Desai, J.
1. The familiar dilemma presents itself again. Is the excess sum realised by an assessee on the sale of land merely a gain on account of the engangement of value of a capital asset or is it a profit made in the operation of business by the sale of an item of the stock-in-trade
2. The assessee is a registered partnership firm which carries on business of money-lending. It also derives income by way of dividend and from investment year being Samvat year 2024.
3. It appears that the assessee had purchased 7,422 sq. yds. of land at Vadaj in S. Y. 2007. The said land was sold by the assessee in S. Y. 2024. According to the assessee, the sale resulted in a profit of Rs. 12,365. The assessee had also purchased another piece of land admeasuring 5,610 sq. yds. situate at Sabarmati jointly with one Ratilal Panchand on September 24, 1956 (S. Y. 2012). A portion of the said land admeasuring 2,077 sq. yds. was also sold in S. Y. 2024. According to the assessee the said sale resulted in a profit of Rs. 36,475.
4. The assessee filed a return of income for the assessment year 1969-70 disclosing the above receipts and claiming that the profit earned on the gains. 'The ITO was of the view, however, that the assessee had purchased the lands with a view to re-selling them at a profit and that, therefore, the amounts were eligible to tax as business profits. In accordance with the said finding, the ITO brought to tax the sum of Rs. 12,947 and Rs. 38,397 (after making additions) under the head 'Profits and gains of business or profession.'
5. The assessee carried the matter in appeal to the AAC. The AAC was of the view that the assessee, a money-lending firm, invested its funds, which were its stock-in-trade, in land and that conversion of the stock-in-trade from one form into, another, namely, from money into land, cannot possibly impress the land with the character of a capital asset. The AAC also relied upon the fact that in the course of assessment to income-tax for the assessment year 1964-65, profit derived by the assessee from the sale of a plot of land was taxed as business income at the instance of the assessee itself. The AAC, therefore, upheld the decision of the ITO and dismissed the appeal.
6. The assessee carried the matter in further appeal before the Income-tax Appellate Tribunal. The Tribunal found that the burden was entirely on the revenue to establish that the profit was liable to be brought to tax as business income and that the burden could be discharged only if it was shown that the transaction was an adventure in the nature of trade. In the view of the Tribunal, the assessee was not shown to have converted its capital asset in the shape of land into stock-in-trade and, therefore, the profit realised on the sale of the said capital asset was not capable of being taxed per se as business income. The Tribunal further found that merely because a money-lender acquires immovable property 'in lieu of an advance', the immovable property cannot assume the character of stock-in-trade unless it was treated as such. The Tribunal also emphasised that the fact that the assessee had retained the lands in question over a long period of time without show that the assessee intended to deal in the lands, indicated that the intention of the assessee clearly was to treat the lands as its capital asset. In view of the aforesaid findings, the Tribunal held that the profit realised on the sale of the lands was liable to be taxed as capital gains and not as profits of business.
7. At the instance of the revenue, the Tribunal has referred the following of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the profit in land transaction made by the assessee was assessable as business income of the assessee or as capital gains ?'
8. The finding of the Tribunal that the profit earned by the assessee in the instant case is liable to be taxed as capital gains is a finding on a mixed question of law and fact. We must, therefore, ascertain whether the conclusion was reached by the Tribunal after taking into account all the relevant circumstances and upon a balanced consideration of the entire evidence on record and on application of the correct legal tests.
9. Now, the assessee is a money-lending firm. There is no evidence on record to indicate that on its part there has been a course of dealings in lands. Applying the test of volume, frequency continuity and regularity, it is not possible to hold that the assessee carried on regular business of purchase and sale of land. The Tribunal, therefore, rightly observed to tax as the profits realised in these isolated transactions could be brought to tax as business income only if it was shown that the transactions were an adventure in the nature of trade. The Tribunal also rightly found that the initial onus is on the revenue to establish that fact. No fault in fact can be found, therefore, with the general approach of the Tribunal to the case in hand.
10. It is well settled that a transaction of purchase or sale of land cannot be assumed, without more, to be an adventure in the nature of trade [see Janki Ram Bahadur Ram v. CIT : [1965]57ITR21(SC) ]. Herein the assesee, a money-lending firm, has been shown to have sold two pieces or parcels of land without making any improvement after a long period of time after their purchase. The Tribunal relied upon the said circumstances and held that this conduct showed that the assessee could not have intended, when it purchased the lands, to deal in the lands and that even the subsequent conduct showed that it did not intend to deal in land. This, in our opinion, is a very relevant circumstances of the case. The Tribunal observed that merely because a money-lender acquires an immovable property 'in lieu of an advance' made by it, such immovable property cannot straightway assume the character of his stock-in-trade unless his was shown that it was in fact converted into his stock-in-trade. No exception can possibly be taken even against this approach. It is well settled that mere ownership of an immovable property, even if the purchased from a source which was originally employed in the money-lending business, does not automatically make such property a part of such business. No presumption can be made that the property a part of such business. No presumption can be made that the property was still a part of the money-lending business. Once the property was purchased by a money - lender, it, because of his absolute ownership and any subsequent profit or loss arising on re-sale of such property was profit or loss in capital invested in purchasing the property and not invested in the money-lending business. It is not in dispute that there is no evidence in the instant case to show that the assessee had treated the lands in its books of accounts as stock-in - trade. It is also not in dispute that the profit realised from the sale of the lands was returned by the assessee as capital gain and not as business profit. It has not been found that the assessee was authorised by the partnership deed to purchase or sell the lands in the course of its business. Against this background the Tribunal's finding that the transactions are not an adventure in the nature of trade is fully justified. It is true that in the past, on one occasion, when profit was realised on the sale of another piece or parcel of land, the assessee had treated it as its business income and that it was also assessed as such. This circumstances, though relevant, is not conclusive in the course of the assessment proceedings for the subsequent years and its effect has to be record of the case in the year. In our opinion, the Tribunal has considered all the essential facts and applied the relevant test in proper perspective and arrived at a correct decision on a balanced consideration of all the circumstances.
11. In view of the foregoing discussion, we are of the view of that the profit earned by the assessee in the two transactions in question was assessable as capital gains and not as business profits and that the finding of the Tribunal to that effect is eminently correct. The question referred to us is, therefore, answered accordingly. The Commissioner will pay the costs of the reference to the assessee.