1973 (5) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Whether the surplus of Rs. 16,097 was assessable as business income or capital gains.

Detailed Analysis:

Issue 1: Whether the surplus of Rs. 16,097 was assessable as business income or capital gains.

Facts and Background:
The assessee owns multiple properties and runs hotels. He engaged in several transactions involving the purchase and sale of house properties over the years. Specifically, in the previous year ending March 31, 1960, relevant to the assessment year 1960-61, the assessee sold two properties and realized a surplus of Rs. 16,097. The Income-tax Officer assessed this surplus as business income, rejecting the assessee's claim that it represented capital gains.

Assessee's Contentions:
The assessee argued that:
- The property at Swarnapuri was constructed in 1952 and sold after seven years, indicating no initial intention to sell for profit.
- The Chinnakadai property was acquired to run a hotel, and the subsequent sale was due to the uneconomical nature of the hotel business.
- The properties were investments, not commercial assets.

Revenue's Contentions:
The revenue contended:
- The assessee had been involved in the purchase and sale of properties since 1952.
- The intention to sell for profit was not the sole determining factor.
- The series of transactions indicated a continuous activity of trading in properties.

Tribunal's Findings:
The Tribunal held:
- The series of purchases and sales indicated a continuous activity in the purchase and sale of house properties.
- The assessee's business profits were estimated, and the cost of properties likely came from suppressed business income.
- The transactions bore the badge of trade, and the intention to make a profit arose from an adventure in the nature of trade.
- Therefore, the surplus was assessed as business income.

Court's Analysis:
The court examined whether the transactions were part of an investment strategy or a business activity. It was noted:
- If properties sold are capital assets, the profit is capital accretion.
- If properties are sold in the course of business, the profit is revenue income.
- The court referenced several cases to distinguish between capital accretion and business income, including Californian Copper Syndicate v. Harris, Cooksey and Bibbey v. Rednall, and Commissioner of Income-tax v. Kasturi Estates (P.) Ltd.

Key Considerations:
The court identified factors to determine the nature of the transactions:
1. Subject-matter of the realisation.
2. Length of the period of ownership.
3. Frequency or number of similar transactions.
4. Supplementary work on the property.
5. Circumstances responsible for the realisation.
6. Motive.

Conclusion:
Based on the consistent and repeated activity of purchasing and selling properties, the court concluded that:
- The assessee engaged in an adventure in the nature of trade in real estate, apart from his hotel business.
- The transactions were not isolated investments but part of a business activity aimed at earning profit.

Judgment:
The court upheld the assessment of the surplus profits as business income, answering the question in the affirmative and in favor of the revenue. The assessee was ordered to pay the costs of the revenue, with counsel's fee set at Rs. 250.