Law: Income Tax Act, 1922

Section: 2,2(4),66

Indian Income Tax Act, 1922 (XI of 1922)-Sections 2(4), 66-Income-Adventure in the nature of trade--Investment in land whether adventure in the nature of trade- Whether a mired question of law and fact-Held yes --Burden of proof that profit earned in such transaction is revenue receipt- Whether on the Department-Held yes-Suit for specific performance or agreement for purchase of land-Partnership for financing the litigation-Land plotted out and sold-Profits, whether in the nature of trade-Held no- Whether Capital gains- Held yes. It is now settled that the question whether profit earned in a transaction has arisen out of adventure in the nature of trade is a mixed question of law and fact. The burden lies on the revenue to establish that the profit earned in a transaction was revenue realisation and not capital gain. G. VENKATASWAMI NAIDU & Co. v. CIT [1959] 35 ITR 594 (SC), D. S. VIRANI v. CIT [1973] 90 ITR 255 (Guj) and Saito: KUMAR MAZUMDAR v. CIT [1959] 37 ITR 242 (SC) relied on. One D, a Zamindar, entered into an agreement with one S for the purchase of a zamindari property and had to file a suit for specific performance of the agreement. The suit was dismissed in the trial court and D preferred an appeal to the High Court. During the pendency of the appeal, D, in order to lessen his burden of expenses, entered into a partnership agreement with four others in 1944. The partnership deed provided that the same was entered into "to share profits and losses arising out of the said land in litigation". It further defined the respective shares and interests "in the fortunes of litigation and the profits and losses arising therefrom" of the various partners in the said partnership. The appeal to the High Court was decided in favour of D in 1949. As tenants were in possession of the land, D could get possession of land only between 1950 and 1956. The assessee firm obtained permission from the Town Planner. U.P., and parcelled out the land and sold several plots year after year. After meeting the expenses, the surplus realisations from the sales were Rs. 19,896. Rs. 28,692 and Rs. 64,184 in the years ending on March 31 of 1961 1962 and 1963, respectively,…

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