2002 (7) TMI 61 - HC - Income Tax

Adventure In The Nature Of Trade, Appeal To High Court - construction of shops and the flats - From the portion of the order of the Tribunal it is evident that while coming to the aforenoted conclusion, the Tribunal has approached the question in the right perspective and has taken into consideration all the relevant circumstances. Having applied the correct principles, the finding that the transaction in question was not an adventure in the nature of trade is purely one of fact. We do not find any perversity in the order warranting interference by this court. No question of law, much less a substantial question of law, arises from the order of the Tribunal.

Summary

Issues:
1. Determination of capital gains tax on sale of property converted into stock-in-trade.
2. Distinction between capital sale and adventure in the nature of trade.
3. Application of correct principles in assessing nature of transaction.

Analysis:
1. The case involved the assessment of capital gains tax on the sale of shops and flats by the assessee, who initially intended to use the property for constructing a nursing home but later sold a major part of it. The Assessing Officer treated the sale proceeds as taxable under section 45(2) of the Income-tax Act, converting the property into stock-in-trade. The Commissioner of Income-tax (Appeals) disagreed with this approach, considering the construction of shops as an adventure in the nature of trade and taxed the income as profits and gains of business.

2. The Tribunal overturned the Commissioner's decision, emphasizing the substantial gap between the purchase, construction, and sale of the property, concluding that the surplus from the sale should be treated as capital gains, not arising from an adventure in the nature of trade. The Revenue contended that the assessee's intention was commercial from the start, given the construction of multiple shops and flats, indicating a profit motive. However, the court referenced past judgments to highlight that the distinction between capital sale and trade adventure depends on the specific facts and circumstances of each case.

3. The High Court upheld the Tribunal's decision, noting that the determination of whether a transaction constitutes an adventure in the nature of trade is a factual inquiry. The court emphasized that no abstract rule can be applied, and each case must be evaluated based on its unique circumstances. The Tribunal's assessment was deemed correct as it considered all relevant factors in reaching its conclusion, and no legal question, let alone a substantial one, was found to warrant interference. Consequently, the appeal by the Revenue was dismissed.