Advance receipts on agreement to sell land are not taxable income until the sale is legally completed.

Advance receipts from an agreement to sell land do not become taxable income in the year of receipt where title has not yet passed and the sale is completed only later. For a dealer in land, the land remains stock-in-trade until the transaction is legally completed, and a mere agreement to sell does not divest ownership or create income by itself. Even if the seller receives earnest money or part payment, the amount is not a trading receipt until completion of the sale. The accounting method does not alter this result because cash or mercantile accounting applies only to completed transactions.

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Issues: Whether the amounts received by a land dealer as earnest money and part payment under an agreement to sell, before execution of the sale deeds, constituted income taxable in the relevant assessment year.

Analysis: Income-tax is levied on real profits of the previous year, and in the case of a dealer in land the land remains stock-in-trade until the sale transaction is completed by transfer of title. A mere agreement to sell does not create title in the purchaser or divest the seller of ownership. Receipt of advance money, even when coupled with parting with possession, does not by itself convert the amount into income or trading receipt if the sale is not completed in law. The method of accounting does not alter this principle, because cash or mercantile accounting can operate only in relation to completed transactions.

Conclusion: The amounts received as earnest money and part payment did not constitute taxable income in the relevant assessment year, because the sale was completed only in the succeeding year.

Ratio Decidendi: In the case of a dealer in land, advance receipts under an agreement to sell become income only when the sale is completed by transfer of title, and not merely upon execution of the agreement or receipt of money in advance.

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