Law:

Section:

Section 2(13) read with sections 28(i) and 45 of the Income-tax Act, 1961 [Corresponding to section 2(4), read with sections 10(i) and 12B of the Indian Income-tax Act, 1922] - Adventure in nature of trade - Assessment years 1960-61 to 1963-64 - One 'D' entered into agreement to purchase certain land and filed suit for specific performance of agreement - In order to lessen burden of litigation expenses, 'D' entered into partnership with others - Suit was allowed in favour of 'D' and thereafter firm after obtaining permission from town planner, parceled out lands and sold several plots year after year - There was no other or similar transaction in land by firm - Whether mere entering into partnership for purpose of financing litigation did not justify in law in recording finding that partnership entered into was an adventure in nature of trade, specially when financing of litigation could not by itself be regarded as business - Held, yes - Whether, further, highly speculative character of agreement was also indicative of nature of transaction being investment and not an embarkment upon trade - Held, yes - Whether, therefore, surpluses realised by firm on sale of land were capital gains and not income or profits from an adventure in nature of trade and were, thus, not chargeable to tax under head "business" - Held, yes FACTS One 'D' entered into an agreement to purchase certain land. As the vendor subsequently refused to execute a sale deed in pursuance of the said agreement, 'D' filed a suit for specific performance of the agreement to enforce the same. The suit was, however, dismissed by the civil judge. 'D' preferred an appeal against this decree. During the pendency of this appeal 'D', in order to lessen his burden of litigation expenses entered into partnership with others and formed the assessee-firm to share profits and losses arising out of the said land in litigation. The suit was decided in favour of 'D' in 1949 but actual possession was given to 'D' in 1956. In 1956 the assessee-firm obtained permission from the Town Planner, and parceled out the lands and sold several plots year after year. The ITO held that the activity of sale of land transacted by…

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