1959 (6) TMI 21 - HC - Income Tax

Summary

Issues:
1. Tax liability on profit from a trading venture accrued over multiple years.

Analysis:
The case involved the assessment of tax liability on the profit made by the assessee in a trading venture spanning several years. The assessee had purchased leasehold rights in land, subsequently selling them to a housing society for a profit exceeding &8377; 96,000. The key question was whether this profit should be taxed in the assessment year 1951-52 or apportioned between the years 1946-47 and 1951-52.

The Tribunal found that the venture constituted a trading activity, leading to the profit being taxable. The assessee's argument was centered around apportioning the tax liability between the years based on when payments were received. The Tribunal's view was that the amount received in 1946 was earnest money, not part payment of the price, and thus taxable in 1951-52. The agreement clearly designated the amount as earnest money, and the possibility of forfeiture indicated its nature.

The assessee relied on a Supreme Court judgment regarding the timing of income receipt. However, the Court distinguished the present case from the precedent, emphasizing that no part of the profit was received in 1946. The principle of immediate tax liability upon receiving sale proceeds did not apply to funds held for contract performance and later appropriated towards the price.

Ultimately, the Court held that the entire profit of &8377; 96,000 was taxable in the assessment year 1951-52, rejecting the apportionment argument. The assessee was directed to pay the costs of the Commissioner of Income-tax, concluding the matter decisively in favor of the tax authority.

In conclusion, the judgment clarified the tax treatment of profits from trading ventures accrued over multiple years, emphasizing the timing of income receipt and the nature of payments received during the transaction. The decision provided a clear precedent for determining tax liability in similar cases involving profits spread across different assessment years.