MANU/AP/0052/1985

Equivalent Citation: (1987)64C TR(AP)217, [1987]164ITR675(AP)

IN THE HIGH COURT OF ANDHRA PRADESH

Case Referred No. 106 of 1979
Decided On: 28.02.1985
Appellants: Parvathi Devi and Ors.
Vs.
Respondent: Commissioner of Income Tax
Hon'ble Judges/Coram:
K. Rama Swamy and P.A. Choudary, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Y. Rathnakar, Adv.
For Respondents/Defendant: M.V. Suryanarayana Murthy, Adv.

JUDGMENT
P.A. Choudary, J.
1 . In this Referred Case No. 106 of 1979, the following two questions have been
referred for the opinion of this court. The two questions are :
"1. Whether, on the facts and in the circumstances of the case, the purchase by
the assessee of acres 10-13 guntas of land on March 17, 1961, and the
subsequent sales of the land on September 4, 1961, and September 20, 1962,
constituted an adventure in the nature of trade ?
2. Whether, on the facts and in the circumstances of the case, the profit arising
on the sale of land could be assessed in the hands of the assessee as an
association of persons ?"
2. The facts of the case are :
One Parvathi Devi, w/o Ramaswamy and one Radhakumari, w/o Umamaheswara
Rao, joined with one K. Suryanarayana and V. Dasaradha Ramaiah and
purchased acres 10-13 guntas (about 50,000 sq. yards) of land situated in
Kheiratabad by a registered sale deed dated March 17, 1961, for a total
consideration of Rs. 45,000. The land was purchased from the original owner,
Mohammed Mirza, and nine others and the four persons had converted this
portion of land which was of non-agricultural rocky land into building sites.
Within three months after the date of purchase, the aforesaid four persons
jointly entered into an agreement dated June 15, 1961, with the Posts and
Telegraphs Office Co-operative Housing Society, agreeing to sell a portion of
the land, viz., 20,542 sq. yards, at the rate of Rs. 4.12 per sq. yard and an
advance of Rs. 4,000 was paid by the buyer-society. With respect to the
balance of the land, viz., 38,382 sq. yards, the aforementioned four persons

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 entered into another agreement dated April 15, 1962, agreeing to sell again
jointly the remaining portion to one Gramodyog Co-operative Housing Society
Ltd., for a total consideration of Rs. 2,11,101 which works out to Rs. 5.50 per
sq. yard. An advance of Rs. 4,000 was paid by the buyer-society. In pursuance
of that agreement, a document of sale was registered in favour of the said
Gramodyog Co-operative Housing Society on September 20, 1962.
3. The question that arose before the Income Tax Officer is regarding the nature of the
profit which the aforesaid four vendors had made under the above transactions. The
Income Tax Officer rejected the contentions of the assessees and held that the lands are
not agricultural lands and the whole transaction was an adventure in the nature of
trade. Accordingly, the Income Tax Officer assessed the profits made by the assessees
in the above transaction under the head "Business income". Before the Income Tax
Officer, it appears that the assessees had not taken any serious objection to the
contention of the Revenue that the income should be treated and assessed in the status
of an association of persons of the aforementioned four individuals.
4 . The order of assessment made by the Income Tax Officer was confirmed by the
Appellate Assistant Commissioner and finally by the Income Tax Appellate Tribunal. The
assessees had, therefore, applied for and obtained a reference of the above two
questions for the opinion of this court.
5. The first question that has been argued at considerable length is that the purchase by
the assessees of the aforementioned acres 10-13 guntas of land did not constitute an
adventure in the nature of trade. It was argued by Mr. Y. Rathnakar that this purchase
was a single transaction and there were no further and subsequent steps taken on the
part of the assessees for the development of the land. He also referred to some
statements made by one of the assessees before the Income Tax Officer to show that
the purchase of these lands was not for business purpose.
6 . It has been found by all the three authorities in this case that the purchase by the
assessees of this Ac. 10-13 guntas of land is an adventure in the nature of trade. It is
no doubt true that that finding is open to question in this reference, because the answer
to such a question is never considered as one of pure fact. But we must note that the
Supreme Court had observed in G. Venkataswami Naidu & Co. v. CIT
MANU/SC/0065/1958 : [1959]35ITR594(SC) that it is impossible to evolve any formula
in determining the character of isolated transactions of purchase of lands which came
before the courts in tax proceedings. Bearing that in mind, we refer to the facts of this
case which, in our opinion, are decisive in answering the first question referred for our
opinion.
7. The extent of the land that has been purchased is about 10 acres. It was purchased
by four persons joining together. The land which has been purchased has already been
converted into non-agricultural land. Its boundaries show that it is in the midst of a
fully developed area. It would, therefore, be reasonable for us to conclude that the land
must have been purchased not as agricultural land nor as house sites, but for only
trading purposes. Among the four persons, one is a retired school teacher and another
is a Government servant of a lower rank. None of them are persons who can be said to
have an intention to use the land of 10 acres for the purpose of constructing houses. In
these circumstances, the purpose of purchasing and keeping that land could not have
been dominated by an intention to use it except as a stock-in-trade in their business.
One of the assessees, Dasaradha Ramaiah, is a man of no property. He says that he
borrowed money from his brother. Parvathi Devi's husband, Ramaswamy, was a person

