Law:

Section:

Section 5 of the income-tax act, 1961-Income-Accrual of - Assessee firm, dealing in land, agreed to sale of land, which it. had agreed to purchase from original owner, to third party though no sale deed had been executed in assessee's favour by original owner-whether assessee could treat part of profit arising from such transaction as value of its stock-in-trade in assessment year prior to execution of sale deed in favour of third party by original owner-Held, on facts, no-Whether Profits arising from impugned transaction accrued to assessee only in assessment year in which sale deed was executed in favour of third party-held, yes Facts The assessee was a partnership firm dealing in purchase and sale of land and had adopted Samvat Year as its accounting year. It entered into an agreement on 4-7-1968 with one S&Co. for purchase of a certain land at Rs. 2,30,622. Though S&Co. agreed to execute the sale deed in favour, of the assessee by 25-5-1969, but the time for the execution of the sale deed was extended from time to time. The assessee-firm entered into an agreement with MS on 7-11-1969, i.e., two days before the close of Samvat Year 2025 (being its previous year relevant to the assessment year 1970-71) for the sale of the said land. However, the land was sold to MS for Rs. 3,37,888 only on 26-6-1970, i.e., in Samvat Year 2026 relevant to the assessment year 1971-72. The assessee joined in the execution of the sale deed executed by S&Co. as a confirmation party. As a result, the assessee-firm earned a profit of Rs. 1,07,266 even though it never purchased the land from S&Co. The firm treated the right, which it acquired under the agreement for sale with S&Co. dated 4-7-1968, as its stock-in-trade and valued the same at the end of Samvat Year 2025 at Rs. 39,688 and, after deducting expenses returned an income of Rs. 38,539 for the assessment year 1970-71. Later, for the assessment year 1971-72, the assessee disclosed an income of Rs. 67,190 after deducting expenses. Thus, the assessee bifurcated its profits from the sale of the impugned land between two assessment years. The ITO did not accept the bifurcation of profit made by the…

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