1996 (3) TMI 47 - HC - Income Tax

Adventure In The Nature Of Trade Agricultural Land Business Income Income From Business Question Of Law

Summary

Issues:
1. Whether the surplus on the sale of agricultural land by the assessee was chargeable to tax as business income?
2. Whether the surplus on the sale of land arose from an adventure in the nature of trade?
3. Whether the repeated sales and purchases of land by the assessee constituted an adventure in trade?

Analysis:
The case involved an application under section 256(2) of the Income-tax Act, 1961, where the Department sought a direction to the Income-tax Appellate Tribunal to refer certain questions of law to the High Court. The dispute arose from the sale of agricultural land by the assessee, with the Department contending that the surplus from the sale should be taxed as business income. The Income-tax Officer noted the history of the assessee's transactions involving the purchase and sale of lands over the years, leading to the conclusion that the transactions were in the nature of a business venture. Consequently, the income was treated as business income and assessed. This decision was upheld by the Deputy Commissioner of Income-tax (Appeals).

Upon appeal to the Tribunal, it was observed that the assessee was not engaged in the business of lands based on the material on record. The Tribunal allowed the appeal, negating the findings of the lower authorities, but suggested that the Department could assess the assessee for capital gains instead. The Department, dissatisfied with this decision, filed a reference application under section 256(1) to refer the questions of law to the High Court. However, the Tribunal rejected this application, leading to the current application under section 256(2).

In its order, the Tribunal emphasized that the assessee had purchased and sold agricultural lands without engaging in activities like land conversion or plot division. The lands were used for agriculture, as confirmed by the patwari's certificate. The Tribunal concluded that the assessee did not establish a business in land, and the material provided by the Department did not support the claim of the assessee being in the business of lands. The Tribunal's finding that the assessee did not engage in systematic business activity in land was deemed a factual finding, not giving rise to any question of law.

Ultimately, the High Court rejected the Department's application, stating that the Tribunal's findings were based on an appreciation of facts and did not raise any legal questions. The application was dismissed without costs, with counsel fees allowed for both sides.