Realisation principle in land-trade ventures: profits are assessable when capital is recouped and profit is ascertainable, not deferred.

Profits realised during an ongoing land-development venture are assessable in the previous year when they are actually realised if the capital invested has been recouped and the profit is capable of precise ascertainment; this departs from the normal rule that a single venture's profits are ascertained only on completion where factual findings show earlier accrual. Business may include an adventure in the nature of trade and such activities can be treated as stock-in-trade; outcome: assessed in the year of realisation, decision favours the assessee.

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Issues: (i) Whether, if a single venture in the nature of trade in land results in profits realised in earlier years before the venture is fully completed, those profits are assessable in the year in which they were realised or only in the year when the entire venture is completed.

Analysis: Section 2(4) defines business to include an adventure in the nature of trade; where land bought for resale is divided, developed and sold in plots the activity may be business and treated as stock-in-trade. The assessment provisions (Sections 3 and 4) operate in respect of total income of the previous year. Authorities recognizing the normal rule that profits of a single venture are ascertainable when the venture ends do not preclude cases where the capital invested is recouped earlier and profits for particular previous years are capable of precise ascertainment. Where, on the facts, the entire cost has been realised and a definite profit has accrued in an earlier previous year, that profit is capable of being assessed in that year without waiting for the formal completion of the overall venture.

Conclusion: The profits that were realised during the previous year are assessable in that year; the claim that all profits must await the completion of the entire venture is rejected and the question is answered against the Revenue and in favour of the assessee.

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