1972 (12) TMI 5 - SC - Income Tax

Whether Tribunal having held that the transaction was an adventure in the nature of trade is correct in law in holding that the profits made by the assessee by the sale of a part of the land is not ascertainable on the date of the sale - question of law set out in the application of the department did arise for consideration of the High Court and the High Court should have directed the Tribunal to submit that question for its opinion

Summary

Issues:
1. Interpretation of the method for determining taxable profits in a land sale transaction.
2. Whether the Tribunal erred in not referring a question to the High Court under section 66(1) of the Indian Income-tax Act, 1922.
3. Application of legal principles in determining profits in a land sale venture.

Analysis:

The judgment pertains to an appeal by special leave from a decision of the Bombay High Court under section 66(2) of the Indian Income-tax Act, 1922. The case involves the purchase of three plots of land by the respondents, with subsequent sale of a portion of the land. The Income-tax Officer assessed the profits earned by the assessee based on the difference between the purchase price and the sale price per square yard. The Tribunal disagreed with the method used by the Income-tax Officer, highlighting various factors such as differing quality of land, possession issues, and litigation costs ignored in the assessment. The Tribunal held that profits in such a venture can only be determined when all lands purchased are sold, relying on a previous decision of the Bombay High Court.

The department sought to refer a question to the High Court regarding the ascertainability of profits in the land sale transaction. The Tribunal rejected the application, stating its finding was essentially a finding of fact. Subsequently, the High Court also rejected the application under section 66(2) of the Act. The appellant contended that the Tribunal and the High Court erred in not referring the question for the High Court's opinion. Reference was made to a previous decision by the Supreme Court which emphasized the separate computation and assessment of profits in the relevant assessment year, contrary to the approach taken by the authorities in this case.

The Supreme Court held that the question of law raised in the department's application did indeed merit consideration by the High Court. The Court directed the High Court to call upon the Tribunal to submit the question mentioned in the application or any appropriate question arising from the Tribunal's order for its decision. The Court allowed the appeal, emphasizing the importance of correctly determining the purchase price of lands sold and assessing profits or losses accordingly. No costs were awarded in the appeal.