Law: Income Tax Act, 1922

Section: 2(4)

Section 2(13) of the Income-tax, Act 1961 [Corresponding to section 2(4) of the Indian Income-tax Act, 1922] - Adventure in nature of trade - Assessment year 1952-53 - In year 1948 assessee-firm secured from Government a lease of plot of land - Assessee claimed that sale purpose of obtaining lease rights were to build a residential house for partners of firm - However, in year 1951, assessee sold said rights for a profits - Whether in view of fact that even though assessee had sufficient funds yet it did not choose to construct a building instead it sold the lease hold rights and invested funds in view business, in such circumstances, profits arising from sale of lease rights were taxable being adventure in nature of trade - Held, yes FACTS The assessee-firm had secured from the Government a right to obtain a lease of a plot of land. The right was acquired in the name of one of the partners of the assessee firm. In the year 1948 the assessee was put in possession of the plot. In the year 1951, the assessee sold the said right for a profit. The assessee till that date had expended certain amounts in relation to the said plot. The contention of the assessee that the sole purpose of obtaining the lease rights was to build a residential house for the partners, who were then living in rented flats but because of paucity of finance the lease rights was sold since it was considered more advantageous to invest the funds available in the industry instead of constructing the building, was not accepted by the ITO who held that the assessee had obtained the lease rights solely with the intention of transferring them at profit. The lease rights were obtained during the war time and the assessee was sure that the demand for open plots would be fetching in the post-war period higher prices; as such the assessee would be in a position to make a good profit by transferring the said plot when an opportunity came. The facts on which this conclusion was based by the ITO were that even when funds to the extent of Rs. 8 lakhs were available, the assessee did not choose to construct a building instead invested the funds in a new business. The AAC dismissed the assessee's appeal. On…

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