Ram Iswara v. Commissioner of Inland Revenue-
1962 Present: L. B. de Silva, J., and Sri Skanda Rajah, I.
H. Y. RAM ISWARA, Appellant, and COMMISSIONER OFINLAND REVENUE, Respondent
S. G. 3 of 1962—Income Tax Case Stated BRA/303Income Tax Ordinance—Section 6 (J) (a)—Case stated—Power of Supreme Court toexamine questions of mixed law and fact—Meaning of “ an adventure or concernin the nature of trade ”.
In a case stated by the Board of Review under section 78 of the Income TaxOrdinance it is open to the Supreme Court to reject a conclusion reached bythe Board on a question of mixed law and fact. In such a case, the Courtwould have to accept the findings of the Board on the primary questions offact, but it can examine whether the Board has applied the relevant legalprinciples correctly or not.
The assessee’s wife bought a land ostensibly for the purpose of building on it ahouse for her own use and occupation. She divided the land into 14 separatelots and disposed of 13 of them at such prioas that she was able to get the14th lot (70 perohes in extent) for her own self for only Rs. 15,275 when itsmarket value was Rs. 87,040, Before the authorised adjudicator it wasagreed that the nett profit made by her out of the transaction was Rs. 66,331.The Board of Review deoided, on the evidence, that the transaction was anadventure or concern in the nature of trade within the meaning of section 6(1) (a) of the Income Tax Ordinance.
Held, that, as a question of mixed law and fact was involved, it was opento the Supreme Court to examine whether the Board of Review applied therelevant legal principles correctly or not. Even an isolated transaction cansatisfy the description of an adventure in the nature of trade. Each casemust, however, be determined on the total impression created on the mind ofthe Court by all the facts and circumstances disclosed in the particular case.
394 SRI SKAHDA RAJAH. J.—Ram Iswara v. Oetmnissioaor of Inland Rsnme
(j A3E stated under section 78 of the Income Tax Ordinance.
H. V. Perera, Q.O., with 8. Ambolavanar and M. Amarasingham,for the assessee-appeUant.
A. G. Alles, Solicitor-General, with H. L. de Silva, Crown Counsel,and Shiva Pasupati, Crown Counsel, for the Commissioner of InlandRevenue, respondent.
Cur. adv. vult.
November 13,1962. Sri Skahda Rajah, J.—
This is a Case Stated by the Board of Review under Section 78 of theIncome Tax Ordinance at the request of the Assessee-appeUant, whosecommunication is mentioned in the reference as X2. This communica-tion does not correctly set out the question submitted for the opinionof this Court. The actual question we are called upon to consider is“ whether, on the facts and circumstances proved in the case, the in-ference that the transaction in question was an adventure or concernin the nature oj trade is in law justified.”
The facts as found by the Board of Review are: the assessee, who isa Proctor and Notary, was at one time Living with bis wife and fivedaughters in a rented house at Hultsdorf. Four of their five daughterswere attending the St. Bridget’s Convent. His wife made inquiriesfrom brokers, who came to the assessee’s office, for the purchase of abuilding site close to St. Bridget’s Convent. A broker named Botejuoffered for sale a land in extent 433 perches situated in Alexandra Placeand adjoining St. Bridget’s Convent. The owner of the landMrs. Thambyah was willing to sell this land only to a person buying theentirety. This offer was, however, turned down as the land was verymuch in excess of her requirements and she did not have the money topay the price demanded. Sometime later, by deed No. 3684 of 3.3.51,attested by the assessee himself, bis wife, whose address is given in thisdeed as '‘Soma Siri”, Kaiubowila Road, Dehiwala, an agreement wasentered into between the Assessee’s wife and Mrs. Thambyah for theformer to purchase the land for Rs. 450,000 and the former deposited aa sum of Rs. 45,000. It was agreed, inter alia, that Mrs. Thambyahwould convey the land to Mrs. Ram Iswara (the assessee’s wife) or hernominees on payment of the balance sum of Rs. 405,000. If Mrs. RamIswara failed to pay this sum on or before 20,4.1951 and obtain a con-veyance, the sum of Rs. 45,000 paid as deposit would be forfeited byway of liquidated damages. Mrs. Ram Iswara would reconvey toMrs. Thambyah a divided portion out oi the land in extent 60 perchesand Mrs. Ram Iswara would allow Mrs. Thambyah a right of user of a
SRI SKANDA RAJAH, J.—Bats, Iswara v. Commissioner oj Inland Revenue 39&
roadway to that divided portion. Mrs. Bam Iswara would have the roadJway approved by the Municipal Council and constructed at her oweexpense. Mrs. Bam Iswara had to borrow the Bs. 45,000 to make thedeposit. She had a house in McCarthy Boad, another at Wellawatteand a third in Hultsdorf. They could not be sold as vacant possessioncould not be obtained. Soon after the agreement, and within ninedays of it (i.e. before 12.3.1951), a sketch had been prepared shoving adivision of the land into fourteen losts—twelve building sites and tworoadways—to be shown to prospective purchasers. A survey was madeon 29.3.51 dividing the property according to the sketch. On 18.4.1951Mrs. Thambyah conveyed three lots (A in extent 40 perches, B inextent 30 perches, C in extent 60 perches) and the road reservations(N and O) to Mrs. Bam Isawara for Bs. 78,525. The deposit ofBs. 45,000 was set off against this sum and only the balance Bs. 33,525was paid. Lot C was reconveyed to Mrs. Thambyah. The other ninebuilding sites were conveyed by Mrs. Thambyah to Mrs. Ram Iswara’snominees for a total sum of Bs. 434,725. i.e. onlj Bs. 15,275 less than theprice of Bs. 450,000 agreed upon for the entire land of 433 perches.Thus Mrs. Bam Iswara was able to get 70 perches of this valuable landin the coveted residential area of Cinnamon Gardens for only Bs. 15,275,whereas the market value was Bs. 87,040. But, before the authorisedadjudicator it was agreed that the nett profit made by Mrs. Bam Iswaraout of this transaction was Bs. 66,331.
