Land sale profits taxed as trading income when company's objects and conduct show a commercial venture, with accrual on accounting recognition.

Land sale profits are treated as revenue receipts where the company's objects, acquisition pattern, scale of dealings, and overall conduct show that land dealing was a trading venture rather than a capital investment. A single or isolated transaction can still amount to an adventure in the nature of trade if the surrounding circumstances point to commercial activity. For tax accrual, profits are brought into the relevant accounting year when the consideration is received or otherwise treated as received and credited in the books, even if a registered conveyance is executed later. The commercial profit is taxable when it has substantially arisen and been recognised in accounts.

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Issues: (i) Whether the profits arising from the sale of lands were capital receipts or revenue receipts as gains from an adventure in the nature of trade; (ii) whether the profits could be treated as accruing in the relevant accounting years although no registered conveyance had then been executed.

Issue (i): Whether the profits arising from the sale of lands were capital receipts or revenue receipts as gains from an adventure in the nature of trade.

Analysis: The character of a land sale depends on the totality of facts and circumstances, including the purpose for which the company was formed, the nature of its objects, the manner in which the lands were acquired and dealt with, and the surrounding conduct. A company's power to deal in land is not decisive by itself, but where dealing in land is one of its primary objects and the transactions are entered into soon after incorporation, on a substantial scale, and as the company's principal activity, the receipts may be commercial profits rather than capital accretions. The absence of repeated transactions does not prevent a single or isolated transaction from being an adventure in the nature of trade if the dominant intention and surrounding circumstances show a trading venture.

Conclusion: The land transactions constituted adventures in the nature of trade and the profits were revenue receipts, against the assessee.

Issue (ii): Whether the profits could be treated as accruing in the relevant accounting years although no registered conveyance had then been executed.

Analysis: For income-tax purposes, accrual depends on when the assessee in substance earned and treated the consideration as received in the course of its mercantile accounting. Where possession was given, consideration was received or treated as received, and the amounts were credited in the books and taken to reserve fund, the profit accrued in the relevant accounting year. The absence of a registered conveyance under the transfer law did not prevent taxation of the commercial profit in the year in which the assessee's right to the price and its accounting treatment showed that the gain had arisen.

Conclusion: The profits were rightly brought to tax in the relevant accounting years, against the assessee.

Final Conclusion: The reference was answered in favour of the revenue on both questions, and the assessee was held liable for the tax on the profits from the land transactions in the years in which they were recognised as accrued.

Ratio Decidendi: Where a company's objects and conduct show that land dealing is a primary trading activity, profits on land sales are assessable as business income, and such profits accrue for tax purposes when the consideration is received or treated as received in the assessee's accounts, notwithstanding the later execution of conveyance.

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