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 1956-57 - Whether where assessee took a loan to purchase a tea estate but sold same at a profit within one year of purchase, profit arose out of transaction which was adventure in nature of trade and was assessable to tax - Held, yes FACTS In February, 1947, the assessee became divided from the other members of his undivided family, and got assets worth about four lakhs of rupees. He purchased from one 'S', a tea estate in Ceylon. Even on the date of the purchase the estate was under mortgage. Necessarily he took over this liability as part of the consideration payable. The assessee worked the estate upto 27-9-1954, and incurred a loss. The Agra Oya Tea Estate was sold by the assessee on 27-9-1954, and made certain profit. For the assessment year 1956-57, the ITO assessed the aforesaid amount as income or profit arising out of an adventure in the nature of trade. On appeal, the AAC as well as the Tribunal confirmed the view taken by the ITO. On reference : HELD Whether a transaction is an adventure in the nature of trade is not always a simple issue capable of easy determination. If an agriculturist purchases, 1,000 bales of yarn and sells them to an advantage, it is only a trading activity. If, however, he purchases 10 acres of land and profits by the resale he can be said to have acquired only a capital accretion. But these are clear cut cases. The activities of men are so many and so diverse and human motives are so complex and disquished that it is difficult to spell out the real nature of a transaction, whether it is commercial or not. The cases on the subject are quite legion and the pursuit to evolve rules of law from them would turn out to be futile. Certain broad features however stand out quite prominently and they serve as good guides. Every venture with a profit motive, every speculation with a view to earn money, should not be dubbed as being something in the nature of trade. Even a single transaction will partake the nature of a trade if the essence of the thing is commercial. A purchase and…

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