1971 (8) TMI 53 - HC - Income Tax

Profit on sale of plots ITO contend that this profit was business profit earned by adventure in the nature of a trade - assessee contended before the Income-tax Officer that this profit was a capital gain since purchase and sale is not in the line of assessee s business, excess price realised by the assessee by the sale of the two plots could not be regarded as profit accruing from adventure in the nature of trade

Summary

Issues Involved:
1. Whether the excess price realized by the assessee on the sale of the two plots in Defence Colony, New Delhi, was its income from business.

Issue-wise Detailed Analysis:

1. Whether the excess price realized by the assessee on the sale of the two plots in Defence Colony, New Delhi, was its income from business:

The facts leading to the reference are that the assessee, a Hindu undivided family, owned a building in New Delhi and purchased two plots in Defence Colony in 1959 for Rs. 9,465 and Rs. 9,250, respectively. These plots were sold in 1961 for Rs. 27,000 each, resulting in a substantial profit. During the assessment for the year 1962-63, the assessee contended that this profit was a capital gain. However, the Income-tax Officer classified it as business profit from an "adventure in the nature of a trade." This classification was upheld by the Appellate Assistant Commissioner but overturned by the Tribunal, which held that the profits were not income from business but from investment.

The Tribunal found that the assessee-family was making significant progress in business and aimed to acquire status and stability by investing in immovable properties. The Tribunal concluded that the investment in land was not the line of business for the assessee-family, and the necessity to sell the plots arose due to a pressing need to acquire shares worth Rs. 25,00,000 in Bharat Tubes.

The High Court noted that findings of fact by the Tribunal must be relied upon unless there is no evidence to support them. The Court referenced several precedents, including Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax and Janki Ram Bahadur Ram v. Commissioner of Income-tax, to emphasize that the determination of whether a transaction is an adventure in the nature of trade depends on the collective effect of all relevant material.

The Court examined the definition of "business" under Section 2(13) of the Income-tax Act, 1961, which includes any trade, commerce, or manufacture or any adventure in the nature of trade. The revenue's case was that the sale of the two plots was an adventure in the nature of trade. However, the Court found that the Tribunal's findings indicated that the assessee-family's primary business was not in land investment, and the sale of the plots was driven by a need to fulfill a financial commitment, not by an intention to engage in trade.

The Court held that the profit motive alone does not make a transaction an adventure in the nature of trade. It noted that the assessee-family had considerable resources and that the sale of the plots was necessitated by a commitment to acquire shares, not by an intention to trade in land. The Court also dismissed the revenue's argument that the purchase of multiple plots within a short period indicated a trading intention, as the Tribunal found that the family intended to make permanent investments.

The Court distinguished the present case from other cases cited by the revenue, such as Dalmia Cement Ltd. v. Commissioner of Income-tax and A. N. Seth v. Commissioner of Income-tax, where the facts indicated a clear intention to trade. In contrast, the facts in the present case supported the Tribunal's finding that the sales were not adventures in the nature of trade.

Conclusion:
The High Court concluded that the excess price realized by the assessee from the sale of the two plots could not be regarded as profit from an adventure in the nature of trade. The question was answered in the negative, and the parties were left to bear their own costs.