1979 (2) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Determination of whether the surplus realized from the sale of plots is income from an adventure in the nature of trade.
2. Consideration of the alternative claim to substitute the market value on the date of conversion of the land into stock-in-trade.
3. Justification of the finding regarding the applicant's intention to sell the plots at a profit.

Issue-wise Detailed Analysis:

1. Determination of whether the surplus realized from the sale of plots is income from an adventure in the nature of trade:
The assessee, an individual, received gifts from her mother and sister in 1948 and began purchasing plots of land. The transactions in question occurred in the assessment year 1961-62. The Income Tax Officer (ITO) found that the assessee engaged in a series of transactions with the intention of making a profit, which led to the conclusion that the surplus realized was a revenue gain rather than a capital gain. The Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (Tribunal) upheld this view, noting the frequency of transactions and the lack of evidence supporting the assessee's claim that the plots were purchased for constructing a residential house. The Tribunal concluded that the nature of the transactions suggested a regular profit-making scheme, thereby treating the surplus as income from an adventure in the nature of trade.

2. Consideration of the alternative claim to substitute the market value on the date of conversion of the land into stock-in-trade:
The assessee argued that if the surplus was considered a profit from an adventure in the nature of trade, the market value of the plots at the beginning of the accounting year should be used for computing the surplus. The Tribunal rejected this alternative claim, stating that the intention to sell the plots at a profit existed throughout the transactions and did not develop suddenly in the year under consideration. Consequently, the Tribunal upheld the ITO's calculations and conclusions.

3. Justification of the finding regarding the applicant's intention to sell the plots at a profit:
The assessee contended that the plots were purchased for constructing a residential house and that the revenue had not provided sufficient evidence to prove otherwise. The Tribunal, however, found that the overall impression from the transactions indicated an intention to make a profit through resale. The Tribunal's conclusion was supported by the history of purchases and sales, the locality of the plots, and the frequency of transactions. The court referred to the Supreme Court's decisions in Janki Ram Bahadur Ram v. CIT and P.M. Mohammed Meerakhan v. CIT, emphasizing that the nature of the transaction must be determined based on all relevant facts and circumstances. The court agreed with the Tribunal's findings and upheld the decision that the surplus was income from an adventure in the nature of trade.

Conclusion:
The court answered all three questions in the affirmative and in favor of the revenue, concluding that the surplus realized by the assessee was rightly treated as income from an adventure in the nature of trade and was liable to income-tax. The alternative claim to substitute the market value was rightly rejected, and the finding regarding the applicant's intention to sell the plots at a profit was justified. The assessee was ordered to pay the costs of the reference to the Commissioner.