1968 (10) TMI 37 - HC - Income Tax

Land purchased was developed in plots and then sold - profit arising from the sale of lands liable to income-tax on the ground that the transactions in the lands were in the nature of business transactions

Summary

Issues Involved:
1. Liability of profit from the sale of lands to income-tax as business transactions.
2. Validity of the Tribunal's order due to the lack of referral of differing opinions to a third Member.

Detailed Analysis:

Issue 1: Liability of Profit from Sale of Lands to Income-Tax
The primary question was whether the profits from the sale of lands were liable to income-tax on the grounds that the transactions were in the nature of business transactions. The Appellate Assistant Commissioner initially concluded that the purchase of the land was made as a capital asset, and the subsequent sale was merely a capital gain, not liable to income-tax. This conclusion was based on the assessee's intention at the time of purchase, which was deemed not to be for resale but for holding as a capital asset.

However, the Tribunal found this view incorrect. It emphasized that the entire conduct of the assessee from the moment of acquisition to the moment of sale must be considered. Citing Supreme Court decisions, it was noted that no single fact is decisive, and the character of the transaction must be judged on the totality of circumstances. The Tribunal observed that the assessee's actions, including obtaining land on lease, forming a limited company, and transferring assets, indicated a scheme and design to sell the land for profit, thus treating the land as a dealer or trader. Consequently, the profits were deemed an adventure in the nature of trade, making them liable to income-tax.

Issue 2: Validity of Tribunal's Order
The second issue was whether the Tribunal's order was vitiated because the Members did not refer their difference of opinion to a third Member. According to Section 5A(7) of the Income-tax Act, 1922, if Members of a Bench are equally divided on any point, the point must be referred to another Member. However, this provision applies only when there is a difference in the conclusion on a point, not merely in the reasoning.

In this case, although the Judicial Member and the Accountant Member differed in their reasoning regarding the assessee's intention at the time of purchase, they agreed on the final conclusion that the profits from the sale should be subjected to income-tax. Since the Members agreed on the conclusion, the provision for referral to a third Member did not apply. The Tribunal's final order was thus not vitiated by the omission to refer the difference of opinion on the initial intention to a third Member.

Conclusion
1. The profits arising from the sale of lands were liable to income-tax as they were considered transactions in the nature of trade.
2. The Tribunal's order was not vitiated by the lack of referral to a third Member, as the Members agreed on the final conclusion despite differing in their reasoning.

Costs
No order as to costs was made in this reference.