Law:

Section:

Section 4 read with section 2(13) of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1960-61 - Assessee-firm had purchased land in 1952 for purpose of constructing houses for its partners - In 1959 realising that locality was unhealthy, firm sold land at certain profit and shortly thereafter purchased other land at native place of partners in order that they should construct their own houses - Whether mere fact that some profit was made in transaction would not, without anything more, indicate that intention of assessee was to trade in landed property, and, therefore, surplus from sale of land was not assessable as profits arising from an adventure in nature of trade - Held, yes FACTS The assessee-firm was doing the business of purchase and sale of jewellery and precious stones. In 1952 the said firm purchased a plot of land which was sold by the firm in 1959 at a price which resulted in certain profit. Shortly thereafter, it purchased a plot of land at Rajkot for an amount a little less than the price at which it had sold the first land. The assessee-firm's case was that its object in purchasing the first land was to construct houses for the partners themselves, but later on it was realized that the locality was unhealthy, and the firm, therefore, sold the said land and purchased the land at Rajkot, which was the native place of the partners, in order that they should construct their own houses there. The ITO rejected that contention of the assessee and held that the purchase and sale of the first land was an adventure in the nature of trade, as he found no evidence of the partner's intention to construct residential houses thereon. He was further of opinion that the investment of funds in buying land at Rajkot indicated that the firm had started dealing in the purchase and sale of land as a business venture. He, therefore, assessed the surplus from the sale of land as revenue profit. The AAC confirmed the assessment. The Tribunal allowed the assessee's appeal on the ground that there was nothing improbable in the version given by it that the land was purchased for constructing residential houses and not for re-sale at a profit. On…

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