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 who had been dealing in purchasing and selling real estates. Parvathi Devi herself had
purchased and sold house sites earlier in 1958-1960. The husband of Radhakumari, one
Umamaheswara Rao, was a Government servant and the President of Venkatramana Co-
operative Housing Society. The character of the land is such that it cannot be used as
agricultural land nor can it be put to any other use, except as house sites. In G.
Venkataswami Naidu & Co. v. CIT MANU/SC/0065/1958 : [1959]35ITR594(SC) the
Supreme Court indicated some of the factors which would reveal the real nature of the
transaction. The questions which the Supreme Court referred to are, 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. In view of the facts of this case,
it is impossible for us to say that this property has been purchased for personal use or
possession or for enjoyment or for investment. Immediately within three months after
this property has been purchased for Rs. 45,000, the assessees had sold under a
registered sale deed dated May 4, 1961, a part of this land to a house building society.
Within a period of one year thereafter, they entered into an agreement with another
neighbouring co-operative society agreeing to sell the remaining land which they had
actually sold on September 20, 1962. Those were the days when in Hyderabad even
society respected people were doing real estate business. There is also evidence to
show that these four assessees were not known to each other. Considering all these
facts, we have no hesitation in holding that the purchase of this land has been made not
as an investment, but clearly for the purpose of trading in the land. We accordingly hold
that the transaction is an adventure in the nature of trade.
8. Mr. Rathnakar had referred to several cases. In many of these cases, the courts have
held that the transactions involved therein were not adventures in the nature of trade.
But, we are of the opinion that no reference to, nor any discussion of, those cases
would be useful, because those are all cases which have been decided on the particular
facts of those cases. The only point of law Mr. Rathnakar raises in this case is that a
single transaction may not be regarded as an adventure in the nature of trade. But we
have the authority of the Supreme Court in Raja J. Rameshwar Rao v. CIT
MANU/SC/0192/1961 : [1961]42ITR179(SC) holding that even a single venture may be
regarded as being in the nature of trade or business. In view of our appraisement and
assessment of the facts in this case which we have mentioned above, we answer the
first question in favour of the Revenue and against the assessees.
9. The next argument of Mr. Rathnakar is that the income in the case of these assessees
should not be assessed in the status of an association of persons. His argument is that
the document dated March 17, 1961, under which they had purchased these lands
shows that these assessees are tenants-in-common and that, therefore, tenants-in-
common cannot constitute an association of persons.
1 0 . In support of this contention, he greatly relied upon the decision in CGT v. R.
Valsala Amma MANU/SC/0251/1971 : [1971]82ITR828(SC) . In that case, two sisters
who had acquired some property in definite shares under a will executed by their
mother had gifted away that property under one document in favour of their brother.
The question was raised whether the gift is liable under the Gift-tax Act to suffer gift-
tax having been made by an association of persons or as having been made by
individuals. The Supreme Court ruled that each one of the donors had a right to half of
the properties which they gifted to their brother and that they were holding the property
and made gifts as tenants-in-common and that, therefore each one of them should be
assessed as an individual though the gift was made through one single document. On