Both parties rely on the findings of the Board of Beview on the facts.
The Board of Beview has accepted the contention of the Departmentof Inland Bevenue that this transaction was an adventure or concernin the nature of trade within the meaning of Section 6 (I) (a) of theIncome Tax Ordinance.
Counsel for the assessee has submitted that the dominant intention ofthe assessee’s wife was to find a residence near St. Bridget’s Convent.This question was considered with great care by the Board of Beview,who have rejected this submission and come to the conclusion that thedominant intention connotes an adventure in the nature of trade.
We are indebted to both Counsel for the able manner in which thearguments were presented and for the citations.
The learned Solicitor-General cited the case of Naidu <& Co. v. TheCommissioner of Income Tax 1 and drew our attention to a passage atpages 362 and 363 in the judgment of Gajendrag&dkar, J., which, ifI may so with great respect, admirably sets down the scope and thenature of the power which this Court has, upon a Case Stated, to rejectconclusions reached by the Board of Beview on questions of fact and onquestions of mixed law and fact. Though the passage in question hasbeen quoted by my Brother, H. N. G. Fernando, in the case ofMakawithanav. Commissioner of Inland Revenue'-. I consider it necessary.-
1195-9 A. I. R. 359 (S.C.).
%[19<>2) 64 N. L. R. 217.
396 SRI SKAKDA RAJAE, J.—Sam Itxuara v, Cotnmiasiorw of Inland Revenue
to set it down in this case too italicising the portion relevant for theconsideration of the arguments in this case, which, are based on questionsof mixed law and fact unlike the 64 N. L R. 217 case :—
“ There is no doubt that the jurisdiction conferred on the HighCourt by Section 66 (1) is Emited to entertaining references involvingquestions of law. If the point raised on reference relates to the con-struction of a document of title or to the interpretation of the relevantprovisions of the statute, it is a pure question of law ; and in dealingwith it, though the High Court may have due regard for the viewtaken by the Tribunal, its decision would not be fettered by the saidview. It is free to adopt such construction of the document or thestatute as appears to it reasonable. In the same case the pointsought to be raised on reference may turn out to be a pure questionof fact, and if that be so, the finding of fact recorded by the Tribunalmust be regarded as conclusive in proceedings under Section 66 (i).If, however, such a finding of fact is based on an inference drawnfrom primary evidentiary facts proved in the case, its correctness orvafidity is open to challenge in reference proceedings within narrowEmits. The Assessee or revenue can contend that the inference hasbeen drawn on considering inadmissible evidence or after excludingadmissible and relevant evidence; and, if the High Court is satisfiedthat the inference is the result of improper admission or exclusionof evidence, it would be justified in examining the correctness of theconclusion. It may also be open to the party to challenge a conclusionof fact drawn by the Tribunal on the ground that it is not supportedby any legal evidence; or that the impugned conclusion drawn fromthe relevant facts is not possible ; and if such a plea is estabhshed theCourt may consider whether the conclusion in question is not perverseand should not therefore be set aside. It is within these narrowlimits that the conclusions or fact recorded by the Tribunal can bechallenged on the ground that they are based on misappreciation ofevidence. There is yet a third class of cases in which the assessee or therevenue way seek to challenge the correctness of the conclusion reachedby the Tribunal on the ground that it is a conclusion on a question ofmixed law and fact. Such a conclusion is no doubt based upon the primaryevidentiary facts, but its ultimate form is determined by the applicationof legal principles. The need to apply the relevant legal principles tendsto confer upon the final conclusion its character of a legal conclusion andthat is why it is regarded as a conclusion on a question of mixed lawand fact. In dealing with findings on questions of mixed law and factthe Sigh Court would no doubt have to accept the findings of the Tribunalon the primary questions of fact: but it is open to the Sigh Court toexamine whether the Tribunal has applied the relevant legal principlescorrectly or not; and in that sense, the scope of inquiry and the extentof the jurisdiction of ike High Court in dealing with such points is thesame as in dealing with pure points of law."
