may be made to the case 
reported as The Commissioner of Income Tax Vs. M/s. Smith, Kline 
& French of Pakistan Ltd. and others (1991 PTD 999).3 This is 
particularly so in the cases where a single transaction of immovable 
property is involved and it is not established on the record that a person 
engages in continuous, regular and habitual activities for the purposes 
of earning profit. Therefore, in the instant case, the burden was on the 
department to prove that the surplus earned from the single transaction 
of sale of the property fell within the scope of ‘income’ being a 
profit/gain of the appellant’s business. As is evident from the 
assessment order, the department wanted to draw an inference from 
the fact that the appellant converted the property into a parking lot and 
derived some rental income therefrom, that the appellant had intended, 
at the time of purchase of the property, to indulge in an adventure in 
the nature of trade to generate profit. The Commissioner Income Tax 
(Appeals), the Tribunal and the learned High Court made bald 
insinuations that the appellant’s conduct vis-à-vis the property and the 
circumstances surrounding the Fancy family suggested that the 
property was purchased with the sole intention to sell it at a later time 
for profit and not to utilise it for charitable purposes. The department 
failed to discharge its initial burden as there was no concrete material 
presented by it which proved that the appellant purchased the property 
                                       
3 See also the Indian cases reported as Parimisetti Seetharanamma Vs. Commissioner of Income-tax, Hyderabad 
(AIR 1965 SC 1905) = [(1965) 57 ITR 532], S. A. Ramakrishnan Vs. Commissioner of Income-Tax Madras 
[(1978)] 114 ITR 253 (Mad)] and Sumati Dayal Vs. Commissioner of Income-tax Bangalore (AIR 1995 SC 
2109). 
Civil Appeal No.8 of 2007 
-: 20 :-
with the intention to indulge in a trading activity. Therefore the 
question of the appellant proving that the transaction was not an 
adventure in the nature of trade and hence a business, did not arise as 
the burden never shifted onto the appellant. That the property had 
increased in value when it was finally sold by the appellant and 
therefore fetched a price higher than that for which it was purchased, 
would not ipso facto mean that this act of selling was an “adventure in the 
nature of trade” and constituted a ‘business’ under Section 2(11) of the 
Ordinance and was liable to tax under Section 22(a) thereof. Rather, 
being a sale of an immoveable property and not a capital asset, the 
profit/gain from its transfer was not chargeable to income tax under 
Section 27(2)(a)(ii) of the Ordinance. Thus, the single and isolated 
incident of buying and selling property by the appellant is not an 
“adventure in the nature of trade” and would not constitute ‘business’ in 
terms of Section 2(11) supra, and the surplus earned therefrom was not 
a profit/gain in terms of Section 22(a) ibid and was not liable to income 
tax.  
10. 
 
In the light of the above, this appeal is allowed and the 
impugned judgment is set aside. 
 
 
CHIEF JUSTICE 
 
 
 
JUDGE 
 
 
 
JUDGE 
Islamabad, the 
13th of April, 2017 
Approved For Reporting 
Mudassar/* 
 
