Law: Income Tax Act, 1922

Section: 2,2(4)

Indian Income Tax Act, 1922(XI of 1922)--Section 2(4)-Income- Adventure in the nature of trade-Purchase of land to build houses for partners affirm-Sale due to unhealthy conditions-Surplus realised on sale-Reinvested in land in place to which the partners belonged-Surplus realised on sale whether income liable to tax-Held no The assessee-firm, which was doing the business of purchase and sale of jeweler and precious stones, purchased a plot of land at Ghatkopar on November 26, 1952. On February 16, 1959, the land was sold by the assessee-firm which resulted in a profit of Rs. 46,876. Shortly there-after, it purchased a plot of land at Rajkot for an amount a little less than the price at which it had sold the Ghatkopar land. The assessee- firm contended that its object in purchasing the land at Ghatkopar was to construct houses for the partners themselves, but, later on, it was realised that the locality was unhealthy, and, therefore, the assessee-firm sold the Ghatkopar 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 Income Tax Officer rejected the contention of the assessee and held that the purchase and sale of the land at Ghatkopar was an adventure in the nature of trade, as there was no evidence of the partners intention to construct residential houses thereon, that the reinvestment of the funds in land at Rajkot indicated that the firm had started dealing in the purchase and sale of land as a business venture and, therefore, assessed the sum of Rs. 46,876 at a revenue profit. On appeal, the Appellate Assistant Commissioner confirmed the order of the income Tax Officer, on further appeal by the assessee-firm to the Tribunal, the Tribunal held that there was nothing improbable in the version given by the assessee-firm that the land was purchased for constructing residential houses and not for resale at a profit and that, in the absence of any indicia of trade, the profit motive alone would not be sufficient to make the transaction an adventure in the nature of trade. The Tribunal, therefore, held that the surplus realised on the sale of land was not assessable…

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