Capital gains on sale of agricultural land upheld where the asset was held as a fixed asset, not trading stock.

Land consistently reflected as a fixed asset, supported by accepted agricultural income, agricultural use entries, and a sale deed describing it as agricultural land was treated as a capital asset rather than stock-in-trade. The absence of frequent land transactions and the local restriction on non-agricultural use within Delhi showed no systematic trading adventure, and the company's ancillary farming objects did not convert the holding into business inventory. The surplus on sale was therefore assessable as long-term capital gain, and the addition treating it as business income could not be sustained.

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Issues: Whether the surplus arising on sale of the land was taxable as business income or assessable as long-term capital gain.

Analysis: The land had been reflected as a fixed asset for years, agricultural income from it had been accepted by the Department, and there was no evidence of frequent purchase and sale of land. The land was shown in the khasra girdawari as being used for purposes, the sale deed described it as agricultural land, and the local land-reform rules prohibited non-agricultural use within Delhi. The company's memorandum also included farming, agriculture and horticulture as ancillary objects, so the main object clause alone was not of a trading adventure.

Conclusion: The surplus was correctly treated as long-term capital gain and not business income.

Final Conclusion: The Revenue failed to show that the land formed stock-in-trade or that the sale was part of a systematic business of dealing in land, so the addition made by the Assessing Officer could not be sustained.

Ratio Decidendi: Where land is consistently held and reflected as a capital asset, used for agriculture, and there is no pattern of organised trading in land, the profit on its sale is assessable as capital gain rather than business income.

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