1980 (2) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Nature and character of the gain arising from the sale of the property.
2. Determination of whether the gain is a long-term or short-term capital gain.
3. Consideration of whether the transaction was an adventure in the nature of trade.

Issue-wise Detailed Analysis:

1. Nature and Character of the Gain:
The primary issue in these appeals is whether the gain arising from the sale of a property by two co-owners should be treated as a profit from an adventure in the nature of trade or as a capital gain from the sale of a capital asset held as an investment. The property in question was acquired through an auction conducted by the Estate Officer, Chandigarh, under the Capital of Punjab (Development and Regulation) Act, 1952. The assessees paid 1/4th of the purchase price at the auction and completed the remaining payments by 1st August 1970. The property was subsequently sold on 2nd March 1972. The assessees argued that they became owners of the property at the fall of the hammer and that the sale should be considered as a capital gain. The Revenue contended that the gain was a business profit or, alternatively, a short-term capital gain since the assessees became owners only upon the registration of the conveyance deed on 2nd March 1972.

2. Determination of Long-term or Short-term Capital Gain:
The assessees argued that they became owners of the property from the date of the auction, 23rd July 1967, and that the sale on 2nd March 1972 should be considered a long-term capital gain. They relied on the provisions of the Capital of Punjab (Development and Regulation) Act, 1952, and the Supreme Court judgment in the case of Jagdish Chand Radhey Shyam, which held that the highest bidder became the owner at the fall of the hammer. The Revenue countered that the gain should be considered a short-term capital gain as the assessees did not "hold" the capital asset until the registration of the conveyance deed on 2nd March 1972. The Tribunal concluded that the assessees became owners from the date of the auction and that the gain should be considered a long-term capital gain.

3. Adventure in the Nature of Trade:
The Revenue argued that the transaction was an adventure in the nature of trade, implying that the gain should be treated as business income. The assessees contended that the property was purchased as an investment and that the intention to sell arose only due to personal circumstances. The Tribunal noted that the burden of proving that the transaction was an adventure in the nature of trade lies on the Revenue. The Tribunal found that the assessees had started construction on the plot and held it as an investment. The Tribunal concluded that the Revenue failed to discharge its burden of proving that the transaction was an adventure in the nature of trade.

Conclusion:
The Tribunal held that the assessees became the owners of the property from the date of the auction, 23rd July 1967, and that the gain arising from the sale on 2nd March 1972 should be considered a long-term capital gain. The Tribunal also concluded that the transaction was not an adventure in the nature of trade. Therefore, the appeals were allowed in favor of the assessees.