1983 (12) TMI 3 - HC - Income Tax

Court rules excess amount received by petitioner not business income or adventure in trade. Decision favors assessee. No costs.

The High Court held that the excess amount of Rs. 2,08,739 received by the petitioner was not income from business and the transaction was not an ... Business Issues Involved:1. Whether the excess amount of Rs. 2,08,739 realized by the assessee is income from business.2. Whether the transaction in question constitutes an adventure in the nature of trade.Detailed Analysis:Issue 1: Whether the excess amount of Rs. 2,08,739 realized by the assessee is income from business.The petitioner purchased land that was already notified for acquisition by the government. The Land Acquisition Officer initially awarded compensation, which was later enhanced by the District Judge. The Income Tax Officer (ITO) treated the increased compensation as business income. The petitioner contended that the land was agricultural and the realized amount was a capital accretion, not taxable as business income. The Assistant Appellate Commissioner (AAC) upheld the ITO's decision, asserting that the purchase was an adventure in the nature of trade. The Appellate Tribunal also supported this view, leading to the petitioner filing an application under section 256(1) of the Income Tax Act to refer the matter to the High Court.The High Court analyzed whether the transaction could be considered an adventure in the nature of trade. The court emphasized that the petitioner purchased the land with the knowledge of the notification and did not intend to hold or enjoy the land but to receive compensation. The court concluded that the transaction was not made with the sole intention of making a profit and that the compensation was a result of legal proceedings, not a business venture. The court ruled that the excess amount of Rs. 2,08,739 was not income from business.Issue 2: Whether the transaction in question constitutes an adventure in the nature of trade.The court examined the definition of 'adventure in the nature of trade' under section 2(13) of the Income Tax Act and relevant case law. It was noted that the expression implies the presence of certain elements that would characterize the transaction as trade or business. The court referred to several precedents, including Venkataswami Naidu & Company v. CIT and Janki Ram Bahadur Ram v. CIT, which established that a single or isolated transaction with the intention to resell at a profit could be considered an adventure in the nature of trade.However, the court found that the petitioner's transaction did not meet these criteria. The petitioner purchased the land knowing it was subject to government acquisition and sought compensation, not profit from resale. The court emphasized that the intention to receive compensation, which was determined by legal proceedings, did not equate to a business venture. The court also noted that the burden of proof was on the department to show that the transaction was an adventure in the nature of trade, which it failed to do.The court distinguished the petitioner's case from other cases cited by the department, where transactions were clearly intended to make a profit. The court concluded that the petitioner's transaction was not an adventure in the nature of trade and, therefore, the excess amount received could not be taxed as business income.Conclusion:The High Court ruled that the excess amount of Rs. 2,08,739 received by the petitioner was not income from business and the transaction was not an adventure in the nature of trade. The decision was in favor of the assessee and against the Revenue. No costs were awarded.