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Issues Involved:
1. Whether the surplus realization on the transfer of the property in Ultadanga Road, Calcutta, was taxable under section 10 as an adventure in the nature of trade for the assessment year 1960-61. Detailed Analysis: Background and Facts: Messrs. National Properties Ltd., the assessee, is a limited company incorporated in 1937. The assessment year involved is 1960-61. The assessee purchased a 5/9ths share of an undivided garden house on Ultadanga Main Road, Calcutta, in 1946. The property was later partitioned, and the assessee obtained about 17 bighas of land. The cost of the property was Rs. 1,10,805. On 27th August 1958, the land was acquired by the Calcutta Improvement Trust, and the assessee received Rs. 7,00,822 as compensation. Assessee's Contention: The assessee claimed that the value of the property on 1st April 1954 was Rs. 7,63,780 based on an engineer's report, leading to a capital loss of Rs. 64,158. They argued that the difference in value between the purchase cost and compensation did not arise from an adventure in the nature of trade. Income-tax Officer's Findings: The Income-tax Officer found that: - The property was purchased with borrowed capital. - The property was not income-yielding. - The purchase, development, and sale of immovable properties were within the assessee's usual business objects. - The acquisition by the Calcutta Improvement Trust was foreseeable at the time of purchase in 1946. The Income-tax Officer concluded that the surplus was taxable as profit under section 10 of the Indian Income-tax Act, 1922. Appellate Assistant Commissioner's Decision: The Appellate Assistant Commissioner, following a Tribunal's decision for the assessment year 1958-59, held that the surplus could not be assessed under section 10 but was liable to capital gains tax. Tribunal's Findings: The Tribunal found: - The assessee had never sold any property since incorporation. - Only two properties had been acquired. - The property was purchased on a loan, repaid by increasing share capital, which did not convert an investment into a business adventure. - The Calcutta Improvement Trust's scheme was sanctioned years after the purchase, and acquisition notice was published eight years later. The Tribunal concluded that the property was held as an investment, not as an adventure in the nature of trade. Question Referred: "Whether, on the facts and in the circumstances of the case, the surplus realization on the transfer of the property in Ultadanga Road, Calcutta, was taxable under section 10 as an adventure in the nature of trade for the assessment year 1960-61?" Revenue's Argument: The revenue argued that: - The purchase and sale of property were within the lawful objects of the assessee. - The property was purchased with borrowed capital and was not income-yielding. - The assessee knew at the time of purchase that the property would eventually be acquired by the Calcutta Improvement Trust. Court's Analysis: The court considered several decisions, including: - Commissioners of Inland Revenue v. Scottish Automobile and General Insurance Company Ltd.: Held that profit was not from trading. - British South Africa Co. v. Commissioner of Income-tax: Held that amounts received were not capital receipts but income from business. - G. Venkataswami Naidu & Co. v. Commissioner of Income-tax: Emphasized that the character of the transaction depends on all relevant facts and circumstances. - S. K. AR. K. AR. Somasundaram Chettiar v. Commissioner of Income-tax: Held that intention to resell at a profit was relevant in determining a trading adventure. - Mayfair Estates Private Ltd. v. Commissioner of Income-tax: Held that sale of property was an ordinary trading activity. The court noted that the Tribunal had sufficient material to conclude that the assessee had no intention to undertake a trading adventure. The property was held as an investment, and the acquisition by a public authority was a passive submission, not active participation in a trading adventure. Conclusion: The court answered the question in the negative and against the revenue, concluding that the transaction was not an adventure in the nature of trade. There was no order as to costs.
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