INCOME TAX OFFICER v. AMRIT FOODS (P) LTD
[Citation -1984-LL-0312-2]

Citation 1984-LL-0312-2
Appellant Name INCOME TAX OFFICER
Respondent Name AMRIT FOODS (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 12/03/1984
Assessment Year 1974-75
Judgment View Judgment
Keyword Tags transaction of purchase and sale • short-term capital gain • plant and machinery • revenue expenditure • additional evidence • single transaction • sale transaction • business profit • capital account • margarine plant • purchase price • raw material • take over • vanaspati
Bot Summary: The assessee, who was also engaged in the business of manufacture and sale of food products, such as bakery products, butter and ghee, came to know prior to 1-1-1969 that a party had a margarine plant at Bangalore and that Mr. N.K. Bajaj of the assessee-company had been negotiating with the said party for the purchase of the said plant. On these facts, the assessee-company in its resolution dated 1-1-1969 resolved that Mr. Bajaj was authorised to make enquiries about the margarine plant at Bangalore and to negotiate the purchase of the said plant. In the meeting held on 26-8-1970, the board of directors have in the report stated that 'the margarine plant, which was purchased with a view to sell, has not been completed and offers for purchase of the plant have not been received from any of the manufacturers and the plant is still under installation'. In the director's report of the minutes of the meeting of the board of directors of the assessee-company as held on 4-12-1971, it was reported that the margarine plant has been installed, but satisfactory offer to purchase the plant has not been received. After the said remand report was received by the Commissioner, he has once again held that the profit earned by the assessee on the sale of the said margarine plant represented a business profit by observing as under: I have myself again seen the extracts of the minutes of the meeting of the board of directors referred to above and it is very clear from these minutes that the intention of the board of directors of the appellant company from the very beginning was to purchase the margarine plant at Bangalore with the sole intention of selling it at a profit. The interest payable in respect of the said borrowings, which were utilised for the purchase and installation of the said margarine plant, was not added to the cost of the plant. Since the margarine plant was a plant, the same had to be shown in the balance sheet as such under the head 'Plant and machinery'.


This appeal is by revenue. assessee to appeal is Amrit Foods (P.) Ltd., Ghaziabad, company incorporated under Companies Act, 1956. year of assessment involved is 1974-75 for which previous year ended 31-3-1974. As in past, in year under consideration, assessee carried on business of manufacture and sale of desi ghee, etc. 2. assessee, who was also engaged in business of manufacture and sale of food products, such as bakery products, butter and ghee, came to know prior to 1-1-1969 that party had margarine plant at Bangalore and that Mr. N.K. Bajaj of assessee-company had been negotiating with said party for purchase of said plant. above facts were brought to notice of board of directors of assessee-company in meeting held on 1-1-1969 s Mr. Bajaj felt that plant could be purchased at reasonable price and thereafter it could be sold at profit. On these facts, assessee-company in its resolution dated 1-1-1969 resolved that Mr. Bajaj was authorised to make enquiries about margarine plant at Bangalore and to negotiate purchase of said plant. 3. Pursuant to said authority, Mr. Bajaj negotiated for purchase of margarine plant at Bangalore and these negotiations have been successfully completed. According to settlement arrived, purchase price together with expenses to be incurred for purchasing it came to about Rs. 1 lakh. This fact was brought to notice of board of directors of assessee-company at meeting held on 6-5-1969. Mr. Bajaj also informed in said meeting that plant had been imported by Bangalore party many years ago and buyer may not agree to offer good price, as it may be felt that plant was bad and not useable. Mr. Bajaj, accordingly, suggested that plant should be properly installed, shown to potential buyers with view to prove that it could be worked satisfactorily and that its working would yield profits to buyers. On these facts, board of directors resolved that purchase of plant at cost of Rs. 1 lakh including expenses be confirmed. Mr. Bajaj was authorised to make all arrangements for installation of plant with view to make it in working condition so that suitable buyers could be attracted. chairman of assessee-company also expressed desire that as this was going to be good proposition, first preference would be given to Amrit Banaspati Co. Ltd., so that it may derive proper benefit from said plant. 4. In meeting of board of directors of assessee-company held on 6-10-1969, minutes of meeting reads as under: " company was able to buy margarine plant from Margarine and Refined Oil (P.) Ltd., Bangalore, for cost of about Rs. 1 lakh including expenses. plant is expected to be sold at profit with view to show working of plant and to attract good customer, it was decided to instal it and it is hoped that it will be installed by December, 1969. " 5. This was followed by following minutes of meeting of board of directors of assessee-company held on 6-1-1970: " Shri N. K. Bajaj informed board that erection of margarine has not yet been completed. work, however, is in progress. " 6. In meeting held on 26-8-1970, board of directors have in report stated that 'the margarine plant, which was purchased with view to sell, has not been completed and offers for purchase of plant have not been received from any of manufacturers and plant is still under installation'. 