Capital realisation from plot sales of a tea estate was not trading profit where no resale scheme existed at acquisition.

Surplus from sale of plots carved out of a tea estate was held not to be business income or an adventure in the nature of trade. Applying the test under section 2(4) of the Indian Income-tax Act, 1922, the decisive factor was the intention at acquisition and the surrounding circumstances of sale. The estate had been bought and used for tea cultivation, with no scheme to acquire land for development and resale at a profit. Later sales arose because holding the property had become uneconomical and liabilities had to be liquidated, while development activity was undertaken by a separate company. The transaction was treated as capital realisation and the surplus was not chargeable to tax.

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Issues: Whether the surplus arising from sale of plots carved out of the tea estate was assessable as business income as an adventure in the nature of trade, or was a capital receipt not liable to tax.

Analysis: The applicable test was whether the transaction, judged on its own facts, had the character of trade or business within the meaning of section 2(4) of the Indian Income-tax Act, 1922. The decisive consideration was the intention with which the estate was acquired and the surrounding circumstances of the later sale. The estate had been purchased and used for tea cultivation, and the finding of fact was that there was no scheme at the time of acquisition to buy land for development and resale at a profit. The decision to sell part of the land arose later, when holding the property became uneconomical and the land was sold to liquidate liabilities. The development and marketing activity was carried on by a separate development company, and the assessee itself merely realised part of its capital asset by sale in plots. The authorities on isolated ventures, planned resale, and conversion into stock-in-trade were considered, but on the facts found, the transaction lacked the essential features of trading activity.

Conclusion: The surplus was not income from an adventure in the nature of trade and was a capital receipt not chargeable to tax.

Ratio Decidendi: Where land is acquired for retention and commercial use, and there is no scheme at acquisition to develop and resell it for profit, a later sale of plots from that asset is a capital realisation and not taxable trading profit merely because the sale is effected in an organised manner.

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