Profit-making scheme test: capital realisation remained non-taxable where the land transaction was aimed at preserving the family holding.

An isolated acquisition-and-sale transaction is assessable as income only if the facts show a business-like profit-making scheme or an adventure in the nature of trade. On the stated facts, the dominant purpose of acquiring the brother's interest was to preserve the family holding and prevent a stranger becoming co-owner, not to buy for resale at a profit. The transaction was therefore treated as a realisation of capital rather than a profit-making undertaking, and the resulting profit was not taxable as income. Even the ordinary-income argument failed because it added nothing beyond the statutory inquiry into profit-making purpose.

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Issues: (i) Whether the appellant's acquisition of the land, including the brother's interest, was property acquired for the purpose of profit-making by sale within section 26(a); (ii) whether the transaction amounted to a profit-making undertaking or scheme, or an adventure in the nature of trade, so that the profit was assessable income rather than a mere realisation of capital.

Issue (i): Whether the appellant's acquisition of the land, including the brother's interest, was property acquired for the purpose of profit-making by sale within section 26(a).

Analysis: The relevant inquiry was the dominant purpose at the time of acquisition. The appellant had inherited an interest in land and wished to retain it, while the purchase of her brother's share was undertaken to avoid a stranger becoming co-owner and to preserve as much as possible of the original family holding. The acquisition of the brother's interest was therefore treated as a means to retain the land, not as an acquisition made for resale at a profit. The transaction was not characterised as the purchase of property for profit-making by sale.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether the transaction amounted to a profit-making undertaking or scheme, or an adventure in the nature of trade, so that the profit was assessable income rather than a mere realisation of capital.

Analysis: A transaction of acquisition and resale may fall within section 26(a) only if it bears the character of a business deal and is directed to producing assessable income rather than a capital gain. On the facts, the appellant's conduct was held to be no more than an enterprising realisation of capital compelled by circumstances, with the purchase of the brother's interest serving only as a means to retain the more valuable portions of the land. The same facts did not disclose a trade in land or a business-like profit-making scheme. The majority also held that the ordinary-income argument added nothing beyond the statutory question and failed for the same reason. The dissenting opinion treated the arrangement as an elaborate scheme to acquire a more valuable property and to sell part of it for profit.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The profit was held not to be taxable as income, and the appeal succeeded because the transaction was treated as a mere realisation of capital rather than a profit-making scheme or trade.

Ratio Decidendi: In an isolated acquisition-and-sale transaction, profit is assessable only where the facts disclose a business-like profit-making scheme or an adventure in the nature of trade; a genuine realisation of capital, even if carried out enterprisingly, is not taxable income.

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