7. In director's report of minutes of meeting of board of directors of assessee-company as held on 4-12-1971, it was reported that margarine plant has been installed, but satisfactory offer to purchase plant has not been received. 8. In meeting of board of directors of assessee-company held on 3-9-1973, minutes read as under: " Your directors are pleased to report that negotiations for sale of plant have been going on with management of M/s Amrit Banaspati Co. Ltd., who started experiments with plant with effect from February, 1973. They were able to produce substantial quantity during year 1972-73. As plant is considered to be suitable and profit-making device, Amrit Banaspati Co. Ltd. may by it over after matter is considered and passed by their board of directors. It is hoped that plant will be sold to Amrit Banaspati Co. Ltd. at reasonable figure which will have substantial amount of profit for company. directors have to place on record facts that management of this company has been devoting great deal of time and attention to this plant and its installation. considerable portion of expenditure incurred by company related to this plant but as it was purchased and installed only with view to sell it at profit, such expenditure was always debited to profit and loss account. " 9. This was followed by meeting of board of directors held on 11-3- 1974 when it was resolved that plant was to be sold to Amrit Banaspati Co. Ltd. for total value of Rs. 3,50,000. Prior to said resolution, chairman of assessee-company informed board that Amrit Banaspati Co. Ltd. had ultimately decided to take over margarine plant and machinery in its final shape after working it for period of over about 12 months to their full satisfaction and that sale of said plant would result in substantial profit to assessee-company. 10. In meeting of board of directors held on 8-2-1975 sale, according to directors, has resulted in surplus of Rs. 1,75,255.48. 11. assessee in return for accounting period relevant to assessment year 1974-75 had returned above profit as profit from adventure in nature of trade. This stand of assessee was rejected by ITO. According to him, said amount represented short-term capital gain of assessee-company. 12. Aggrieved by said assessment, assessee-company brought matter by way of appeal before AAC, who for diverse reasons stated in his order dated 29-3-1976 and additional evidence led in shape of above minutes of board of directors of assessee-company had held that said amount of Rs. 1,75,034 should be treated as income from adventure in nature of trade. 13. Aggrieved by said decision of AAC, revenue brought 13. Aggrieved by said decision of AAC, revenue brought matter by way of appeal before Tribunal (Delhi Bench 'D', New Delhi) bearing I T Appeal No. 1093 (Delhi) of 1976-77, who vide their order dated 30-11-1977 has upheld stand of department that AAC had erroneously admitted additional evidence in shape of above minutes of meetings of board of directors of assessee-company without giving opportunity to ITO, as said additional evidence was never produced before ITO. 14. After matter went back to appellate authority, matter came t o be heard by Commissioner (Appeals), who vide his order dated 30-11- 1981, passed remand order with direction to ITO to 'carefully go through t h e order of AAC dated 29-3-1976 and submit remand report after examining all evidences that were produced by appellant before AAC in above order and submit his comments if he has any, and material to controvert submission made by appellant before AAC.' 15. Pursuant to said order of Commissioner (Appeals), ITO submitted remand report dated 21-12-1981. According to said report, neither judicial decisions referred to by assessee-company, nor factual position supported his claim that surplus by sale of plant to Amrit Banaspati Co. Ltd. was income from adventure in nature of trade and, therefore, benefit of set off should be allowed. 16. After said remand report was received by Commissioner (Appeals), he has once again held that profit earned by assessee on sale of said margarine plant represented business profit by observing as under: " I have myself again seen extracts of minutes of meeting of board of directors referred to above and it is very clear from these minutes that intention of board of directors of appellant company from very beginning was to purchase margarine plant at Bangalore with sole intention of selling it at profit. I, therefore, find no hesitation in confirming finding of AAC given earlier in his order dated 29-3-1976 that sum of Rs. 1,75,034 should be treated as business profit of appellant resulting from transaction as adventure in nature of trade and same has to be treated as such for purpose of set off of brought forward business losses of preceding assessment years as per provisions of section 72(1)(i) read with proviso thereafter of Income-tax Act, 1961. As mentioned earlier appeal has been restored on my file for specific purpose of fulfilling provisions of sub-rule (3) of rule 46A which have now been complied with. At this stage, it is neither open for me nor it is open for ITO to reopen subject as to whether appellant's case was covered by ratio of decisions on which reliance had been placed by AAC. " 17. In appeal before Tribunal, departmental representative has urged that Commissioner erred in law and on facts in confirming finding of AAC that sum of Rs. 1,75,034 should be treated as business profit resulting from transaction as adventure in nature of trade and in directing ITO to allow claim of assessee for set off of brought forward business losses from preceding assessment years against aforesaid sum of Rs. 1,75,034. According to departmental representative, short-term capital gain has arisen from purchase and sale of plant and machinery in question, as assessee had himself showed above amount in profit and loss account as profit on sale of fixed assets. In support of his arguments, departmental representative has advanced same reasons, which were advanced by ITO in remand report. In reply, representative for assessee, Mr. P.L. Tandon, firstly, urged that since ITO has not challenged genuineness of aforesaid minutes of meetings of board of directors referred to above, same in view of facts and circumstances of case, should make us to hold that earlier order of AAC was correct. In alternative, representative for assessee, relying on reasons given by Commissioner (Appeals), has urged that impugned order by him was correct. 