Capital realisation versus trading stock: isolated property sales were not treated as business income without a commercial dealing scheme.

Surplus from the sale of portions of estate property was not taxable as business income where the disposals were limited, spread over several years, and explained by practical management concerns. The company's plantation activity remained its principal business, and there was no evidence of organised property-dealing activity, repeated purchases for resale, or trading methods of disposal. A memorandum power to deal in property did not by itself convert the sales into a commercial venture. Applying the distinction between mere realisation of capital assets and trading in properties, the transactions were held to be capital realisations, so the surplus was not assessable as income from business or an adventure in the nature of trade.

---

---

Issues: Whether the surplus realised from the sale of estates and properties held by the company in Malaya was assessable as income under the Indian Income-tax Act.

Analysis: The company had acquired large blocks of estate property originally belonging to the family concern and thereafter carried on plantation activity as its principal business. The sales were confined to a comparatively small part of the holdings, were spread over several years, and were explained by practical considerations such as outlying location, non-remunerative character, destruction of houses, and difficulty of management. The memorandum conferred power to deal in property, but that power was not ative of the character of the transactions. There was no evidence of organised commercial dealing in properties, such as repeated purchases for resale, trading methods of disposal, or any substantial indication that the company had embarked on a property-dealing business. Applying the test whether the sales were merely realisation of investments or amounted to a commercial venture, the circumstances negatived any inference of trading in properties.

Conclusion: The surplus was not assessable as income from business or adventure in the nature of trade and the answer was in the negative, in favour of the assessee.

Ratio Decidendi: Mere sale of portions of capital assets, even where the articles authorise dealing in property, does not constitute business income unless the surrounding facts show a real commercial scheme of trading in those properties.

---