SRI SKANDA RAJAH, J.—Ram Iswara v. Commissioner of Inland Revenue 397
In this case, as mentioned earlier, the assessee challenges the correct-ness of the conclusion reached by the Board of Review on the basisthat it is a conclusion on a question of mixed law and fact. Therefore,as indicated in the passage italicized above, we have to examine whetherthe Board of Review has applied the relevant legal principles correctlyor not.
The same Judge expressed himself as follows at page 364, “ It is patentthat the clause ‘ adventure in the nature of trade ’ postulates the existenceof certain elements in the adventure which in law would invest it with thecharacter or a trade or business ”.
At p. 366 he said “ When s. 2. Sub. S. (4) refers to an adventure in thenature of trade it clearly suggests that the transaction cannot properlybe regarded as trade or business. It is allied to transactions thatconstitute trade or business but may not be trade or business itself. Itis characterised by some of the essential features that make up tradeor business but not all of them : and so, even an isolated transactioncan satisfy the description of an adventure in the nature of trade.”
In that case it was also indicated : “ It is, however, impossible toevolve any formula which can be applied in determining the character ofisolated transactions which come before the Courts in tax proceedings.The decision about the character of a transaction in the context cannotbe based solely on the application of any abstract rule or test and must inevery case depend upon all the relevant facts and circumstances. It wouldbesides be inexpedient to make any attempt to evolve such a rule orformula. In each case, it is the total effect of all relevant factors andcircumstances that determine the character of the transaction ; and so,though the Court may attempt to derive some assistance from decisionsbearing on this point, it cannot seek to deduce any rule from them andmechanically apply it to the facts before it
In the case of Edwards v. Bair stow1 Viscount Simonds expressed himselfas follows :—“ If it is a characteristic of an adventure in the nature oftrade that there should be an ‘ organisation ’ I find that characteristicpresent here …. I find ‘ activities which led to the maturingof the asset to be sold ’ and the search for opportunities for its sale, andconspicuously, I find that the nature of the asset lent itself to commercialtransactions. ”
In the case of Saroj Kumar Mazumdar v. Commissioner of IncomeTax2 following 1959 A. I. R. 359 it was held that no general principlesor universal tests could be laid down. Each case must be determinedon the total impression created on the mind of the Court by all the factsand circumstances disclosed in the particular case.
The facts accepted by the Board of Review establish that—
The assessee or his wife had no money to pay even the deposit. Thatsum had to be borrowed.
. 2. The transaction had to be concluded between 3.3.51 and 20.4.51,
a comparatively short period of time.
11956 A. C. 14 at 29.
3 1959 A. I. R. 1252 (S.C.).
398 SRI SKAUDA RAJAH, J.—32am Iswara v. Uommiasiamr of Inland Somme
There was preparation, organization and activity: within aT fewdays "of the agreement of 3-3.51 a sketch was prepared to be shown toprospective purchasers. Soon thereafter a survey plan was made dividingthe land into 14 lots, twelve building sites and two roadways, i. e., theactivity led to the maturing of the assets.
The quantity or extent purchased was far in excess of the allegedrequirements of the assessee’s wife.
There was considerable profit from the transaction within a shorttime, i.e.. the presence of profit motive, which is a characteristic of trade.
What is the “ total impression ” or “ picture ” that these facta wouldleave on the mind of any reasonable person ? Having considered allthese matters in conjunction with the evidence that Mrs. Ram Iswarahad a desire to live near St. Bridget’s Convent for the sake of educationof the four girls attending that institution the Board of Review arrived atthe conclusion that the dominant motive or intention was not the desireof hers and that the transaction presented a “ picture ” of an adventurein the nature of trade.
When learned Counsel for the assessee-appellant was reading paragraph8 of the case stated I asked him if it was Mrs. Ram Iswara’s dominantdesire to live near St. Bridget’s Convent for educating her daughterswhy she had shifted from Hultsdorp to Dehiwela before 3.3.1951, thedate of the agreement, i.e., further away from St. Bridget’s Conventthan Hultsdorp, and he ventured the explanation that she may have beenat Dehiwela temporarily and the Notary might have been under theimpression that be should give that address. But, later on I pointedout that it was the assessee himself, her husband, a Proctor and Notary,who attested that agreement. If Mrs. Ram Iswara was residing onlytemporarily at Dehiwela that fact would have been known to the assesseeand he would not have given that as her address in the agreement. Alsothere is no indication of any attempt being made at any time to eject thetenant from the house in McCarthy Road, which is also in CinnamonGardens and near St. Bridget’s Convent. One would expect that to bedone if the dominant motive or intention was that alleged by the assessee.
These circumstances also go to support the finding of the Board ofReview, whose order indicates that they have applied the relevant legalprinciples correctly.
For these reasons, I would answer the question submitted for ourconsideration in the affirmative.
The Assessee-Appellant will pay Rs 750 to the respondent as coste.
L. B. db Silva, J.—I agree.
H. V. RAM ISWARA, Appellant, and COMMISSIONER OF INLAND REVENUE, Respondent