1962 (1) TMI 72 - HC - Income Tax

Land sale deemed trade by High Court, profits assessed yearly, not upon full sale.

Commissioner of Income-Tax Versus Nanduri Suryanarayana & Another

The High Court determined that the sale of land constituted an adventure in the nature of trade. It held that profits from the land transaction should be ... - Issues:1. Whether the transaction of purchase and sale of land was an adventure in the nature of tradeRs.2. Whether the profit on account of sales in the year of account alone would be assessable this yearRs.Detailed Analysis:Issue 1: The High Court reviewed the decision of the Appellate Tribunal and found that it did not rule on whether the sale of land constituted an adventure in the nature of trade. As a result, the first question was deemed irrelevant based on the facts of the case.Issue 2: The main consideration was whether all profits from the land transaction should be assessed in the year when the sales were completed or only the profits realized during that specific year. The Court examined the definition of business under Section 2(4) of the Income-tax Act, which includes any adventure in the nature of trade. Referring to a Supreme Court case, it was established that buying land for later sale after development constitutes a business venture. The Court emphasized that when land is divided into plots, developed, and sold in parcels, it is treated as stock-in-trade, and the individual is conducting a business.The Court also analyzed Sections 3 and 4 of the Act, which govern the assessment of total income and profits from various sources. It was argued that the profits should only be assessed for the year when the venture concluded. The Court distinguished previous judgments cited by the Income-tax department, stating that profits can be assessed before the venture ends if the capital value has been realized. The Court referred to a specific case where profits were ascertainable before the conclusion of the venture, unlike the present case where profits were realized during the sale of plots over various years.Moreover, the Court discussed another case where it was held that assessment could only occur after the entire land was sold, but the Court disagreed with this view. Quoting legal commentators, the Court noted that profits may be assessed even before the venture concludes if the entire cost is recouped earlier. The Court also referenced a decision from the Allahabad High Court supporting this interpretation. Ultimately, the Court ruled against the Income-tax department, allowing the assessee's claim and awarding costs and advocate's fees accordingly.