Law: Income Tax Act, 1961

Section: 28

Income-tax----Business---Adventure in the nature of trade---General principles--­Purchase of land in Puna by firm which carried on business in cloth in Madras and sale of land after a year---Not an adventure in nature of trade---Profits not assessable as business income--Indian Income Tax Act, 1961, S. 28. There is no presumption in law that all agreements to purchase or actual purchase of immovable property and any subsequent sales of immovable property are to be regarded as adventures of the nature of trade. The intention of the assessee considered along with all other relevant circumstances will have to provide the answer to the question as to whether the transaction is one of investment or adventure in the nature of trade. The assessee-firm carried on business as cloth merchants in the city of Madras. One of the partners, on behalf of the firm entered into an agreement for purchase of land in the city of Poona. That agreement was entered into on July 25, 1964. Under the terms of that agreement, the vendee could obtain a sale-deed in his own name or in the names of his nominees. The conveyance in favour of a nominee, if any, was to be executed by the vendors as also by the partner who had entered into the agreement to purchase. Several months after the date of that agreement the owners of the land together with the assessee's partner, V, who had entered into the agreement on behalf of the firm, together executed a deed of conveyance, dated May 25, 1965. Under that deed of conveyance, V on behalf of the firm was to receive Rs. 41,115.62 out of the total consideration. The Assessing Officer treated the amount of Rs. 41,115,62 as business income by treating this transaction as adventure in the nature of trade. That view was reversed by the Commissioner of Income-tax (Appeals). The view of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal. On a reference: Held, that the agreement entered into by the managing partner of the firm for the purchase of a plot of land was in respect of a plot of land situated in the city of Poona, far away from the city of Madras. There is nothing on record to show that even prior to entering into such an agreement,…

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