1959 (5) TMI 10 - SC - Income Tax

Whether the solitary transaction in respect of about three-quarters of an acre of land in the suburbs of Calcutta, was an adventure in the nature of trade and, therefore, liable to income-tax? Held that - In all the circumstances of this case, the total impression created on our mind is that it has not been made out by the Department that the dominant intention of the appellant was to embark on a venture in the nature of trade, when he entered into the agreement which resulted in the profits sought to be taxed. For the aforesaid reasons, we would allow this appeal, and set aside the orders of the Tribunal below with costs. Appeal allowed.

Issues Involved:
1. Whether the solitary transaction of land purchase and sale was an adventure in the nature of trade and thus liable to income-tax.
2. Whether the profit from the transaction should be treated as capital gain or income from an adventure in the nature of trade.
3. Whether the proper procedure was followed in challenging the Income-tax Appellate Tribunal's decision.

Issue-wise Detailed Analysis:

1. Whether the solitary transaction of land purchase and sale was an adventure in the nature of trade and thus liable to income-tax:

The central question in this appeal is whether the solitary transaction involving about three-quarters of an acre of land in the suburbs of Calcutta was an adventure in the nature of trade, making it liable to income-tax. The appellant, engaged in various business activities, had entered into an agreement with the Hindusthan Co-operative Insurance Society Limited to purchase a plot of land. Due to the land being requisitioned by the government, the appellant could not proceed with his initial plans and eventually assigned his rights under the agreement to a third party, resulting in a significant profit.

The Income-tax Officer concluded that this profit was from an adventure in the nature of trade, taxable under section 10 of the Income-tax Act. However, the Appellate Assistant Commissioner disagreed, viewing the transaction as a capital investment leading to capital gain. The Income-tax Appellate Tribunal reversed this decision, emphasizing the appellant's business acumen and financial means, concluding that the transaction was indeed an adventure in the nature of trade.

2. Whether the profit from the transaction should be treated as capital gain or income from an adventure in the nature of trade:

The Tribunal based its conclusion on several grounds, including the appellant's financial status, the nature of the payment for the land, and the lack of income from the site itself. The Tribunal observed that the appellant, being a keen businessman with various business interests, likely engaged in the transaction with the intention of making a profit rather than as a capital investment.

In contrast, the appellant argued that the transaction was a capital investment, intended initially for personal use, and that the profit was a result of appreciation in the value of the property. The appellant contended that the transaction was not in the line of his usual business activities and thus should not be considered an adventure in the nature of trade.

3. Whether the proper procedure was followed in challenging the Income-tax Appellate Tribunal's decision:

The appellant moved the Supreme Court after obtaining special leave to appeal, arguing that the Tribunal's conclusion was not justified based on the facts and circumstances of the case. The Supreme Court noted that the question at hand was a mixed question of law and fact, open to examination by the court. The court emphasized that each case must be determined based on its specific facts and circumstances, and no general principles could universally govern such decisions.

The Supreme Court, considering the total impression created by the facts and circumstances, concluded that the Department had not established that the dominant intention of the appellant was to embark on a venture in the nature of trade. The court allowed the appeal, setting aside the Tribunal's orders, and held that the profit from the transaction should be treated as a capital gain.

Separate Judgment by KAPUR, J.:

Kapur, J. dissented, emphasizing the Tribunal's role as the fact-finding authority and the importance of following the prescribed procedure under the income-tax law. He argued that the case should be remitted to the Tribunal to determine the facts in accordance with the observations made by the court and to decide whether the transaction was an adventure in the nature of trade.

Order of the Court:

In view of the majority opinion, the appeal was allowed with costs, setting aside the Tribunal's orders.

Appeal allowed.

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