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 that basis, the Supreme Court held that the gift was not liable to be assessed in the
status of an association of persons. In that case, the Supreme Court never found that
there is anything legally impossible for tenants-in-common to constitute an association
of persons. In fact, it would not logically be possible to lay down that tenants-in-
common can never constitute an association of persons within the meaning of either of
the Gift-tax Act or of the Income Tax Act with which we are now presently concerned.
In CIT v. Indira Balkrishna MANU/SC/0181/1960 : [1960]39ITR546(SC) the Supreme
Court interpreted the word "association of persons" as meaning an association in which
two or more persons join in a common purpose or common action with the object of
producing income, profits or gains. This definition of "association of persons" does not
render it impossible for tenants-in-common to constitute an association of persons.
Where there are two or more persons associated by the bonds of income-making
activity without any specification as to the method of sharing of income, they will be
treated for the purpose of the Income Tax Act as an association of persons, whether
they are tenants-in-common or not. A tenancy-in-common is to be contrasted with joint
tenancy. A joint tenancy has to satisfy the four requirements, called the four unities,
viz., unity of possession, unity of interest, unity of title and unity of time, whereas a
tenancy-in-common requires only the unity of possession. This distinction between a
joint tenancy and tenancy-in-common so prominent for the purpose of property law
appears to us to be wholly immaterial for deciding whether two or more persons who
are tenants-in-common can constitute an association of persons. The observations of
the Supreme Court, therefore, cannot be understood as laying down that tenants-in-
common can never qualify themselves to be members of an association of persons
within the meaning of the Income Tax Act. We, therefore, find it not possible to agree
with the contention of Mr. Rathnakar that the four persons in this case who had
purchased the land and traded in it cannot be called as an association of persons merely
because they are tenants-in-common.
11. In the above view of ours, it would not really be necessary to notice the difference
of opinion that has developed over the interpretation put by this court in the above
Valsala Amma's case MANU/SC/0251/1971 : [1971]82ITR828(SC) . In (sic) our High
Court ruled that a group of individuals can be a body of individuals though not an
association of persons within the meaning of the Income Tax Act. In so holding, a
Division Bench of this court held that Valsala Amma's case MANU/SC/0251/1971 :
[1971]82ITR828(SC) should be confined only to gift-tax cases. That view of our
Division Bench was disagreed from either in whole or in part by the High Courts of
Gujarat, Madras and Kerala. But we may note that in none of those cases any of the
courts had taken the view that tenants-in-common cannot legally constitute an
association of persons. After all, tenants-in-common, like all other human beings, can
carry on activities, either individually or collectively, making profits, losses and gains. It
would, therefore, seem to be impossible to say that two or more persons cannot
associate themselves for purposes of producing income and thus constitute members of
an association of persons for the purpose of making profits merely because they are
tenants-in-common. We accordingly reject this argument of Sri Rathnakar advanced at
great length.
12. Accordingly, we examine, in the facts and circumstances of this case, whether there
is evidence to show that the-four persons have associated themselves for the purpose of
producing income and making profit. The facts which have been stated above would
hardly admit of any doubt to that question. There is evidence to show that these four
persons are not known to each other. According to the document, they have purchased
this property jointly and sold the same jointly. As we have already held, the purpose of
purchase and sale was for making profit. Theirs is not a partnership for the purpose of

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 the Income Tax Act. If four strangers unite and produce profit by a joint venture
otherwise than as partners, it would hardly be possible to say that they would not
acquire the status of an association of persons. In view of that conclusion, we answer
the second question also against the assessee and in favour of the Revenue. The two
questions, referred, for the opinion of this court, are answered accordingly and the
referred case is disposed of. No costs.

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