18. We have given consideration to above arguments. short point for decision in present appeal is as to whether profit from above sale transaction by assessee of margarine plant was profit of adventure in nature of trade, as held by Commissioner (Appeals) or pure and simple transfer of 'capital asset', as defined in section 2(14) of Income-tax Act, 1961, as held by ITO. For deciding this question, certain facts admitted/proved on record, have to be kept in mind. These are that assessee, in view of manufacturing and trade activities carried on by it, could not make use of margarine plant purchased by it, more so when raw material required for running said plant is available only in vanaspati manufacturing unit. said raw material becomes available with assessee already manufacturing vanaspati and same is available at stage prior to ultimate manufacture of vanaspati. There is no basis and evidence or material on record to prove assertion made by ITO in remand report that plant purchased had close link with business of assessee-company, namely, manufacture and sale of desi ghee. As such for successful working of margarine plant, person holding it should be one which was already manufacturing vanaspati. It is also fact that assessee-company as such was not manufacturing vanaspati. It is also fact that assessee-company did not have funds of its own to buy plant. It had to resort to borrowings for this purpose. interest payable in respect of said borrowings, which were utilised for purchase and installation of said margarine plant, was not added to cost of plant. same was, however, claimed by assessee as revenue expenditure and allowed as such in respective assessments of assessee. Furthermore, certain other overhead expenditures connected with said plant were debited to profit and loss account under appropriate heads. Another thing to be noticed from aforesaid minutes of meetings of directors of assessee-company, as brought out in paras 4-10 above, is that intention of assessee right from beginning was to purchase margarine plant at Bangalore and to instal it for purpose of showing its working to prospective purchasers with sole intention of selling same at profit. ITO has not been able to prove on record, although opportunity was given to him, that said minutes were not genuine. ITO, as rightly pointed out by Commissioner (Appeals) in impugned order, has not given any comments whatsoever in this regard. Since margarine plant was plant, same had to be shown in balance sheet as such under head 'Plant and machinery'. There was no other way but to show it as such. It is wrong to infer from there, as done by ITO in remand report, that margarine plant was always included in fixed assets and not in current assets in balance sheets. It is also fact, which was not disputed at time of hearing by departmental representative, as was also clear from earlier assessment orders shown to us at hearing, that depreciation had not been allowed to assessee in respect of margarine plant either in year under consideration or in preceding year after plant was installed. 19. Keeping in mind facts stated in preceding paragraph, we now com e to law on subject. It is now well settled that even single transaction may constitute 'business', as defined in section 2(13). It is not essential that there should be series of transactions, both of purchase and of sale to constitute trade. Even single purchase followed by single sale may be regarded as business. single transaction of purchase and sale outside assessee's line of business may constitute adventure in nature of trade. Neither repetition nor continuity of similar transactions is necessary to constitute transaction adventure in nature of trade---Regent Estates Ltd. v. CIT [1963] 48 ITR 162 (Cal.). It is also well established that where purchase is made with intention of resale, it depends upon conduct of assessee and circumstances of case, e.g., nature and quantity of article purchased and nature of operations involved, whether venture is on capital account or in nature of trade. transaction is not necessarily in nature of trade because purchase was made with intention of resale--- Ajax Products Ltd. v. CIT [1961] 43 ITR 297 (Mad.). intention to resell may in conjunction with conduct of assessee and other circumstances, point to business character of transaction. See also in this connection decision of Supreme Court in G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594. Applying said law to facts as found and stated in preceding para, we find that assessee had purchased margarine plant, which was not in its line of business, with intention to resell it for profit. assessee by its conduct has treated above transaction adventure in nature of trade. Close proximity between purchase of plant and its sale exists in this case, which when considered in circumstances brought out in para 17 above proves that assessee-company had embarked upon adventure in nature of trade. There is nothing on record to displace said conclusion of Commissioner (Appeals). We, therefore, on facts and in circumstances of case and material on record, uphold order of Commissioner (Appeals) on point at issue. 20. In result, appeal by revenue fails and is hereby dismissed. *** INCOME TAX OFFICER v. AMRIT FOODS (P) LTD.
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