JUDGMENT
Jagannatha Shetty, J.
1. The Tribunal has referred the following questions under s. 256(1) of the I.T. Act, 1961 :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was an adventure in the nature of trade ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the title in lands vested in the assessee and the sales effected by the assessee were no avoid ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the true profit earned by the assessee from the sale of plots during the year ending March 31, 1970, can be ascertained and are liable to tax ?”
2. The facts that we could gather from the statement of the case are these :
3. The assessee is a building contractor. The assessment year concerned is 1970-71. On March 15, 1968, he purchased a land measuring 20,131 sq. yds. in the heart of the city of Mysore from H.H. Maharaja of Mysore, for a consideration of Rs. 2 lakhs.
4. The assessee divided this land into plots and sold the same during the previous year ending March 31, 1970, relevant to the assessment year 1970-71. The realisation made by the assessee, by that sale amounted to Rs. 1,30,625. The ITO brought to tax a sum of Rs. 2,000 on an estimate as income derived from the said transaction holding that the transaction was an adventure in the nature of trade.
5. The Addl. CIT in exercise of his suo moto power under s. 263 of the I.T. Act, 1961, revised the assessment order after affording an opportunity to the assessee. The Commissioner has observed thus :
6. That the area available with the assessee on April 1, 1969, was 17,630 sq. yds. which cost him, including interest Rs. 2,48,015. the cost to the assessee of the sites sold in the assessment year 1970-71 amounted to Rs. 67,342 and deducting this from the sale price, the profit made was Rs. 63,283. Since only Rs. 2,000 had been assessed, the Commissioner asked the ITO to redo the assessment.
7. The assessee appealed before the Tribunal and urged as many as four contentions :
(1) That the assessee had no title to sell the land on the dates of sale in view of the notification issued by the C.I.T.B. to acquire the land. Therefore, the amount is liable to be refunded and there is no valid sale.
(2) That there was a covenant to indemnify the purchasers who are likely to be dispossessed pursuant to the acquisition of land by the C.I.T.B.
(3) That the activities of the assessee were not in the nature of trade as the assessee had purchased the land for building a cinema theatre and a hotel; and
(4) That the profit or loss could be assessed only when the transaction of sale was completed.
8. The Tribunal considered and rejected all these contentions. The Tribunal reached the conclusion that the assessee had no intention at the time of purchasing the land to build a cinema theatre or a hotel and his only intention was to divide the same into house sites and to sell the same on profit. The Tribunal also held that the profits made from the transaction is liable to assessment irrespective of the fact whether the assessee had title or not. As regards the covenant to indemnify the purchasers by the assessee, the Tribunal observed that it was a common covenant to be found in all sale deeds and if there is a doubtful title, the sellers has to indemnify the purchaser as required under the Transfer of Property Act. On the question of determination of the profit realised on the transactions, the Tribunal agreed with the Commissioner that the liability to tax arises only in respect of the profit made out of the plots sold in the relevant year and one need not wait till the entire estate is sold.
9. We will take up the first question first for consideration :
The question, is whether the assessee at the time of purchasing the land had the intention not to invest in the land ? The case of the assessee was that, he intended to build a cinema theatre and a hotel. The only evidence produced before the Tribunal in this regard was Ex. B-4 – a letter written by him on February 9, 1968, to the Manager, Vijaya Bank Ltd., Mysore, requesting to sanction increased overdraft facility for purchase of a site from the palace authorities for constructing a cinema theatre and a hotel. The bank was asked to increase the limit of overdraft to the the extent of Rs. 50,000. The Tribunal has found that there was no proof of such an application dispatched to the Manager of the Vijaya bank. The Tribunal, therefore, held that the assessee, at the time of purchase of the land, had no intention to build a cinema theatre or a hotel. He subsequent conduct as summarised by the Tribunal also does not indicate to the contrary. The fact that he had no money even to purchase the land and that he had to borrow from the bank indicates that he had no intention to build a hotel or a cinema theatre. So ran the conclusion reached by the Tribunal.
10. A similar case came up before this court in CIT v. Ramaiah and CIT v. Narasimha Reddy . This court after applying the principles enunciated by the Supreme Court in Venkataswami Naidu & Co. v. CIT , Raja J. Rameshwar Rao v. CIT and Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21, has held that if the assessee purchased a land, converted the same into house sites and disposed of the same for attractive prices, then his transactions may be stamped with the character of an adventure in the nature of trade.
11. The cumulative effect of all circumstances in the present case lies squarely and fairly within the ratio of the said two decisions of the Supreme Court and the two decisions of this court. It is, therefore, not necessary to deal with the first question in detail. The Tribunal, in our opinion, was justified in holding that the assessee had no intention at the time of purchase of land to invest in the land. The assessee’s attempt to produce a letter written by him to the Vijaya Bank in this context landed himself in a pitiable condition.
12. The second question relates to the title of the land on the date of sale. The Tribunal has alternatively held that on the date of sale of the land, the title vested in the assessee and the fact that it was subsequently acquired by the C.I.T.B., Mysore, was not very much relevant. In fact, it was not disputed before the Tribunal that the possession was taken from the purchasers only in March, 1972, pursuant to an award made on May 10, 1971. All these events took place after the sale.
13. Secondly, the assessee after selling the sites cannot contend that he has to repay the purchase money because he had doubtful title. The assessee had not produced by instance of a claim for refund of the purchase money.
14. This takes us to the third question :
We do not think that the assessee would be justified in contending that the true profit earned by him by sale of the sites during the year ending March, 1970, would be ascertained only after the entire estate was sold. In fact, the way in which the Commissioner has directed to redo the assessment would be beneficial to the assessee. Nothing more, therefore, need be said on this question.
15. In the result, we answer all the three questions in the affirmative and against the assessee.
