Land sale surplus treated as capital gain where facts showed investment, not trading activity, despite resale and development steps.

Surplus from sale of land was held to be capital gain, not business income, because the transaction was an investment and not an adventure in the nature of trade. The court applied the cumulative-facts test, noting that no single factor is conclusive; a purchase of land normally carries a presumption of investment, and an intention to resell for profit does not by itself create trading activity. The revenue failed to prove that the assessee had entered a trading venture, as the land was not acquired as stock-in-trade, there was no pattern of repeated land dealings, and later parcelling and development permission merely enhanced the investment value.

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Issues: Whether the surplus realised on sale of the land was income from an adventure in the nature of trade chargeable under the head "business", or was capital gain arising from an investment transaction.

Analysis: The decisive test was the total effect of all relevant facts and circumstances, no single factor being conclusive. A purchase of land normally carries a presumption of investment, and an intention to resell at a profit does not by itself convert the transaction into trading. The burden lay on the revenue to establish that the assessee had embarked upon a trading venture. On the facts, the partnership was formed to finance and share the risks of long-pending litigation concerning zamindari rights, not to carry on a business of buying and selling land. The land was not acquired as stock-in-trade, no pattern of repeated land dealings was shown, and subsequent parcelling out and obtaining development permission merely enhanced the value of the investment. The conduct relied upon by the revenue did not displace the presumption of investment.

Conclusion: The surplus realised on sale of the land was capital gain and not income from an adventure in the nature of trade; the answer to the reference was in favour of the assessee.

Ratio Decidendi: In determining whether a transaction in land is an adventure in the nature of trade, the court must assess the cumulative effect of all surrounding circumstances, and a mere intention to resell or subsequent steps to improve realisation do not, without more, convert an investment into trading activity.

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